Breaking News: Japanese Companies Cannot Use National Security Designation to Thwart Foreign Takeovers
In a recent statement, a senior finance ministry official in Tokyo has emphasized that Japanese companies cannot abuse the national security designation to block foreign takeovers. This comes in response to speculations that the Foreign Exchange and Foreign Trade Act (FEFTA) could be manipulated for protectionist purposes.
One of the triggers for this statement was the news about retail giant Seven & i Holdings seeking to be classified as "core" to national security to fend off a buyout bid from Canada's Alimentation Couche-Tard.
Although Seven & i is currently categorized as a company conducting "designated" businesses, not "core" ones, the senior official clarified that the process of the government's security review remains consistent for companies significant to Japan's economy or security.
Businesses considered "core" are those deemed crucial for national security, such as nuclear power, space, and semiconductors. Foreign entities face stricter requirements in acquiring stakes in "core" businesses compared to "non-core" ones.
However, it is essential to note that regardless of the classification, any potential buyer aiming to acquire control in a designated business must file prior notification to the government. The classification itself does not alter the level of scrutiny during the review process on national security risks.
It is important to understand that the ministry's classification list, which dictates prior notification requirements, is based on surveys of all listed companies and does not require government approval. The ultimate goal is to ensure that transactions do not pose risks to national security.
While Seven & i has responded to the ministry's latest survey, clarifying its current structure and businesses, the pursuit of the "core" tag is not directly related to Couche-Tard's buyout proposal.
Although convenience stores, Seven & i's main focus, do not fall under the designated sector requiring FEFTA review, the company has diverse businesses, including financials and security services.
It is worth mentioning that Japan previously blocked a deal in 2008 where the London-based Children's Investment Fund attempted to buy shares in Electric Power Development Co. While this is the only deal rejected under FEFTA, there have been instances where plans were modified or withdrawn during reviews.
Overall, it is crucial for investors and stakeholders to stay informed about these regulatory processes and their implications on foreign investments in Japan. Understanding the nuances of national security designations and their impact on business transactions is essential for navigating the financial landscape effectively.
