The impact of changes in Japanese tender offer regulations on bidder behavior and shareholder gains

Japanese regulators have undertaken several adjustments to the rules governing the market for corporate control beginning with the 1990 introduction of mandatory bid rules (MBR) for tender offers. However, the adoption of an MBR alone did not initially contribute to an active tender offer market, nor did it adequately protect targets' minority shareholders. It required more than a decade and two important revisions to MBR for the regulators to achieve a reasonable balance between the conflicting objectives of MBR regulation. First, share based squeeze-out rules were introduced in 1999. Then, in 2006, additional new rules increased the protection of targets' minority shareholders through the requirement of additional disclosure regarding the choice of bid price, while offering the possibility of cash based squeeze-outs for the first time. We examine 612 tender offers between 1990 and 2011 for evidence relating these rule changes to the treatment of target shareholders. Over time, there have been fewer partial and/or discounted offers that expropriate minority shareholders. Moreover, there has been a steady increase in offer premiums and announcement effects for target shareholders. However, the improvements in target shareholder treatment do not come at the expense of shareholders of publicly traded bidders. Japan's experience will serve to deepen the understanding of the regulators in countries adopting an MBR.