Japan’s ruling political party stepped forward Friday with serious concerns about what it describes as suspected secret cooperation between activist investors and buyout funds in transactions designed to take publicly listed companies private.
A project team focused on corporate governance within the Liberal Democratic Party outlined the issue in draft policy proposals, stating that there have been instances where activist investors are believed to have been working covertly alongside private equity funds pursuing take-private deals.
According to the group, such situations “raise concerns from the perspectives of both enhancing corporate value and legal fairness.” The proposals are expected to be finalized before the end of this month, though no specific cases of alleged collusion were identified in the document.
Observers note this represents one of the most direct expressions of concern yet from Japan’s governing party regarding the growing influence of activist investors in corporate restructuring and take-private transactions — a sign that some companies are pushing back against pressure from such investors.
The Japan Private Equity Association declined to offer any comment on the matter.
Private equity activity in Japan surged 47.8% last year, reaching $42 billion in deals according to Dealogic. That momentum has carried into the current year, highlighted by a bidding competition involving EQT against SoftBank’s LY Corp and Bain Capital for control of Kakaku.com.
Japan has grown into one of the most active markets outside the United States for activist investing, drawing in hedge funds that have pressured companies to boost returns, unwind cross-shareholding arrangements, and strengthen governance practices.
The draft proposals also flagged cases in which activist shareholders are suspected of “securing unfair gains” by channeling a portion of their sale proceeds back into acquisition vehicles set up by private equity buyers.
Among the proposed reforms are stricter standards for shareholders seeking to call special meetings or submit proposals, along with limits on shareholder proposals touching on management decisions.
The group also explored potential steps to rein in what it characterized as “speculative or abusive” arbitrage trading.
Drawing on practices used in U.S. jurisdictions including Delaware, the document suggested Japan may want to consider limiting appraisal-rights claims by investors who bought shares after a merger or acquisition was publicly announced. Appraisal rights give shareholders who oppose a buyout the ability to demand the company buy their shares at a value determined by a court.
Arbitrage trading came under scrutiny during a prolonged dispute over Toyota Motor’s buyout of Toyota Industries, during which U.S. activist fund Elliott Investment Management accumulated a significant stake in the Toyota subsidiary in an effort to push for a higher acquisition price.
