Japan’s New Triangular Merger Rules – Acquisition of Japanese Companies Through Share Exchanges

Effective May 1, 2007, Japan’s new Company Law rules will allow foreign companies to use their shares in acquiring Japanese companies. While the new law and related regulatory changes are intended to facilitate cross-border M&A activity, non-Japanese acquirers interested in using triangular mergers will need to consider various business, tax and other legal issues when planning to pursue this type of transaction.

The new form of acquisition is called "triangular mergers" (sankaku gappei). As the name suggests, this transaction scheme will allow a non-Japanese company ("Foreign Acquirer") with a Japanese subsidiary ("Japanese Subsidiary") to acquire a Japanese target company ("Target") by having such Target merge with and into the Japanese Subsidiary. In such mergers, the consideration given to the shareholders of the Target can be in the form of cash or other assets, including shares of the Foreign Acquirer.