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Trends and climate

Trends

How would you describe the current merger control climate, including any trends in particular industry sectors?

The Japan Fair Trade Commission (JFTC) has examined a number of business combinations, such as mergers and share acquisitions, in various industries in accordance with the Anti-monopoly Law and the regulations on merger control. As for merger control, the JFTC does not appear to have focused its investigations on any particular sectors.

Merger control review by the JFTC is getting more intensive and detailed, although the number of secondary reviews remained at the same level in financial year 2016. The number of secondary reviews was one per year in financial years 2009 and 2010, but this increased to four in financial year 2011, six in financial year 2012, four in financial year 2013, three in financial year 2014, six in financial year 2015 and three in financial year 2016. This could lead to the longer review period substantially, especially for the high profile cases.

Also, as for the analysis on whether the contemplated business combination will trigger the pre-notification obligation, the JFTC seems to change its policy to assess the reportability substantially.

Reform

Are there are any proposals to reform or amend the existing merger control regime?

No. Major amendments to the Anti-monopoly Law and related regulations with regard to merger filings and the Japan Fair Trade Commission (JFTC) review process were made in 2011, and the JFTC enforces the Anti-monopoly Law in accordance with such amendments.

Legislation, triggers and thresholds

Legislation and authority

What legislation applies to the control of mergers?

The Anti-monopoly Law governs business combinations.

The main Japan Fair Trade Commission (JFTC) guidelines for business combinations such as mergers and acquisitions of business or stock (the acquisition of stock of less than 10% is not usually subject to JFTC review) are the Merger Guidelines, introduced in May 31 2004 and amended as necessary to reflect developments in the area.

Business combinations between financial institutions (eg, banks and insurers) are subject to the regulation under the applicable business laws (eg, the Banking Law and the Insurance Business Affairs Law), as well as the Anti-monopoly Law. Moreover, the acquisition of shares in certain companies belonging to a certain industries, such as broadcasting, airlines and Telephone and Telegraph companies, by foreign entities is restricted under the applicable business laws.

What is the relevant authority?

The following business combinations, which may substantially restrain competition in a particular field of trade, are prohibited under the Anti-monopoly Law:

  • the acquisition of stock (ie, voting rights) (the acquisition of stock of less than 10% is not usually subject to Japan Fair Trade Commission (JFTC) review) (Article 10);
  • the interlocking directorates (Article 13);
  • a merger (amalgamation) (Article 15);
  • the acquisition of the entire or an important part of a business or assets for business (Article 16);
  • a company split involving a business combination (Article 15(2)); or
  • a joint stock transfer involving a business combination (Article 15(3)).
  • The JFTC conducts substantive analysis with respect to these business combinations.

If the filing requirements set out under the Anti-monopoly Law are met, a pre-notification will be submitted to the JFTC for its review. Interlocking directorates need not file a pre-notification or post-notification.

The filing requirements (ie, thresholds) set out in the Anti-monopoly Law differ depending on the type of transaction involved; thus, the parties to the business combination must analyse and determine each step of the transaction to identify what type of business combination listed above could be involved in the planned transaction and whether the filing requirements applicable to such business combination may be satisfied. The filing requirements for transactions between domestic companies and those between foreign companies are the same under the Anti-monopoly Law.

Transactions caught and thresholds

Under what circumstances is a transaction caught by the legislation?

If a transaction is categorised into any type of business combination and satisfies filing requirements, it must be notified to the Japan Fair Trade Commission (JFTC) before it is closed.

Even if a transaction categorised into any type of business combination does not satisfy the relevant filing requirements and thus filing is not required, it is possible that the transaction (business combination) may still be prohibited if it substantially restrains competition in the relevant market in Japan.

Do thresholds apply to determine when a transaction is caught by the legislation?

There are no de minimis rules (specific thresholds) for the application of the Anti-monopoly Law. However, the Merger Guidelines provide guidance to identify what type of transactions can be business combinations which will be regulated under the Anti-monopoly Law. For example, the Merger Guidelines provide that a business with a turnover of less than Y100 million and a turnover which represents 5% or less of the total turnover of the transferring company is not usually deemed as “an important business” (only “the acquisition of an important part of a business” is subject to the Anti-monopoly Law).

Informed guidance

Is it possible to seek informal guidance from the authority on a possible merger from either a jurisdictional or a substantive perspective?

Jurisdictional issues There is no informal guidance with regard to the determination of jurisdictional issues. However, the Japan Fair Trade Commission (JFTC) usually responds to questions whether the contemplated transaction will be required to submit a pre-notification.

Substantial issues A company that plans a business combination may consult with the JFTC in advance before filing a pre-notification. This prior consultation is not mandatory. During that process, the participating companies may consult not only regarding the description of a notification form, but also regarding the substantial issues (eg, the relevant product or geographic markets) and the factors which support that the transaction will not raise any anti-competitive concerns. Thus, the participating companies may provide, and the JFTC may request, information necessary for the JFTC’s formal review, including materials for the substantive analysis.

However, in case where filing is required, the JFTC will not give participating companies its formal views or opinions on the substantive issues during the course of this process. Only through the JFTC's formal review, which starts after the JFTC has formally accepted the filing, will the JFTC inform the companies of its opinion on the substantive issues.

There is no restriction on the timing of filing the pre-notification formally. That means the companies may decide with their discretion when they would like to formally submit the pre-notification at any time during the course of such informal prior consultation.

Informal prior consultation with the JFTC is also available for business combination for which filing is not required. In such case the JFTC provides the party companies with its formal opinion regarding substantive issues without filing.

Please see "Policies Concerning Procedures of Review of Business Combination" (JFTC guidelines, June 14 2011) for more details.

Foreign-to-foreign

Are foreign-to-foreign mergers caught by the regime? Is a ‘local impact’ test applicable under the legislation?

Foreign-to-foreign mergers are also subject to the Anti-monopoly Law if they are likely to affect competition on the relevant market in Japan.

The same filing requirements (ie, thresholds) are applied to foreign-to-foreign mergers. Although the special local impact test is not applied to foreign-to-foreign mergers, ‘domestic sales’ (ie, sales within and into Japan) are a key factor of the filing requirements.

Joint ventures

What types of joint venture are caught by the legislation?

A joint venture project involving the formation or establishment of a joint venture company is subject to Japan Fair Trade Commission (JFTC) review under the Anti-monopoly Law. The JFTC will review the formation or establishment of a company jointly owned by the parent companies under the Merger Guidelines, taking account of any ancillary agreements. The filing of notification may be required depending on the type of transaction involved and the relevant filing thresholds. Under the Merger Guidelines, there is no distinguish between full-function and non-full function transactions.

A joint venture that does not involve such business combination (eg, an alliance or a joint venture based solely on an agreement) among competitors may be reviewed under Article 3 of the Anti-monopoly Law as an unreasonable restraint of trade. However, filing is not required under the Anti-monopoly Law.

Notification

Process and timing

Is the notification process voluntary or mandatory?

If the filing requirements (ie, the filing thresholds) are met, filing is mandatory. The participating company that is required to file depends on the type of transaction.

What timing requirements apply when filing a notification?

A notification may be filed if all necessary information is available and the participating companies have decided to proceed with the business combination, even before execution of the final agreement. If the notification is filed too early before the scheduled closing date and the market information at the time of closing materially changes, the Japan Fair Trade Commission may request supplementary information, or require the filing of a new report with a new waiting period. However, if there are no material changes in the market, the participating companies may close the transaction on submitting a report of changes after the first filing. In addition, the participating companies’ most recent financial data may be required to be filed if it becomes available after expiry of the waiting period but before the closing.

What form should the notification take? What content is required?

The Japan Fair Trade Commission has prescribed the format for notification depending on the type of transaction. A company which is required to file must complete the notification in the prescribed format in Japanese, including the necessary information and attaching certain prescribed documents (eg, the articles of incorporation, a copy of the agreements, minutes of the meetings of appropriate corporate organisations and financial reports), alongside a Japanese translation (or at least a Japanese summary of the relevant parts) thereof.

Is there a pre-notification process before formal notification, and if so, what does this involve?

Jurisdictional issues There is no mandatory process before filing of formal notification. With regard to a pre-notification process, the Japan Fair Trade Commission (JFTC) usually responds to questions regarding filing, such as in relation to the need to file under the Anti-monopoly Law.

Substantial issues A company that plans a business combination may consult with the JFTC in advance before filing a pre-notification. This prior consultation is not mandatory. During that process, the participating companies may consult not only regarding the description of a notification form, but also regarding the substantial issues (eg, the relevant product or geographic markets) and the factors which support that the transaction will not raise any anti-competitive concerns. Thus, the participating companies may provide, and the JFTC may request, information necessary for the JFTC’s formal review, including materials for the substantive analysis.

However, in case where filing is required, the JFTC will not give participating companies its formal views or opinions on the substantive issues during the course of this process. Only through the JFTC's formal review, which starts after the JFTC has formally accepted the filing, will the JFTC inform the companies of its opinion on the substantive issues.

There is no restriction on the timing of filing the pre-notification formally. That means the companies may decide with their discretion when they would like to formally submit the pre-notification at any time during the course of such informal prior consultation.

Informal prior consultation with the JFTC is also available for business combination for which filing is not required. In such case the JFTC provides the party companies with its formal opinion regarding substantive issues without filing.

Please see "Policies Concerning Procedures of Review of Business Combination" (JFTC guidelines, June 14 2011) for more details.

Pre-clearance implementation

Can a merger be implemented before clearance is obtained?

The closing of a transaction involving a business combination is subject to a waiting period under the Anti-monopoly Law (ie, at least 30 days after the Japan Fair Trade Commission’s (JFTC) acceptance of the filing) during which the JFTC reviews the business combination. Under the Anti-monopoly Law, this period may be shortened at the discretion of the JFTC if the filing party submits a written request to do so.

If the JFTC formally requests supplementary material and information (secondary request) for its further review, it may substantially extend the waiting period beyond 30 days.

The JFTC’s policy for reviewing business combinations sets down a fixed timeframe for review: in principle, this must be completed within 30 days after formal acceptance of the filing for the primary review, and 90 days after the JFTC accepts the report to respond to the secondary requests from the participating companies for the secondary review.

The JFTC review process and timeframe is as follows.

Primary review During the 30-day waiting period, the JFTC may request the participating companies to provide various information that the JFTC deems necessary to review the case and reviews the business combination in question. If the JFTC determines that it should issue a cease and desist order (eg, divestiture) as a result of its review, it must notify the filing company. This period may be shortened at the JFTC’s discretion. However, in practice, it is unlikely that the JFTC will decide to issue a cease and desist order at this stage; instead, it usually issues a secondary requests to require the filing company to report and submit supplementary materials and information necessary to further review the planned business combination and enter in to the secondary review.

Secondary review If the JFTC issues a secondary requests during the waiting period, a separate period for the JFTC's review will apply of up to:

  • 120 days after receipt of prior notification by the JFTC; or
  • 90 days after the completion of the submission of the supplementary materials to respond to the secondary request, whichever is the longest.   

The JFTC must then reach a conclusion and inform the filing company accordingly.

Although the JFTC may not extend the period described above beyond the time prescribed by the Anti-monopoly Law for the secondary review, it may determine whether and when submission of the necessary documents is complete. Moreover, if the participating companies provide waivers, the review or waiting period may be extended.

The 90-day period does not begin until the participating companies have provided all information and/or materials requested by the JFTC.

Please see "Policies Concerning Procedures of Review of Business Combination" (JFTC guidelines, June 14 2011) for more details.

Guidance from authorities

What guidance is available from the authorities?

The "Policies Concerning Procedures of Review of Business Combination" (Japan Fair Trade Commission (JFTC) guidelines, June 14 2011) provide the JFTC review process in detail.

The Merger Guidelines, published on May 31 2004 and amended as necessary to reflect developments in the area, provide guidance on the substantive analysis.

Fees

What fees are payable to the authority for filing a notification?

No filing fee is payable.

Publicity and confidentiality

What provisions apply regarding publicity and confidentiality?

Filings are not published. However, with regard to some of the outcome of the primary review (ie, a review undertaken by the Japan Fair Trade Commission (JFTC) for up to 30 days after the acceptance of filing) that the JFTC believed as precedents of JFTC decisions, the JFTC will make such decisions public announcement with regard to the business combination.

The JFTC usually makes public the transaction when it decides to enter into the secondary review. The JFTC also makes the outcome of the secondary review public.

Penalties

Are there any penalties for failing to notify a merger?

Failure to file or the inclusion of misrepresentations in a notification is subject to a criminal fine of up to Y2 million.

The Japan Fair Trade Commission (JFTC) may file an action to make void a merger, company split or joint stock transfer involving a business combination that was closed without filing under the Anti-monopoly Law.

If a business combination which was not notified is found to violate substantive law, it is subject to a cease and desist order from the JFTC, even after closing.

Procedure and test

Procedure and timetable

What procedures are followed by the authority? What is the timetable for the merger investigation?

The Japan Fair Trade Commission (JFTC) policy for reviewing business combinations sets down a fixed timeframe for review: in principle, this must be completed within 30 days after formal acceptance of the filing for the primary review, and 90 days after the JFTC accepts the report to respond to the formal request to report and submit supplementary materials and information (secondary requests”) from the participating companies for the secondary review.

The JFTC review process and timeframe is as follows.

Primary review During the 30-day waiting period, the JFTC may request the participating companies to provide various information that the JFTC deems necessary to review the case and reviews the business combination in question. If the JFTC determines that it should issue a cease and desist order (eg, divestiture) as a result of its review, it must notify the filing company. This period may be shortened at the JFTC’s discretion. However, in practice, it is unlikely that the JFTC will decide to issue a cease and desist order at this stage; instead, it usually issues the secondary requests to require the filing company to report and submit supplementary materials and information necessary to further review the planned business combination.

Secondary review If the JFTC issues a secondary requests during the waiting period, a separate period for the JFTC's review will apply of up to:

  • 120 days after receipt of prior notification by the JFTC; or
  • 90 days after the completion of the submission of the supplementary materials to respond to the secondary request, whichever is the longest.   

The JFTC must then reach a conclusion and inform the filing company accordingly.

Although the JFTC may not extend the period described above beyond the time prescribed by the Anti-monopoly Law for the secondary review, it may determine whether and when submission of the necessary documents is complete. Moreover, if the participating companies provide waivers, the review or waiting period may be extended.

The 90-day period does not begin until the participating companies have provided all information and/or materials requested by the JFTC.

Please see "Policies Concerning Procedures of Review of Business Combination" (JFTC guidelines, June 14 2011) for more details.

What obligations are imposed on the parties during the process?

The Japan Fair Trade Commission (JFTC) is authorised to conduct either mandatory or voluntary investigations into violations of the Anti-monopoly Law. However, in recent years the JFTC has not carried out mandatory investigations (eg, dawn raids) for business combinations; rather, it usually requests information on a voluntary basis in business combination cases. The participating companies need, in practice, respond to such requests in order to obtain a clearance from the JFTC.

The inclusion of misrepresentations in a notification is subject to a criminal fine of up to Y2 million. Such fine is imposed on the individual responsible for the filing and/or the company which made the misrepresentations.

What role can third parties play in the process?

Anyone may file a complaint with the Japan Fair Trade Commission (JFTC). If the complaint is filed in writing identifying specific facts, the JFTC is required to investigate the case at least to some extent, and notify the party that filed the complaint of its decision.

The JFTC may seek opinions from third parties during the process of examining a business combination after the filing (ie, mainly during the secondary review phase).

Substantive test

What is the substantive test applied by the authority?

Anti-monopoly Law A concentration that may substantially restrain competition in a particular field of trade (ie, the relevant market) in Japan (or that has such impact on the Japanese market), or that involves unfair trade practices, is prohibited under the Anti-monopoly Law. 

Merger Guidelines The approach of the Japan Fair Trade Commission (JFTC) to the definition of the relevant market, the assessment of the impact on competition in the relevant market and remedies is covered in the Merger Guidelines. 

The guidelines also provide certain safe harbours for horizontal business combinations.

The JFTC will review a proposed horizontal business combination which does not fall under the safe harbour from the perspective of “possible unilateral activities”, taking into account factors such as:

  • the status of the participating companies and their competitors (ie, market shares, ranking and the differences in market shares between the participating companies and their competitors before the merger and after the merger);
  • existing competition between the participating companies;
  • competitive pressures from competitors;
  • any excess in capacity for supply and substitutability; and
  • the degree of product differentiation.  

The Merger Guidelines also provide that the JFTC will examine the proposed concentration in terms of coordinated effects with regard to the following factors:

  • the number of market participants;
  • existing competition between the participating companies;
  • any excess in supply capacity;
  • the terms and conditions of the transactions and/or business practices in the market;
  • competitive pressures from imports;
  • potential entrants; and
  • (vertically) related markets.   

The Merger Guidelines set out certain safe harbours for both vertical and conglomerate mergers, as well as various factors to be considered by the JFTC for vertical and conglomerate mergers.

Carve-outs

Does the legislation allow carve-out agreements in order to avoid delaying the global closing?

In theory, a carve-out agreement is possible if the portion which may affect competition in the Japanese market is excluded from a transaction to be closed outside Japan.

Test for joint ventures

Is a special substantive test applied for joint ventures?

The substantive test applied to business combinations involving joint ventures is the same as that applied to straightforward mergers and acquisitions. The Japan Fair Trade Commission takes into account the communication and information exchange between the parent companies that would occur in the course of operating and managing the joint venture company.

Remedies

Potential outcomes

What are the potential outcomes of the merger investigation? Please include reference to potential remedies, conditions and undertakings.

If the Japan Fair Trade Commission (JFTC) formally or informally notifies the parties of antitrust concerns raised by a proposed business combination, the participating companies can offer remedies and start discussions with the JFTC. This usually occurs during the JFTC notification review process, although some companies propose a plan of remedies from the beginning in order to accelerate the approval process.

The Merger Guidelines provide that, in principle, the remedies should require structural changes to maintain competition in the relevant market where an adverse impact on competition is foreseeable, rather than mere behavioural restrictions on the participating companies. However, if any special reasons justify behavioural remedies, such remedies may also be considered to the extent that the JFTC deems appropriate. The remedies agreed to by the participating companies are made public by the JFTC. The remedies in a particular case depend on the antitrust issues raised by that given case, and may well depend on the facts and issues in that case.

The Merger Guidelines provide that, in principle, remedies should be implemented before closing of the transaction. However, the guidelines also provide that in exceptional cases the participating companies may close the transaction before the implementation of remedies, if the details have been approved and implementation deadlines have been set. If the remedies involve the divestiture of a certain business, the JFTC usually considers it more appropriate for the participating companies to identify the buyer before closing the transaction, and sometimes requires prior JFTC approval.

Appeals

Right of appeal

Is there a right of appeal?

A cease and desist order issued by the Japan Fair Trade Commission (JFTC), including that regarding a business combination, may be appealed. Under the 2013 amendment to the Anti-monopoly Law (which took effect on April 1 2015), the JFTC’s orders are subject to direct review by judicial courts under the Anti-monopoly Law and applicable administrative procedure laws. More specifically, the addressee of a cease and desist order, a participating company or participating companies may file a complaint directly with the Tokyo District Court to quash a JFTC order blocking a business combination.

Do third parties have a right of appeal?

Cease and desist orders and the related appeal procedures have been discussed only in cases involving violations the Anti-monopoly Law, rather than cases involving business combinations. This is because the issues raised by proposed business combinations are settled through the Japan Fair Trade Commission’s review process, and in the past 20 years no judicial action has been taken with regard to the business combinations as violations of the Anti-monopoly Law. While the applicable laws do not deny a third party’s right of appeal, it appears that it would be difficult for a third party to overcome the issue of standing.

Time limit

What is the time limit for any appeal?

Under the 2013 amendment to the Anti-monopoly Law (which took effect on April 1 2015), the time limit for appeal is six months following the day on which the Japan Fair Trade Commission’s cease and desist order is served.