Statutory Disclosure in M&A

Information Disclosure System in M&A

In M&A, there are statutory, timely, and voluntary disclosures that are made by the company issuing the shares. In addition, information disclosure may be required by the Financial Instruments and Exchange Law for those who acquire shares of a listed company.

Statutory Disclosure

Mergers and acquisitions are conducted for the purpose of acquiring other companies or combining businesses, and have an extremely large impact on a company’s finances and operations. Therefore, the Companies Act and the Financial Instruments and Exchange Act require disclosure of M&A-related information as early as possible to ensure that investors are provided with sufficient information to make investment decisions. When disclosure is required by laws such as the Companies Act and the Financial Instruments and Exchange Act, it is called statutory disclosure. Disclosure under the Companies Act applies to both listed and unlisted companies, but disclosure under the Companies Act may be omitted if a listed company has already disclosed information under the Financial Instruments and Exchange Act. Conversely, disclosure under the Financial Instruments and Exchange Act applies, in principle, to listed companies, but the rules governing the offering and sale of securities (issuance regulations) apply to both listed and non-listed companies.

Timely Disclosure

When an event occurs that has a material impact on a company’s operations or finances, such as when an M&A takes place, information must be disclosed promptly to enable investors to make timely and accurate investment decisions. The Financial Instruments and Exchange Law requires listed companies to disclose information, such as by submitting extraordinary reports. However, disclosure under the Financial Instruments and Exchange Law is not always sufficient from the perspective of timely disclosure. Therefore, financial instruments exchanges require listed companies listed on their own exchanges to disclose information in a timely manner in accordance with their own rules. Disclosure of information in accordance with the rules of a financial instruments exchange is referred to as timely disclosure.

Voluntary Disclosure

Although not regulated by law or by the rules of a financial instruments exchange, there are certain matters that are considered appropriate for disclosure in order for investors to make investment decisions. Disclosure made in such cases is referred to as voluntary disclosure because it is made on a voluntary basis. Voluntary disclosure is made through the TSE’s Timely Disclosure Network (TDnet), press conferences, information provided to the media, and posting on a company’s website.

Information Disclosure by Investors (Shareholders)

The Financial Instruments and Exchange Law not only requires disclosure by the issuing company, but also by investors who acquire shares of the issuing company. These include Large Shareholding Reports (when acquiring 5% or more of the shares), Tender Offer Notifications (when acquiring one-third or more of the shares, etc.), and Parent Company Status Reports (when acquiring a majority of the shares), etc.

Statutory Disclosure under the Financial Instruments and Exchange Law (Filing of Securities Registration Statement)

When offering or selling securities, the issuer is required, in principle, to submit a securities registration statement to the Prime Minister (Director-General of the Financial Bureau) with respect to such offering or sale (Article 4, Paragraphs 1 and 5 of the Financial Instruments and Exchange Law). When offering or selling securities, unlisted companies as well as listed companies are obliged to file a securities registration statement. The securities registration statement is filed through EDINET, which is administered by the Financial Services Agency, and the submitted securities registration statement will be made public through EDINET.

The term “offering of securities” refers to the solicitation of subscriptions for the acquisition of newly issued securities from a large number of persons (50 or more persons) (Article 2, Paragraph 3 of the Financial Instruments and Exchange Law), and “secondary offering of securities” refers to the solicitation of subscriptions for the sale or purchase of securities already issued from a large number of persons (50 or more persons). (Financial Instruments and Exchange Law, Article 2, Paragraph 4).

An offer or sale for which a securities registration statement must be filed includes specified reorganization procedures (Article 4, Paragraph 1 of the Financial Instruments and Exchange Law). Specified reorganization procedures are cases where securities are newly issued or securities already issued are delivered as a result of a reorganization (merger, company split, share exchange, share transfer), and where certain requirements are met, such as where there are 50 or more shareholders and the securities are not issued or delivered only to institutional investors (Financial (Article 2-3, Paragraphs 1-5 of the Financial Instruments and Exchange Law, Article 2-4 of the Financial Instruments and Exchange Law Enforcement Order, and Article 2-6 of the same law).

Therefore, a reorganization procedure (merger, company split, share exchange, or share transfer) will result in a company subject to reorganization (a company that will become a company dissolved in an absorption-type merger, a company dissolved in a incorporation-type merger, a company dissolved in an absorption-type company split, a company dissolved in an incorporation-type company split, a company dissolved in a share exchange, a wholly owned subsidiary in a share transfer, a wholly owned subsidiary in a share exchange) (Article 2-3-4(1) of the Financial Instruments and Exchange Act; hereinafter the same), Article 2-2 of the Financial Instruments and Exchange Law Enforcement Order), a securities registration statement must, in principle, be submitted when shares are issued or delivered to shareholders (50 or more persons).

However, even in the case of an offering or secondary offering of securities, a securities registration statement is not required to be submitted for an offering or secondary offering of securities where the total issue or sale price is less than 100 million yen (Article 4, Paragraph 1, Item 5 of the Financial Instruments and Exchange Law). In this case, if the total issue price exceeds 10 million yen, a securities registration statement must be submitted (Article 4.6 of the Financial Instruments and Exchange Law and Article 4.5 of the Cabinet Office Ordinance on Disclosure of Corporate Affairs, etc.).

Obligation of Continuous Disclosure

The Financial Instruments and Exchange Law requires companies that fall under any of the following categories to prepare and disclose securities reports, quarterly reports, extraordinary reports, and internal control reports on a continuous basis. Therefore, when a company subject to the continuous disclosure obligation conducts M&A and meets the requirements stipulated in the Financial Instruments and Exchange Law, it is required to submit an extraordinary report, etc. within the statutory period. Companies subject to the continuous disclosure obligation are as follows

Issuers of share certificates, etc., listed on a financial instruments exchange (Article 24, Paragraph 1, Item 1 of the Financial Instruments and Exchange Law)
Issuers of share certificates, etc. that have been offered or sold (public offering) (Article 24, Paragraph 1, Item 3 of the Financial Instruments and Exchange Law)
Issuer of share certificates, etc. where there are 1,000 or more holders of share certificates, etc. (Financial Instruments and Exchange Act, Article 24, Paragraph 1, Item 4)

Statutory disclosure under the Financial Instruments and Exchange Act (filing of extraordinary reports)

A company that is subject to continuous disclosure obligations (a company that must file an annual securities report pursuant to the provisions of Article 24, Paragraph 1 of the Financial Instruments and Exchange Act) falls under the following cases: (1) when the offering or sale of securities issued by the company is to be conducted in a foreign country; or (2) in other cases specified by a Cabinet Office Ordinance as necessary and appropriate for the public interest or for the protection of investors. (Article 24-5, Paragraph 4 of the Financial Instruments and Exchange Law). The cases in which an extraordinary report must be submitted and the matters to be disclosed in the extraordinary report are specifically stipulated in Article 19, Paragraph 2 of the Cabinet Office Ordinance on Disclosure of Corporate Information, etc. Disclosure in relation to M&A may be required in the following cases.

Change in parent company

When there is a change in the parent company of the submitting company (a company that was the parent company of the submitting company ceases to be the parent company or a company that was not the parent company becomes the parent company of the submitting company) (Article 19, Paragraph 2, Item 3 of the Cabinet Office Ordinance on Disclosure of Corporate Affairs, etc.)

Change in Specified Subsidiaries

When there is a change in specified subsidiaries of the submitting company (a company which was a specified subsidiary of the submitting company ceases to be a subsidiary or a company which was not a subsidiary becomes a specified subsidiary of the submitting company) (Article 19, Paragraph 2, Item 3 of the Cabinet Office Ordinance concerning Disclosure of Corporate Information, etc.). Specified subsidiary” means a subsidiary that falls under one or more of the following specified relationships (Article 19, Paragraph 10 of the Cabinet Office Ordinance on Disclosure of Corporate Information, etc.).

1. 1 In the case where the total amount of net sales or the total amount of purchases from the submitting company is 10% or more of the total amount of purchases or the total amount of net sales of the submitting company in the period corresponding to the most recent business year of the said company.
2. 2 Cases where the amount of net assets of the submitting company is equal to 30% or more of the amount of net assets of the submitting company at the end of the most recent business year of the said submitting company
3. 3 Where the amount of capital or the amount of capital contribution is equivalent to 10% or more of the amount of capital of the relevant submitting company.

Change in Major Shareholders

When there is a change in a major shareholder of the submitting company (a person who was a major shareholder of the submitting company ceases to be a major shareholder or a person who was not a major shareholder becomes a major shareholder) (Article 19, Paragraph 2, Item 4 of Cabinet Office Ordinance concerning Disclosure of Corporate Information, etc.). A “major shareholder” is a shareholder who holds 10% or more of the voting rights of all shareholders, etc. under its own name or under the name of another person (Article 163, Paragraph 1 of the Financial Instruments and Exchange Law).

Acquisition of Subsidiary Company by the Submitting Company

In the case where it is decided by the organ that decides the business execution of the submitting company that the acquisition of a subsidiary by the submitting company (making the company a subsidiary by acquiring shares or equity interests issued by a company that was not a subsidiary or by any other method) will take place, and the amount of consideration for the acquisition of the subsidiary includes the amount of the shares or equity interests issued by the company that was not a subsidiary (Article 163, Paragraph 1 of the Financial Instruments and Exchange Law). In cases where the total amount of the total of the amount of consideration for the Acquisition of a Subsidiary by the Submitting Company that has been conducted as a series of acts or has been determined to be conducted by the relevant organ is an amount equivalent to 15% or more of the net assets of the Submitting Company as of the last day of the most recent business year (Article 19, Paragraph 2, Item 8-2 of the Cabinet Office Ordinance concerning Disclosure of Corporate Affairs, etc.). (Article 19, Paragraph 2, Item 8-2 of Cabinet Office Ordinance on Disclosure of Corporate Information, etc.)

Acquisition of a Subsidiary by a Consolidated Subsidiary

In the case where it is decided by the organ that decides the execution of business of the consolidated subsidiary that the subsidiary acquisition by the consolidated subsidiary will take place, and the amount of consideration for the subsidiary acquisition is included in the amount of consideration for the subsidiary acquisition if it is determined by the organ that executes the business of the submitting company or the consolidated subsidiary that such acquisition will take place or will take place as a series of acts in connection with the subsidiary acquisition. The total amount of the consideration for the Acquisition of a Subsidiary by the Submitting Company or the Consolidated Subsidiary, which is determined by the organ that executes the business of the Submitting Company or the Consolidated Subsidiary, is equal to 15% or more of the consolidated net assets of the Consolidated Company as of the end of the most recent consolidated fiscal year (Article 19.2, Item 16-2 of the Cabinet Office Ordinance concerning Disclosure of Corporate Affairs, etc.).

Changes in Representative Directors

When there is a change in representative director of the submitting company (a person who was the representative director of the submitting company ceases to be the representative director or a person who was not the representative director becomes the representative director) (Article 19, Paragraph 2, Item 9 of the Cabinet Office Ordinance on Disclosure of Corporate Affairs, etc.)

Share Exchange

In the case of a share exchange where the Submitting Company becomes a wholly owning parent company in a share exchange and the amount of assets of the company that becomes a wholly owned subsidiary in a share exchange as of the end of the most recent business year is equal to 10% or more of net assets of the Submitting Company as of the end of the most recent business year, or in the case of a share exchange where the sales amount of the company that becomes a wholly owned subsidiary in a share exchange for the most recent business year is less than 10% of net assets of the Submitting Company as of the end of the most recent business year. In the case where the amount of assets at the end of the most recent business year of the company which will become a wholly owned subsidiary in a share exchange is equal to 3% or more of the net sales of the submitting company in the most recent business year, or in the case where it is decided by the organ which determines the business execution of the submitting company that a share exchange in which the submitting company will become a wholly owned subsidiary in a share exchange will be conducted (Article 19, Paragraph 2, Item 6-2 of Cabinet Office Ordinance concerning Disclosure of Corporate Information, etc.)

Share Transfer

In the event that it is determined by the organ that determines the business execution of the submitting company that a share transfer will be conducted (Article 19, Paragraph 2, Item 6-3 of the Cabinet Office Ordinance on Disclosure of Corporate Affairs, etc.)

Absorption-type company split

(i) An absorption-type company split in which the amount of assets of the submitting company is expected to decrease or increase by 10% or more of the amount of net assets of the submitting company as of the end of the most recent business year, or an absorption-type company split in which the sales amount of the submitting company is expected to decrease or increase by 3% or more of the sales amount of the submitting company for the most recent business year (Article 19, Paragraph 2, Item 7 of the Cabinet Office Ordinance concerning Disclosure of Corporate Information, etc.)

Newly established company split

In cases where it is determined by the organ that determines the execution of business of the submitting company that an incorporation-type company split in which the amount of assets of the submitting company is expected to decrease by 10% or more of the amount of net assets of the submitting company at the end of the most recent business year or an incorporation-type company split in which the sales amount of the submitting company is expected to decrease by 3% or more of the sales amount of the submitting company for the most recent business year will take place (Article 19, Paragraph 2, Item 7-2 of the Cabinet Office Ordinance on Disclosure of Corporate Information, etc.)

Absorption-type merger

In the event that an absorption-type merger in which the amount of assets of the submitting company is expected to increase by 10% or more of the amount of net assets of the submitting company as of the end of the most recent business year, or an absorption-type merger in which the sales of the submitting company is expected to increase by 3% or more of the sales of the submitting company for the most recent business year or an absorption-type merger in which the submitting company will be dissolved In the event that it is determined by the organ that determines the execution of business of the submitting company that the merger will be conducted (Article 19, Paragraph 2, Item 7-3 of the Cabinet Office Ordinance concerning Disclosure of Corporate Affairs, etc.)

Newly established merger

In the event that the organ that determines the business execution of the submitting company decides that a merger with a newly established company will take place (Article 19, Paragraph 2, Item 7-4 of the Cabinet Office Ordinance on Disclosure of Corporate Affairs, etc.).

Business transfer or business acquisition

In cases where the transfer or acquisition of a business in which the amount of assets of the submitting company is expected to decrease or increase by 30% or more of the amount of net assets of the submitting company as of the end of the most recent business year, or in which the sales of the submitting company are expected to decrease or increase by 10% or more of the sales of the submitting company for the most recent business year (Cabinet Office Ordinance on Disclosure of Corporate Information, etc. Article 19, Paragraph 2, Item 8)

Share exchange in a consolidated subsidiary

(i) Share exchange of a consolidated subsidiary where the amount of assets of the relevant consolidated subsidiary is expected to decrease or increase by 30% or more of the consolidated net assets of the relevant consolidated subsidiary as of the end of the most recent consolidated fiscal year, or where the sales of the relevant consolidated subsidiary are expected to decrease or increase by 10% or more of the sales of the relevant consolidated subsidiary in the most recent consolidated fiscal year of the relevant consolidated subsidiary (iii) In the case where it is decided by the organ that decides the business execution of the submitting company or the relevant consolidated subsidiary that a share exchange of the consolidated subsidiary is expected to take place (Article 19, Paragraph 2, Item 14-2 of the Cabinet Office Ordinance concerning Disclosure of Corporate Information, etc.).

Share transfer in a consolidated subsidiary

(i) Share transfer of a consolidated subsidiary where the amount of assets of the relevant consolidated subsidiary is expected to decrease or increase by 30% or more of the consolidated net assets of the relevant consolidated subsidiary as of the end of the most recent consolidated fiscal year, or where the sales of the relevant consolidated subsidiary are expected to decrease or increase by 10% or more of the consolidated net sales of the relevant consolidated subsidiary as of the end of the most recent consolidated fiscal year (iii) In the case where it is decided by the organ that decides the business execution of the submitting company or the relevant consolidated subsidiary that a share transfer of the consolidated subsidiary is expected to take place (Article 19, Paragraph 2, Item 14-3 of the Cabinet Office Ordinance concerning Disclosure of Corporate Information, etc.).

Absorption-type company split in a consolidated company

An absorption-type demerger of a consolidated subsidiary in which the amount of assets of the relevant consolidated company is expected to decrease or increase by 30% or more of its consolidated net assets as of the end of the most recent fiscal year of the relevant consolidated company, or an absorption-type demerger of a consolidated subsidiary in which the amount of sales of the relevant consolidated company is expected to decrease or increase by 10% or more of its sales for the most recent fiscal year of the relevant consolidated company (Article 19, Paragraph 2, Item 15 of the Cabinet Office Ordinance on Disclosure of Corporate Information, etc.)

Incorporation-type company split in a consolidated company

An incorporation-type company split of a consolidated subsidiary where the amount of assets of the relevant consolidated subsidiary is expected to decrease or increase by 30% or more of its consolidated net assets as of the end of the most recent consolidated fiscal year of the relevant consolidated subsidiary, or where the sales of the relevant consolidated subsidiary are expected to decrease or increase by 10% or more of its sales for the most recent consolidated fiscal year of the relevant consolidated subsidiary (iii) In the case where it is decided by the organ that decides the business execution of the submitting company or the relevant consolidated subsidiary that an incorporation-type company split of a consolidated subsidiary is to take place in which the net sales of the relevant consolidated subsidiary are expected to decrease or increase by 30% or more of the net assets (Article 19, Paragraph 2, Item 15-2 of Cabinet Office Ordinance concerning Disclosure of Corporate Information, etc.)

Absorption-type merger in a consolidated company

Merger of a consolidated subsidiary where the amount of assets of the relevant consolidated company is expected to decrease or increase by 30% or more of the consolidated net assets of the relevant consolidated company as of the end of the most recent consolidated fiscal year, or where the sales of the relevant consolidated company are expected to decrease or increase by 10% or more of the sales of the relevant consolidated company as of the most recent consolidated fiscal year. (iii) When the organization that decides the business execution of the submitting company or the relevant consolidated subsidiary has decided that an absorption-type merger of the consolidated subsidiary is to be conducted (Article 19, Paragraph 2, Item 15-3 of the Cabinet Office Ordinance Concerning Disclosure of Corporate Information, etc.)

Merger of a consolidated company with an incorporation-type merger

Merger of a consolidated subsidiary where the amount of assets of the consolidated subsidiary is expected to decrease or increase by 30% or more of its consolidated net assets as of the end of the most recent consolidated fiscal year, or where the number of sales of the consolidated subsidiary is expected to decrease or increase by 10% or more of its sales in the most recent consolidated fiscal year. (iii) In the case where it is decided by the organ that decides the business execution of the submitting company or the relevant consolidated subsidiary that a merger into a new establishment of a consolidated subsidiary is expected to be carried out (Article 19, Paragraph 2, Item 15-4 of the Cabinet Office Ordinance concerning Disclosure of Corporate Information, etc.).

Transfer of business or acquisition of business by a consolidated company

Transfer or acquisition of a business of a consolidated subsidiary where the amount of assets of the consolidated subsidiary is expected to decrease or increase by 30% or more of its consolidated net assets as of the end of the most recent consolidated fiscal year, or where the amount of sales of the consolidated subsidiary is expected to decrease or increase by 10% or more of its sales in the most recent consolidated fiscal year, (Article 19, Paragraph 2, Item 16 of the Cabinet Office Ordinance on Disclosure of Corporate Information, etc.)