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Major Reform of Japan's Antimonopoly Law : New Merger Control Thresholds

June 4, 2009

Amendment of the Antimonopoly Law in Japan

On June 3, 2009, a number of amendments (the “Amendments”) to the Act governing the Prohibition of Private Monopolization and Maintenance of Fair Trade (the “Act”) were passed by the National Diet of Japan. The Amendments comprise of several changes to the existing Act, including an increase in the number of potential leniency applicants accepted under the existing leniency programme, an extension of the statute of limitation for administrative orders and the introduction of special rules relating to document production orders issued by courts.

However, one of the most significant changes brought about by the Amendments is likely to affect every Multi-National Corporation in the future which considers undertaking a merger or other business combination with a Japanese company. This is because the Amendments include a material revision of the rules governing business combinations. Under the Act the definition of “business combinations” includes share acquisitions, mergers, asset purchases, corporate divisions and joint share transfers.

Introduction of a Pre-Notification System for Share Acquisitions and Review of the Existing Notification Thresholds for Business Combinations

The Japan Fair Trade Commission (“JFTC”) intended to bring about two significant changes to the regulations for business combinations which were duly passed yesterday, namely: (i) the introduction of a pre-notification system for share acquisitions and (ii) a review of the existing notification thresholds for business combinations. These are both looked at in further detail below:

(i) Introduction of a Pre-Notification System for Share Acquisitions

Under the new Act, subject to meeting the thresholds described below, share acquisitions are subject to a pre-closing filing requirement and an acquiring corporation must observe a 30 day waiting period before it can close the deal.

Additionally, the Amendments also make some simplifications to the percentage thresholds at which a share acquisition gives rise to a notification requirement. The existing system was based on three-step thresholds (10%, 25% and 50% on the basis for voting rights held solely by an acquiring corporation), which is now being simplified to a two-step thresholds (20% and 50% on the basis for voting rights held by a “Corporate Group” (see below) as a whole).

(ii) Revisions of Notification Thresholds for Business Combinations

Once effective, the Amendments will alter the minimum notification thresholds currently in force for both an acquiring corporation (the “Acquiror”) and the corporation to be acquired (the “Target”). The Amendments also newly introduce domestic turnover thresholds, instead of the current asset based thresholds. This will align the Japanese merger control rules more closely with international best practices but is also likely to widen the scope of the JFTC’s review involving international business combinations.

Under the Amendments, a business combination must be notified where the parties meet the domestic turnover thresholds set out below:

The Amended Thresholds

Acquiror

Domestic turnover of 20 billion JPY for the acquiring “Corporate Group”

Target

Domestic turnover of 5 billion JPY for the Target and its subsidiaries

The Amendments also introduce a significant change to which companies the JFTC considers as belonging to the relevant group in terms of calculating the turnover to be taken into account under the merger thresholds. Where the current regulations only covered a very limited group of Japanese entities and excluded certain indirectly held subsidiaries, the new notification requirement for business combinations will be determined via a “Corporate Group” principle similar to that applied, for example, in the EU. As set out in the Amendments, the term “Corporate Group” is defined to mean a group of corporations consisting of the ultimate parent company of the Acquiror and its subsidiaries.

Another result of this revision is that a corporate combination within the same Corporate Group will be exempted from a notification requirement which was not the case under the existing law.

The Amendments will become effective in January, 2010 at the earliest or by June 3, 2010 at the latest.