Lawyers Still See Obstacles to Foreign M&A in Japan
“Most of the boards of directors in Japan have either none or just one or two outside directors, ” says Lebrun. “Almost every other director is a lifetime employee, who is attached to the company and its employees at a more personal level.”
Bingham McCutchen Tokyo partner Christopher Wells says there is very little job mobility at management level, meaning that few employees have experiences in other organizations. “This ‘group identity’ tends to keep out ‘outsiders’ and can make it very difficult to replace senior management after a merger,” he says.
Fujimoto says the Tokyo Stock Exchange currently doesn’t require listed companies to appoint any independent directors, only recommends that they do. “Unless the Corporate Act or the Tokyo Stock Exchange decided to mandatorily require independent directors for the companies, not much change will happen,” he says.
Moreover, the prospect of government assistance for many troubled companies means that foreign buyers can be kept at bay.
Less than a year before the Panasonic deal, KKR was outbid by Innovation Network Corporation of Japan, a Japanese government-backed fund, in a $1.8 billion investment in chipmaker Renesas Electronics Corp.
“Even if the KKR bid was economically much better, it would have lost out to a bid where more consideration was given to employees of the target over the long run, ” says Wells. “The government fund did not ‘win’ because it had a ‘special advantage.’ Rather, it better understood what would be needed to win the bid in terms of intangible offer terms. ”
But Simpson Thacher & Bartlett Tokyo partner David Sneider, who advised KKR on its bid, thinks Renesas was a particular case in the industry the government regards as especially important. “I don’t think there was any significant bias against foreign private equity,” he says.
In any case, Sneider says, current trends may be working to the favor of private equity. For instance, there is talk of the government reducing the role of government in these deals. “If the government reduces their support for troubled companies, they may have to turn to private sources of capital,” he says.
Wells thinks some will do so if they are in such trouble that they have no choice. “I think very little Japanese M&A is based on synergies, ” he says. “Distressed conditions are much more relevant.”
But Johnson says the KKR–Panasonic deal might help make private equity more socially acceptable to other Japanese companies. “Each deal that occurs facilitates the next deal’s occurring, ” he says, “and each sale to a private equity fund makes the next such sale easier.”