(1) Submission deadline: Must reach us by Tuesday, February 5, 2019 (2) Submission methods: By or mail addressed to the following:

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1 Solicitation of opinions/information on fair M&A December 28, 2018 Corporate System Division Economic and Industrial Policy Bureau Ministry of Economy, Trade and Industry 1. Background On September 4, 2007, the Ministry of Economy, Trade and Industry (METI) formulated the Guidelines for Management Buyout (MBO) to Improve Corporate Value and Secure Fair Procedures (hereinafter referred to as the MBO Guidelines ), aiming to present fair rules for MBO 1. Some call for the revision of the MBO Guidelines based on Japanese companies experience accumulated during 10 years from the formulation of the Guidelines on practical and legal matters that are appropriate for discussion as well as the change in environment which listed companies face including the progress of corporate governance reform, and others point out that it is necessary to discuss issues regarding conflict of interest in M&A transactions other than MBO, such as acquisition of a controlled company by its controlling shareholder. In response to these opinions, METI launched the Fair M&A Study Group (hereinafter referred to as the study group) in November 2018 to discuss the issue of whether or not the MBO Guidelines should be revised, examine future directions for revision and study ideal approaches to fair M&A in Japan. Discussion is already underway in the study group. The study group has so far reached a consensus that the MBO Guidelines should be revised and that discussions for revision should cover, in addition to MBO, cases which are likewise significantly affected by the issues of conflict of interest and information asymmetry, namely, cases of acquisition of a controlled company by its controlling shareholder. With the goal of further developing Japan s M&A in a fair and healthy manner, the study group will deepen discussions on the particulars including issues provided below in 5. Before the discussion comes into full swing, in a bid to deepen analyses and study on these issues from a wide perspective, METI invites opinions/information on the issues broadly from the parties concerned in and outside of Japan. METI also welcomes contribution of evidence (facts, such as data and case examples, and analyses). 2. How to contribute opinions/information METI seeks opinions/information on the issues provided below in 5. * Opinions/information on not all but some of the issues provided below in 5 are also welcome. * Opinions/information on an important issue concerning fair M&A which is not listed below in 5 are also welcome. * Contribution of evidence (facts, such as data and case examples, and analyses) is also welcome. (1) Submission deadline: Must reach us by Tuesday, February 5, 2019 (2) Submission methods: By or mail addressed to the following: public-consultation@jpo.go.jp 1 The term MBO refers to a purchase of shares of a targeted company by current top executives of the company subject to staying in business. 1

2 Secretariat, Fair M&A Study Group Corporate System Division, Economic and Industrial Policy Bureau, Ministry of Economy, Trade and Industry Kasumigaseki, Chiyoda-ku, Tokyo (3) Notes Please provide the following items at the beginning. (Secretariat may contact you on your opinions/information, if the need arises.) Your name, address, and organization you belong to or your occupation (e.g., individual investor) (If you submit opinions/information as a corporation or other organization, provide its name, the name of its representative, and the address of its main office) Contact information (phone number and address) Write in Japanese or English. State which issue or item listed below in 5 your opinions/information is on. If you provide opinions/information at length (in general 6 pages or more in A4 paper), provide their summary at the beginning of each item. 3. Handling of submitted opinions/information Received opinions/information will be compiled by the Secretariat, reported to the study group, and used for discussion as reference material. Please note that we will not individually provide response to opinions/information you submit. In addition to being used as reference in discussion at the study group, all or part of opinions/information you submit or their summary made by Secretariat, excluding your address, contact information, and individual name, may be made public on websites of METI or other media. The study group will deepen discussions on the particulars based on opinions/information submitted and compile the discussions into a report around spring of Based on the result, METI will revise the MBO Guidelines. 4. Reference Reference 1: Press release METI to Launch Fair M&A Study Group Reference 2: Handouts and proceedings summary of each meeting of the study group Reference 3: MBO Guidelines df 2

3 5. Issues on which opinions/information are welcome [Issue 1] Points in common, points of difference, etc. between transaction types The MBO Guidelines prioritize the recommendations about MBO over other conflict of interest M&A transactions. Concerning this, some point out that it is necessary to discuss issues regarding conflict of interest M&A transactions other than MBO, such as acquisition of a controlled company by its controlling shareholder, as seen in a case where the parent company purchases a listed subsidiary company to make it a wholly-owned subsidiary company. Based on this argument, the study group has decided that discussions for revision of the MBO Guidelines should cover, in addition to MBO, cases which are likewise significantly affected by the issues of conflict of interest and information asymmetry, namely, cases of acquisition of a controlled company by its controlling shareholder. The study group will deepen discussions on fair rules concerning the two transaction types. With regard to this, some at the study group argue that careful analyses should be done on points in common, points of difference, etc. between transaction types concerning transaction structure, conflict of interest, and information asymmetry, and others suggest that when revising the Guidelines, attention should be paid to the fact that the two transaction types cannot be clearly separated from each other and that there are many varieties of transactions and various optimum combinations of measures which contribute to securing of fairness in transactions. i) What kinds of points in common, points of difference, etc. exist between transaction types of MBO and acquisition of a controlled company by its controlling shareholder? ii) How will points in common, points of difference, etc. identified in i) affect whether or not measures 2, such as establishment of a special committee, need to be taken, and the degree of the necessity; types of measures to be taken and their effectiveness; and whether or not taking a measure causes negative effect and the degree of such effect? [Issue 2] Special committee In some cases of MBO and acquisition of a controlled company by its controlling shareholder, the target company may take a measure in which it consults an independent special committee (which are sometimes called third-party panel or independent committee ) on the legitimacy and conditions of the M&A transaction in question, entrusts the special committee with negotiations with the buyer, and respects the decision by the special committee. The MBO Guidelines consider consultation with an outside director or an independent third-party panel on the legitimacy and conditions of an M&A transaction (or negotiations with a director who is in charge of MBO) and respect of resulting decisions as one practical way in the decision-making process to prevent arbitrary or unjustifiable decisions. As some point out, while a special committee is established in many cases of MBO and acquisition of a controlled company by its controlling shareholder through a takeover bid and a squeeze-out (two-step acquisition) in Japan today, in some cases of acquisition of a controlled company by its controlling shareholder through single-step acquisition by reorganization, a special committee is not established. 2 It refers to measures which contribute to securing of fairness of conditions in M&A transactions. More specifically, for example, the following measures are assumed: Establishment of a special committee, implementation of stock valuation, acquisition of fairness opinions, implementation of Market Check, establishment of majority-of-minority conditions, and enhancement of disclosure. 3

4 i) What do you think of the functions of special committees? ii) What do you think of the scope of examination by special committees? iii) What do you think of whether establishment of a special committee is necessary or not? iv) What do you think of ideal practice of special committees, for example, in terms of the following? a) Timing of setting-up b) Composition of the committee (e.g., Qualifications as a committee member (independence, titles (outside director, outside statutory auditor, outside expert, etc.), specialization), details of the qualifications, and prioritization of the qualifications) c) Involvement in negotiations with the buyer d) Designation/appointment of the target company s or the special committee s own financial/legal advisors e) Other authorities to be given to the special committees f) Compensation for committee members g) Timing and extent of disclosure [Issue 3] Stock valuation, fairness opinions Stock valuation in an M&A transaction refers to analysis of the per share value of the target company and a stock valuation report provides the result of the analysis, given in a range, for each valuation method. A fairness opinion usually refers to a statement by an independent third-party assessment institution on the fairness and appropriateness of transaction conditions for general shareholders of the target company. The MBO Guidelines consider the target company s obtaining a valuation report from an independent third-party assessment institution as one practical way in the decision-making process to prevent arbitrary or unjustifiable decisions. The MBO Guidelines make no special reference to fairness opinions. As some point out, while a stock valuation report is obtained by the target company in many cases of MBO and acquisition of a controlled company by its controlling shareholder in Japan today, fairness opinions are obtained in few cases. i) What do you think of the functions of stock valuation and fairness opinions respectively? ii) What do you think of the roles of stock valuation and fairness opinions respectively in relationship to negotiations/decisions of transaction conditions? iii) What do you think of the necessity of conducting stock valuation and obtaining a fairness opinion respectively, positive/negative effects caused by obtaining each of? iv) What do you think of ideal practice concerning stock valuation and fairness opinions, for example, in terms of the following? a) Issuance process b) Independence, specialization, etc. of third-party assessment institutions c) Timing and extent of disclosure 4

5 [Issue 4] Market Check Market Check refers to study/examination of whether a better alternative takeover proposal can be found or not in cases where the target company was approached by a buyer for acquisition. The MBO Guidelines consider securing buying opportunities for other buyers and making directors who are in charge of MBO present the purchase price based on the possibility that other competing buyers will appear as a practical way to secure the fairness of price and to increase transparency/rationality of the transaction concerned. As some point out, while implicit Market Check is conducted through the release of facts concerning the M&A transaction in question and the possibility of appearance of potential buyers after the release in many cases in Japan today, proactive Market Check is conducted in few cases. i) What do you think of the necessity of conducting of Market Check, positive/negative effects caused by conducting of Market Check? ii) What do you think of ideal practice concerning Market Check, for example, in terms of the following? a) Practical methods (Auction (bidding), Market Check (approaching multiple potential buyers), Go-Shop provision (The target company is allowed to actively seek out competing offers for a certain period after the signing of an M&A agreement), etc.) b) Actions to take if there is a competing offer (Code of conduct of the board of directors of the target company, whether due diligence by the competing buyers should be granted or not, etc.) [Issue 5] Majority-of-minority conditions The majority-of-minority conditions are preconditions for an M&A transaction, requiring approval by a majority of minority shareholders in cases where shareholders indicate their intention over a possible M&A transaction through the exercise of their voting rights at a shareholders meeting or whether or not they tender for a takeover bid launched by the buyer. The MBO Guidelines consider setting the minimum number of shares to be bought through a takeover bid in MBO at a high level as a practical way to stress the importance of confirming the intention of shareholders. As some point out, while the majority-of-minority conditions are in place for in many cases of MBO in Japan today, those conditions are adopted in few cases of acquisition of a controlled company by its controlling shareholder. i) What do you think of the advantage/disadvantage of the majority-of-minority conditions? ii) What do you think of the necessity of adopting the majority-of-minority conditions, positive/negative effects caused by such conditions? iii) What do you think of ideal practice concerning the majority-of-minority conditions, for example, in terms of the following? a) Scope of minority shareholders b) Level of the minimum number of shares [Issue 6] Disclosure 5

6 Disclosure is believed to have functions of enabling general shareholders of the target company to determine whether the M&A transaction in question should proceed or not, the appropriateness of transaction conditions, and whether measures taken in the M&A transaction in question are sufficient to contribute to securing fairness of transaction conditions. It is a key factor in MBO that each shareholder is able to make their own decision by understanding the relevant situation and to express their intention. In light of this, the MBO Guidelines state that sufficient explanation to contribute to decisions by shareholders should be provided while taking into full account the background and characteristics of each shareholder. i) What do you think of the functions of disclosure? ii) What information should be disclosed? Why? iii) What information is hard to disclose? Why? [Issue 7] Other important issues We appreciate your opinions/information, if any, on important issues concerning fair M&A apart from Issues 1 to 6. 6