In Japan, there is a growing trend toward management buyouts (MBOs) and delisting of publicly traded companies by parent companies or other major shareholders. In 2024, 18 MBOs were recorded, the third-highest number on record, and in June 2025, Toyota Motor Corporation and other Toyota Group companies announced plans to delist Toyota Industries Corporation, the group’s original company, through a tender offer.
Sho Tsuzuki
Partner
Atsumi & Sakai
This trend can be seen as stemming from the Tokyo Stock Exchange’s (TSE) call for listed companies to prioritise “management that takes into account capital costs and stock prices”, prompting greater emphasis on dialogue with shareholders and investors. From a corporate governance perspective, scrutiny of parent-subsidiary listings and cross-shareholdings has also increased.
However, such transactions can involve information asymmetry and structural conflicts of interest between major shareholders, such as the target’s parent company, and minority shareholders. Minority shareholders dissatisfied with the proposed purchase price may exercise appraisal rights and petition the court to determine a fair price.
However, Japanese courts focus on whether procedures generally recognised as fair were substantially followed. If so, courts tend to accept the acquirer’s price. While there have been a few cases in which courts found fair procedures were not followed, it remains difficult for minority shareholders to obtain relief.
Listing rule revisions
To address these conflicts of interest, the Ministry of Economy, Trade and Industry established the Fair M&A Guidelines in 2019. These recommend that, in MBOs or acquisitions of a controlled company by the controlling shareholder, the target company’s board of directors should establish an independent special committee and obtain a stock valuation from a third-party appraisal agency.
These steps are intended to protect the interests of minority shareholders through fair procedures. However, investors have continued to raise concerns about the effectiveness of special committees and the lack of disclosure regarding valuations necessary to assess price fairness.
In response, in April 2025, the TSE published a draft revision of the listing rules for public comment. The proposed revision would require the target company to obtain an opinion from a special committee on whether the transaction is “fair to general shareholders”, rather than whether it is “not detrimental to minority shareholders” as under the current Fair M&A Guidelines. It would also require the target company to explain the reasonableness of its stock valuation and the financial forecasts and assumptions used in that valuation.
There have been MBO cases where discount rates were based on questionable assumptions, or where non-business assets were valued as business assets, allegedly set intentionally to influence valuation. The TSE’s proposed rules appear to address such issues.
Target companies would also have to explain their views on the business environment underlying their forecasts and clarify the distinction between business and non-business assets.
Since the Fair M&A Guidelines are not legally binding, there have been no penalties for companies that did not follow them. By codifying the rules as listing rules, listed companies that violate them will face disclosure requirements and possible penalties. The revised rules are scheduled to come into effect in July 2025.
Will the rules reassure?
Even when minority shareholders file a petition for fair price determination and request disclosure of the special committee’s meeting minutes to the company, the minutes often contain little substantive discussion (so-called stealth minutes). This is due to concerns that detailed minutes could be used by courts as evidence that fair procedures were not followed.
The TSE’s new rules aim to promote disclosure of substantive discussions by special committees and the target company (note that while the initial proposal included a requirement to disclose the minutes themselves, this was ultimately not adopted.).
However, if the revised rules are adopted and substantive discussions are disclosed, new issues may arise. Will courts, in appraisal litigation, be able to determine whether “procedures generally recognised as fair” were followed, based on these substantive records?
In past appraisal cases, courts have primarily focused on process fairness, and have not made in-depth judgments on the reasonableness of business plans or share valuations.
Minority shareholders concerned about being forced to sell their shares at a low price are unlikely to feel reassured unless courts begin to engage more directly with the substantive aspects of MBO valuations and procedures.
Sho Tsuzuki is a partner at Atsumi & Sakai in Tokyo
Atsumi & Sakai
Fukoku Seimei Bldg.
2-2-2 Uchisaiwaicho
Chiyoda-ku
Tokyo 100-0011 Japan
www.aplawjapan.com
Contact details:
T: +81 (0)3 5501 2111
E: sho.tsuzuki@aplaw.jp
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