Empirical evidence of coercive tender offers in Japan

Abstract

This is an empirical investigation of the degree to which legal rules impact the welfare of minority shareholders in acquisitions. While an efficient market for corporate control is vital for an economy’s growth and development, insufficient legal standards may permit coercive takeovers that have negative implications for capital markets. This research focuses on tender offers in Japan, where legal rules provide acquirers with the opportunity to make coercive takeovers that expropriate minority shareholder wealth. Japan’s legal system changed in 2006 to introduce cash mergers to freeze-out remaining shareholders after successful takeovers, and in 2007 to require bidders making tender offers that seek more than two-thirds of the voting securities of a target to offer to buy all the shares. However, acquirers with the stated aim of securing less than two-thirds of voting securities have no such obligation. We find evidence that these acquirers tend to make coercive two-tier offers that expropriate the interests of minority shareowners. Our results suggest that avoiding coercive takeovers requires that laws force acquirers to provide full information concerning the clean-up merger conditions as well as to pay an equivalent amount in the clean-up to minority shareowners as was offered in the initial tender offer without ambiguity. These conclusions have relevance for all countries that have not fully considered the appropriate level of protection for minority shareholders.