The Asia-Pacific Antitrust Review 2024 (Japan Chapter)

IN SUMMARY

This article provides an overview of the merger control landscape in Japan, including information on thresholds for notifcation, safe harbours and foreignto- foreign transactions, among other topics.

DISCUSSION POINTS

• Mergers, business transfers, demergers and M&A transactions all subject to prior notifcation
• Domestic sales a decisive factor in M&A notifcation thresholds
• M&A transactions subject to standard 30-day waiting period

REFERENCED IN THIS ARTICLE

• Anti-monopoly Act
• Japan Fair Trade Commission
• Merger Rules
• Merger Guidelines

INTRODUCTION

Merger control was introduced in Japan by Act No. 54 of 1947, as amended – otherwise known as the Anti-monopoly Act (AMA)¹ – at the same time as Japan's frst competition rules. The Japan Fair Trade Commission (JFTC)² has primary jurisdiction over the enforcement of merger control under the AMA. The AMA provides two types of regulations for business combination:

• a formalistic regulation that requires a prior notifcation for transactions that satisfy the relevant thresholds; and
• a substantial regulation that prohibits a business combination that will result in substantial restraint of trade in a particular feld of trade (relevant market).

PRIOR NOTIFICATION REQUIREMENT

Transactions To Be Notifed

Mergers, business transfers, corporate splits (demergers) and stock acquisitions (mergers and acquisitions (M&A) transactions) are all subject to prior notifcation under the AMA. M&A transactions whose schemes involve more than one of these transactions (eg, where an acquirer merges with a target after acquiring shares in the target) are separately analysed at each step of the transaction, so separate flings may, in principle, need to be made for the various steps. Joint ventures are also analysed in the same way.

If the M&A transactions satisfy certain thresholds, they are subject to a prior notifcation obligation. Generally, M&A transactions within the same combined business group are exempted from the prior notifcation requirement.

In 2013, the JFTC clarifed its practice regarding mergers. Under the new practice, in case of an absorption-type merger where Company A merges into Company B and shares of Company B will be issued to the shareholders of Company A, the JFTC requires a notifcation of a merger between Company A and Company B, as well as a notifcation of stock acquisition by the shareholders of Company A.

THRESHOLDS FOR NOTIFICATION

Stock Acquisitions

A stock acquisition will require a prior notifcation if the stockholding ratio after the transaction rises above 20 per cent or 50 per cent and the following turnover thresholds are satisfed.

Business Transfer (including Corporate Splits)

The fling thresholds for business transfers (including asset transfers and corporate splits) are as follows. Note that if a business transfer is implemented by a corporate split under the Corporate Act of Japan, different fling thresholds apply

Transfer Of Whole Business

Transfer Of A Substantial Part Of The Business, Or The Whole Or A Substantial Part Of The Fixed Assets Used For The Business

Mergers

The fling thresholds for mergers are as follows:

• the aggregate domestic sales of all corporations within the same combined business group as one of the merging companies must exceed ¥20 billion; and
• the aggregate domestic sales of all corporations within the same combined business group of one of the other merging companies must exceed ¥5 billion.

DOMESTIC SALES

As can be seen from the above, domestic sales are a decisive factor in the threshold. Domestic sales are defned as the total amount of prices of goods or services supplied in Japan during the latest fscal year (article 10,
paragraph 2 of the AMA). According to the Rules on Applications for Approval, Reporting, Notifcation, etc. Pursuant to articles 9 to 16 of the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade, published by the JFTC (the Merger Rules), domestic sales of Company X include the sales amount accrued through direct importing to Japan and, more precisely, will be the total amount of the following three categories of sales (article 2, paragraph 1 of the Merger Rules):

• the sales amount of goods with respect to which domestic consumers (individuals excluding those who are transacting for business) are the purchasers;
• the sales amount of goods to be supplied in Japan with respect to which corporations or other business entities or individuals who are transacting for business (business entities) are the purchasers (provided, however, that the sales amount of goods that Company X knows, at the time of entering into the relevant contract, will be further shipped outside Japan without any changes in their nature or physical appearance, should be excluded); and
• the sales amount of goods to be supplied outside Japan with respect to which business entities are the purchasers and which Company X knows, at the time of entering into the relevant contract, will be further shipped to Japan without any changes in their nature or physical appearance.

The same threshold will be used regardless of the jurisdiction in which the acquiring corporation or the target corporation was established. It should be noted that, if Company X is a company obliged to submit fnancial statements (article 5, paragraph 1, item 1 of the Rules regarding the Terms, Forms and Preparation Methods of Financial Statements, etc), it may substitute the value as determined pursuant to the Merger Rules as their domestic sales (article 2, paragraph 2 of the Merger Rules).

It should also be noted that the Merger Rules have a provision to allow fexibility where the strict calculation of domestic sales in accordance with the Merger Rules is not possible, in which case it is permitted to use a different method to calculate the amount of domestic sales, provided that it is in line with the purpose of the above method and in accordance with generally accepted accounting principles (article 2, paragraph 3 of the Merger Rules).

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Footnotes

1. The AMA is accessible via the JFTC's website.

2. More information the JFTC can be found on its website.

Originally published by Global Competition Review (GCR)

Originally published May 2024.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.