Japan’s ruling party raised concerns on Friday over suspected collusion between activist investors and buyout funds in take-private deals, warning that such arrangements could undermine fairness in capital markets.
In draft policy proposals, the Liberal Democratic Party’s project team on corporate governance said that there have been some cases in which activists are suspected of working behind the scenes with private equity funds seeking to take listed companies private.
Such cases “raise concerns from the perspectives of both enhancing corporate value and legal fairness”, the group said in the proposals, which would be finalised by the end of this month. The proposals did not cite specific cases of the alleged collusion.
This marks one of the clearest expressions of concern by Japan’s governing party over the influence of activist investors in corporate restructuring and take-private transactions, in a sign of backlash from companies frustrated by pressure from such investors.
The Japan Private Equity Association declined to comment.
Private equity deals in Japan jumped 47.8% last year to US$42 billion, according to Dealogic. Deal activity continues to be strong this year, including a bidding war between EQT versus SoftBank’s LY Corp and Bain Capital for Kakaku.
Japan has become one of the world’s busiest markets for activist investing outside of the US, attracting hedge funds that have pushed companies to raise returns, unwind cross-shareholdings and improve governance.
The group’s proposal document also said there were cases in which activist shareholders were suspected of “securing unfair gains” by reinvesting a portion of their sale proceeds into acquisition vehicles established by PE buyers.
The proposals included tightening the criteria for shareholders to call for extraordinary meetings and submit shareholder proposals, as well as restricting shareholder proposals on matters related to management execution.
The group also discussed possible measures to curb “speculative or abusive” arbitrage trading.
There were suggestions that, drawing on practices in US jurisdictions such as Delaware, Japan should consider restrictions on appraisal-rights claims by investors who purchased shares after an M&A deal was announced, according to the document.
Appraisal rights allow shareholders who oppose a buyout to demand that the company purchase their shares at a court-determined fair value.
Arbitrage trading drew attention during a months-long battle over Toyota Motor’s buyout of Toyota Industries, with US activist fund Elliott Investment Management building a large stake in the Toyota unit to push for a higher price.