June 28, 2019 / 7:36 AM / in 18 days

Japan overhauls buyout guidelines to protect minority shareholders

TOKYO (Reuters) - Japan’s trade ministry has overhauled guidelines for mergers and acquisitions to better protect minority shareholders in the case of management buyouts, a reform that comes amid a renewed focus on shareholder rights.

The recommendations, revised for the first time in 12 years, call for an independent committee to be set up by the target company in the case of management buyouts, to assess whether the deal is fair.

“Inevitably there is a conflict of interest between ordinary shareholders and corporate management in a transaction where management buys shares from other shareholders,” the Ministry of Economy, Trade and Industry (METI) said in the guidelines, published on Friday.

“Management can benefit directly by lowering the price it pays to shareholders who are the sellers.”

The independent committee should consist of outside directors as well as experts to review the terms of the transaction, the ministry said.

The guidelines should also apply to transactions where a company with majority control of an affiliate attempts to buy that affiliate, it said.

Under the guidelines, minority shareholders will be informed about how the independent committee was formed as well as of its review of the transaction, the ministry said, changes that will make transactions more transparent for minority shareholders.

Minority investors have been becoming more assertive in Japan, complaining about what they see as poor performance as well as returns from cash-hoarding firms, with Prime Minister Shinzo Abe advocating strengthening corporate governance.

But their rights are often ignored, given the longstanding practice of cross-shareholding, where firms hold stakes in each other to cement business ties.

The ministry’s overhaul comes as more Japanese companies are expected to sell down stakes in listed affiliates or allow them to go private.

Overseas investors have called for a reduction in so-called parent and child listings, where large firms have stakes in listed affiliates, sometimes several different listed affiliates.

Reporting by Junko Fujita; Editing by David Dolan and Muralikumar Anantharaman

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