1) Is a merger control regulation in force?

Yes. Merger control regulation was introduced in Chapter 4 of the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade (the “Antimonopoly Act”).

2) Which authorities enforce the merger control regulation?

The Japan Fair Trade Commission (the “JFTC”) enforces the Antimonopoly Act including the merger regulation contained therein.

Decisions of the JTFC may be appealed to the Tokyo District Court (see topic 50).

3) Relevant regulations and guidelines with links:

The merger regulation is contained in Chapter 4 of the Antimonopoly Act. More detailed rules are provided in executive orders, regulations and guidelines issued by the JFTC. Links to the major legislation, guidelines and forms are listed here:

4) Does general competition regulation apply to mergers or ancillary restrictions?

Generally, restrictions on competition which are ancillary to the merger are considered inherent parts of the merger and are not subject to separate scrutiny under the general competition regulation if the JFTC reviews and clears the merger itself. However, restrictions that go beyond what may be considered ancillary may be subject to the general competition regulation. For instance, the general prohibition on unreasonable restraint of trade (horizontal restraint) may be applied to price agreements made by parent companies of joint ventures, which are competing each other, to maintain product prices throughout the establishment of the joint ventures. 

5) May an authority order a split-up of a business irrespective of a merger?

If a company violates rules against private monopolization or other provisions of the Antimonopoly Act, the JFTC has the authority to issue a cease-and-desist order, requiring the violator to take “necessary measure to eliminate the violation” including “partial divestiture of business.” (Article 7(1) of the Antimonopoly Act). Thus, theoretically, if the JFTC believes a split-up is necessary to eliminate the violation, it can do so under the Antimonopoly Act. However, in practice, it is highly unlikely that such a case will occur.

6) Other authorities that also require merger filing or may prohibit transaction
(Note that this may not be an exhaustive list and that industry-specific legislation should always be considered. Furthermore, a merger will often require change of registrations with – but not approval from – the companies register, land register and authorities that have issued permits for the activities of the merging parties.)

The JFTC is the sole authority that requires merger filing or may prohibit transaction. 

7) Are any parts of the territory exempted or covered by particular regulation?

The Antimonopoly Act covers all territories of Japan.

8) Is merger filing mandatory or voluntary?

Merger filing is mandatory when the statutory thresholds are met. 

9) Is there a general definition of transactions subject to merger control?

Yes, according to the Guidelines to Application of the Antimonopoly Act Concerning Review of Business Combination a merger subject to merger control is defined as any of the following:

1. share acquisitions;
2. establishing interlocking directorates;
3. mergers;
4. company splits;
5. joint share transfers; and
6. acquisitions of business or assets.

10) Is "change of control" of a business required?

No.  The Antimonopoly Act provides for a percentage of voting rights to be acquired as a threshold for triggering a filing, and “change of control” is not a filing threshold.  Please see topic 14.

11) How is “control” defined?

N/A

12) Acquisition of a minority interest

When the ratio of total voting rights pertaining to shares of the target company held by the acquiring company group exceeds 20% as a result of share acquisitions, a merger notification is required if other thresholds are met. See topic 14a for details.

13) Joint ventures/joint control – which transactions constitute mergers?

There are no special rules about merger filing with respect to joint ventures or joint control in the Antimonopoly Act, and a joint venture transaction will trigger a filing if the relevant thresholds are met (see topic 14a). 

14) Which thresholds decide whether a merger notification must be filed?
(Unless explicitly stated otherwise, the thresholds described under one threshold category are not cumulative with those described under another category. Thus for instance if there is a market share threshold and a turnover threshold, it is sufficient to meet one of these, unless stated otherwise.)

a) Turnover thresholds

Merger notification rules are different for each type of transaction. The thresholds are based on the total domestic turnover of the merging parties or domestic turnover generated from a business or asset to be purchased (in the case of business/asset transfer transaction). In addition, in the case of share acquisition, the threshold of voting rights ratio is applied.

(As stated in topic 25 the JFTC may request a notification and oppose a merger even if the thresholds are not met.)

Share acquisitions:

Notification is required if:

1. the total domestic turnover of the acquiring company group exceeds JPY 20 billion;
2. the total domestic turnover of the target company and its subsidiaries exceeds JPY 5 billion; and
3. the ratio of total voting rights pertaining to shares of the target company held by the acquiring company group exceeds 20% or 50%.

Mergers:

Notification is required if:

1. the total domestic turnover of one of the company groups participating in the merger exceeds JPY 20 billion; and
2. the total domestic turnover of one of the other company groups participating in the merger exceeds JPY 5 billion.

Company splits:

A company split is a transaction whereby a company transfers all or part of its rights and obligations to another company. This is qualified as an absorption-type company split when the other company (the absorbing company) is an existing entity. When two or more companies transfer their rights and obligations to another company which is established as a newly incorporated entity for the purpose of the transaction, this is called a joint incorporation-type company split (click here for JFTC's illustration).

These two types of company splits may trigger merger filing but the applicable thresholds are different depending on the types of corporate splits:

There are two types of company splits which may subject to merger filing; ‘joint incorporation-type company splits’ which mean causing the company incorporated in a company split to succeed to all or part of the rights and obligations that one or multiple companies hold in connection with their business undertakings and ‘absorption-type company splits’ which mean causing another company to succeed to all or part of the rights and obligations that a company holds in connection with its business undertakings. The thresholds are different for these types.

In the case of joint incorporation-type company splits, notification is required if any of the following conditions are met:

1. the total domestic turnover of one of the company groups splitting all of its business exceeds JPY 20 billion and the total domestic turnover of another company group splitting all of its business exceeds JPY 5 billion;
2. the total domestic turnover of one of the company groups splitting all of its business exceeds JPY 20 billion and the total domestic turnover of another company group splitting a substantial part of its business exceeds JPY 3 billion;
3. the total domestic turnover amount of one of the company groups splitting all of its business exceeds JPY 5 billion and the total domestic turnover of another company group splitting a substantial part of its business exceeds JPY 10 billion; or
4. the total domestic turnover amount of one of the company group splitting a substantial part of its business exceeds JPY 10 billion and the total domestic turnover of another company group splitting a substantial part of its business exceeds JPY 3 billion.

In the case of absorption-type company splits, notification is required under the following conditions.

1. the total domestic turnover of one of the company groups splitting all of its business exceeds JPY 20 billion and the total domestic turnover of the absorbing company group exceeds JPY 5 billion;
2. the total domestic turnover of one of the company groups splitting all of its business exceeds JPY 5 billion and the total domestic turnover of the absorbing company group exceeds JPY 20 billion;
3. the total domestic turnover amount of one of the company groups splitting a substantial part of its business exceeds JPY 10 billion and the total domestic turnover of the absorbing company group exceeds JPY  billion; or
4. the total domestic turnover of one of the company groups splitting a substantial part of its business exceeds JPY 3 billion and the total domestic turnover of the absorbing company group exceeds JPY 20 billion.

Joint share transfers:

Joint share transfers mean any transfer whereby one or multiple companies cause all of its issued shares to be acquired by a newly incorporated company. Notification is required if:

1. the total domestic turnover of one of the company groups participating in the joint share transfer exceeds JPY 20 billion; and
2. the total domestic turnover of one of the other company groups participating in the joint share transfer exceeds JPY 5 billion.

Acquisition of business or assets:

Notification is required if:

1. the total domestic turnover of one of the acquiring company groups exceeds JPY 20 billion; and
2. the transaction involves any of the following: (i) acquiring all business of the transferring company whose domestic turnover exceeds JPY 3 billion; or (ii) acquiring a substantial part of the business or the whole or a substantial part of the fixed assets for business of the transferring company, and the domestic turnover of such acquired parts exceeds JPY 3 billion.

b) Market share thresholds

N/A

c) Value of transaction thresholds

None for mandatory filing system.  Please see the answer to topic 8 regarding voluntary notification system for an acquisition with large transaction value.

d) Assets requirements

See turnover threshold above.

e) Other

N/A

15) Special thresholds for particular businesses

Banking and insurance

There are special thresholds for transactions involving share acquisitions by companies engaged in banking or insurance businesses. The companies engaged in banking business are prohibited from acquiring more than 5% (10% for the companies engaged in insurance business) of the voting rights pertaining shares of the target company engaging in non-financial businesses in Japan without prior approval by the JFTC or confirmation that the transaction falls under exemptions specified in topic 20.

16) Rules on calculation and geographical allocation of turnover

Rules on calculation and geographical allocation of turnover are contained in the Rules on Applications for Approval, Reporting, Notification, etc. Pursuant to the Provisions of Articles 9 to 16 of the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade.

‘Turnover’ is calculated based on the most recent financial year of the company. It includes the following sales:

1. all sales to domestic consumers;
2. sales supplied to companies in Japan (except for sales of the products which are sent to other countries, and the merging party recognizes at the time of concluding the contracts that the corporate companies will send the products to other countries); and
3. product sales supplied to companies in other countries wherein the companies send the products to Japan and the merging party recognizes at the time of concluding the contracts that the companies will send the products to Japan.

Notwithstanding the above, if a company files the annual report, including balance sheet, to a financial regulator, the company may refer to the number reported to the financial regulator as “domestic sales” or its equivalent.

17) Special rules on calculation of turnover for particular businesses

Banking or Insurance undertakings
For a banking and insurance undertaking, ‘turnover’ refers to ordinary profit of the most recent financial year of the undertaking.

Type I Financial Instruments undertakings
For a Type I Financial Instrument undertaking, ‘turnover’ refers to operating profit of the most recent financial year of the undertaking.

18) Series of transactions that must be treated as one transaction

Each transaction must be assessed independently on whether the transaction triggers the merger filing. However, if the parties try to circumvent the merger filing by dividing a transaction piecemeal, the JFTC will regard this as a reportable transaction and impose a sanction. 

19) Temporary change of control

The Japanese merger control regime does not have the concept of “change of control”, either temporary or permanent, and merger filing will be required if the transaction fulfills the relevant thresholds, even if it is temporary (or even for a moment).

20) Special industries, owners or types of transactions

Banking and bus undertakings

Local banking and bus undertakings from application of the merger filing rules in the Antimonopoly Act under certain conditions. A merger between local banking undertakings or local bus undertakings doesn’t have to be filed with the JFTC, but requires approval from the Financial Services Agency or the Ministry of Land, Infrastructure and Transport, if:

1. it may be difficult for the undertaking to provide its basic service sustainably in the future in all or a substantial part of the area where the undertaking provides the service;
2. due to a merger, improvement of the business related to the basic service provided by the undertaking is expected and the service shall be maintained in the area specified in (1);
3. as a result of a merger, there is no risk of causing an unreasonable increase in the price of the basic service provided by the undertaking or other unfair disadvantages to users of the service;
4. the merging parties do not use unfair trade practices;
5. in areas other than specified in (1) above, competition for the basic service provided by the undertaking will not be substantially limited; and
6. competition for products or services other than the basic service provided by the undertaking group companies will not be substantially limited.

Investigations as to whether a merger meets above conditions will be conducted by the Financial Services Agency or the Ministry of Land, Infrastructure and Transport with the consultation to the JFTC.

21) Transactions involving only foreign businesses (foreign-to-foreign)

There is no exemption for foreign-to-foreign transactions. All transactions that meet the thresholds are subject to merger control regardless of where the undertakings concerned are registered, operate or own assets.

22) No overlap of activities of the parties

There is no exemption for transactions with no overlap of activities of the parties.

23) Other exemptions from notification duty even if thresholds ARE met?

Mergers, company splits, joint share transfers, and transfer of business or assets within the same company group are generally exempted from notification as intra-group transaction.

24) May a merging party file voluntarily even if the thresholds are not exceeded?

Yes, even if a transaction does not meet the thresholds, a merging party can consult with the JFTC to obtain the JFTC's view on the transaction.  Because the JFTC has jurisdiction over any transaction subject to merger control regardless of the thresholds, the merging party may wish to consult with the JFTC voluntarily if the transaction may pose a competition concern in Japan or attract the JFTC's attention.  When a merging party consults with the JFTC voluntarily, the JFTC reviews the transaction based on the same guidelines as the mandatory filing transaction.

25) May the competition authority request a merger notification or oppose a transaction even if thresholds are not met?

Yes, the JFTC may request information from the parties, initiate ex officio review and oppose a transaction even if thresholds are not met. 

The JFTC, in its Merger Review Procedure Policies, recommends an acquisition be reported voluntarily if the following requirements are met, even if it does not meet the threshold for mandatory filing:

1. the total consideration for the acquisition exceeds JPY 40 billion, and
2. the acquisition is expected to affect consumers in Japan, for instance by satisfying one of the following criteria:
   • the business site or research and development site of the target company is located in Japan; 
   • the target company conducts business activities addressing  consumers in Japan, such as operating a Japanese website or using a brochure in Japanese; or
   • the aggregated turnover in Japan of the target company exceeds JPY 100 million.

26) Referral within the jurisdiction

N/A

27) Referral from another jurisdiction

N/A

28) Referral to another jurisdiction

N/A

29) May the merging parties request or oppose a referral decision?

N/A

30) Stage of transaction when notification must be filed

Notification must be filed at least 30 days prior to implementation (i.e. closing) of a transaction, as the parties are prohibited from implementing transactions for 30 days from the date when the formal merger notification is accepted by the JFTC, unless the JTFC decides to shorten this period at its discretion. Furthermore, in practice, notification is formally filed only after sufficient pre-notification consultation.

31) Pre-notification consultations

The JFTC recommends and accepts pre-notification consultations by a merging party. Pre-notification consultation is very common practice in the merger filing system in Japan.

32) Special rules on timing of notification in case of public takeover bids and acquisitions on stock exchanges

There is no special rule in merger control regulations for acquisition on stock exchange and public takeover bids. The Parties involved in these types of acquisitions also have to submit a prior notification to the JFTC if the applicable thresholds are met and they are prohibited from implementing the acquisition without obtaining clearance.  It is a standard practice in Japan that a company acquiring shares through public takeover bid make a formal filing to the JFTC before the launch/announcement of the bid. 

33) Forms available for completing a notification

There are notification forms designated to each type of transaction subject to mandatory filing (see links under topic 3).

34) Languages that may be applied in notifications and communication

Only Japanese. If documents submitted with the notification (see topic 35) are in a foreign language, a merging party must prepare the translation, although some documents do not require translation.

35) Documents that must be supplied with notification

Depending on the type of transaction, the following documents must be submitted with a notification:

1. articles of association for each of the parties (except in the case of share acquisitions);
2. the most recent audited annual business reports, balance sheets and financial statements for each of the parties;
3. a copy of the agreement concerning the transaction;
4. a list of shareholders for each of the parties (except in the case of share acquisitions);
5. a copy of the record of the resolution or the consent if there is a resolution of the general meeting of shareholders approving the transaction or a consent of all shareholders (if such resolution or consent is not required, this is not necessary);
6. annual report prepared by the ultimate parent company of the company group to which each party belongs (or a filing party in the case of acquisitions of business or assets) or other documents specifying the properties and profits of the company group; and 
7. power of attorney (if a notification is filed by attorney-in-fact).

36) Filing fees

Filing fee is not required.

37) Is implementation of the merger before approval prohibited?

Merging parties are prohibited from implementing a merger without notifying and waiting for the waiting period of 30 days from the date when the formal notification is accepted. If the parties submit a notification and the waiting period expires, the parties can theoretically implement the transaction before approval (this situation might arise when the JFTC initiates Phase II investigation, where the statutory waiting period lapses, and therefore the party can legally close the transaction, but the JFTC is able to continue its review). However, in this case, the JFTC may apply for an emergency stop order for the transaction to the court. Therefore, in practice, the parties cannot implement the transaction before approval.

38) May the parties get permission to implement before approval?

No, there is no permission rule before approval. However, if the parties obtain approval by the JFTC before the end of the 30-days waiting period, the JFTC can shorten this period by the request of the party.

39) Due diligence and other preparatory steps

Due diligence before the approval of transaction is generally allowed but special care must be made to prevent sensitive market information from being used for purposes other than assessing the viability of the transaction  if the parties are in competition in a specific market in Japan.  In practice, the parties establish a ‘clean team’ consisting of people who are not in positions to influence the competition between the merging parties, and provide safeguard measures to make sure that sensitive information stays within the clean team.

40) Veto rights before closing and "Ordinary course of business" clauses

An "ordinary course of business" clause that prevents the target company from taking decisions outside the course of its ordinary business until the closing date is generally considered acceptable.

However, beyond the purpose of maintaining corporate value, if the merger parties establish a clause which requires a prior consent of the acquirer for specific conduct that may affect the target’s business activity, it may be regarded as ‘gun-jumping’ in violation of the pre-notification obligation.

41) Implementation outside the jurisdiction before approval – "Carve out"

There are no specific rules, and whether it is possible to carve out the Japanese part of a transaction must be assessed carefully on a case-by-case basis. Generally speaking, a “carve-out” of the Japanese part of transaction would not work well in practice, since the carve-out may trigger another filing requirement. 

The JFTC is generally not comfortable with “Carve-out” strategy by the parties, and the parties should understand that the JFTC has the power to investigate a transaction which may have negative impacts on competition in the Japanese market regardless of whether the transaction meets the filing threshold. 

42) Consequences of implementing without approval/permission

The parties may be fined JPY 2 million or less if the transaction is implemented without filing.

Furthermore, if the merging parties implement the merger without filing or waiting for the waiting period of 30 days, the JFTC can file a lawsuit invalidating the merger.

43) Phases and deadlines

44) Tests or criteria applied when a merger is assessed

The JFTC assesses whether the merger will "substantially restrain competition in any particular field of trade".

A “particular field of trade” is a concept equivalent to “market” and the JFTC will define the product market and geographic market.  “Substantially restrain competition” means “to bring about a state in which competition itself has significantly decreased and a situation has been created in which a specific business operator or a group of business operators can control the market by determining price, quality, volume, and various other terms with some latitude at its or their own volition” according to the Guidelines to Application of the Antimonopoly Act Concerning Review of Business Combination.

45) May any non-competition issues be considered?

No.

46) Special tests or criteria applicable for joint ventures

N/A

47) Decisions and remedies/commitments available

A transaction may be approved or ordered to “cease-and-desist”. Even if the JFTC determines that the transaction poses competitive concerns, it can still approve the transaction when the parties offer appropriate remedies to address such concern.

The JFTC indicates several types of appropriate remedies in the Merger Control Guidelines; the JFTC provides that a remedy shall in principle be a structural remedy, while behavioral remedy is allowed only in limited circumstances. Structural remedy includes divestiture of business. Behavioral remedy includes a long-term commitment to provide goods to a third-party on cost-basis, a measure for enabling new entry/import and licensing of important IP rights.

Generally, these remedies should be completed before the implementation of the transaction and if remedies are not completed before the implementation of the transaction (e.g. divestiture of a part of the business), an appropriate and definite deadline for the remedies should be determined before the clearance.

48) How and when will details about the merger be published?

The JFTC will make a public announcement after it requests the merger filing party to submit additional reports to initiate a phase II investigation. In addition, after the investigation of phase II, the JFTC also publishes the result of its review. 

For mergers that were filed and cleared during Phase I, the JFTC discloses the list of transactions (without any detail) once each quarter.  Also, the JFTC annually selects important cases and discloses its review in detail. If the merging parties have not published the plan of the merger, they can ask that the transaction not be disclosed.

49) Access to the file for the merging parties and third parties

The merging parties:

During the investigation stage by the JFTC, the merging parties do not have access to any file retained by the JFTC.  When the JFTC decides to block the transaction and issues a prior notice of the cease-and-desist order, the merging parties are given an opportunity to access to file and present their  arguments before the JFTC. 

Third parties:

Third parties do not have access to the file of the JFTC. They can only access the merger case information which is published by the JFTC on its website.

50) Who can appeal and what may be appealed?

Under the law, the parties can file a lawsuit to invalidate a cease-and-desist order to block the transaction by the JFTC, but in practice, the parties rarely do that. Normally, the parties just abandon the transaction if the JFTC expresses that it would not clear the transaction.