SCOJ 2007 No.30
Encyclopedia
The Bull-dog Sauce Case (株主総会決議禁止等仮処分命令申立て却下決定に対する抗告棄却決定に対する許可抗告事件) is a Supreme Court of Japan case that resulted in a landmark decision regarding hostile takeover defense plans (such as the "poison pill
"). The Court held that such plans do not necessarily violate the principle of shareholder equality under Japanese statutes, even if they result in discriminatory treatment some shareholders; however, such decisions must be made by shareholders themselves, acting in the company's best interest; they cannot be made by management to protect itself. The Bull-dog Sauce case arose from the first use of a poison pill by a Japanese company, and resulted in the Supreme Court's first ruling on the subject of takeover defenses.
Steel Partners LLC is an American hedge fund with offices in New York and Tokyo. It has invested in several Japanese companies that manufacture food and beverage products, including Bull-Dog Sauce, House Foods
, Sapporo, and Nissin Foods; the fund frequently becomes the largest shareholder of a target company and then attempts a takeover or is vocally critical of the company's management. As of August 2007, Steel Partners held stakes in about 30 Japanese companies.
On March 30, 2007, Sapporo Holdings Ltd. shareholders voted two-thirds in favor of poison pill
takeover defense measures in response to a takeover threat from Steel Partners.
; (2) "scorched earth" tactics (e.g. pillaging intellectual property); (3) aiming to use the target company's assets to pay off the bidding company's debts; (4) aiming to sell off assets to produce a large one-time dividend.
, 493 A.2d 946 (Del. 1985) was a 1985 Delaware Supreme Court case that established standards for determining the acceptability of takeover defense tactics such as the poison pill. At the core of the Unocal decision is the so-called proportionality test: a takeover defense is legitimate if the takeover bid presents a threat to the company, and the defense is proportionate to the threat. The Tokyo High Court's ruling in the Nippon Broadcasting Case (see above) has been called a "Unocal rule with Japanese characteristics." Indeed, in the Nippon Broadcasting Case, both sides referenced Unocal in their briefs to the trial court. The influence of Unocal was similarly seen in all three courts' rulings in the Bull-Dog Sauce Case
(1) The principle of shareholder equality, as codified in Article 109-1 of the Company Law, requires that a company treat shareholders fairly based on the type and number of shares they hold. However, if there is a risk that the acquisition of management control by a particular shareholder would harm the company's interests or the common interests of shareholders, discriminatory treatment of said shareholder aimed at preventing such acquisition is not a violation of the principle of shareholder equality unless said treatment is unreasonable.
(2) The question of whether the acquisition of management control by a particular shareholder harms the common interests of shareholders "should be decided by the shareholders themselves, to whom the company's interests ultimately inure, and that decision should be respected unless the general shareholders' meeting was procedurally unfair, the facts upon which the decision was predicated prove to be nonexistent or false, or are there is some other important fault that renders the
decision unjustified."
(3) Steel Partners had the opportunity to express its opinion at the general shareholders' meeting, and it was able to receive compensation that approximated the value of the stock warrants. As such, the stock warrants were not unreasonable or contrary to the principle of shareholder equality.
(4) A takeover defense plan (such as a poison pill) need not be laid out by management prior to a takeover attempt in order to be fair.
(5)Stock warrants that discriminate against certain shareholders with the aim of supporting the company's management or retaining control in shareholders who support said management is blatantly unfair. The present case does not meet that
description, however.
Although the Supreme Court did not validate the Tokyo High Court's finding that Steel Partners was an "abusive acquirer," the High Court's derogatory label received significant attention in the press and the business community.
In November 2007, Bull-Dog Sauce estimated a consolidated net loss of 1.7 billion yen for the full year to March, largely as a result of the fight against Steel Partners. Bull-Dog's market capitalization shrank by 45%, from 32.2 billion yen in June 2007.
On March 28, 2008, Sapporo shareholders voted to renew the company's poison pill takeover defense plan.
On April 18, 2008, Steel Partners sold its remaining stake in Bull-Dog Sauce.
Poison pill
A shareholder rights plan, colloquially known as a "poison pill", or simply "the pill" is a type of defensive tactic used by a corporation's board of directors against a takeover...
"). The Court held that such plans do not necessarily violate the principle of shareholder equality under Japanese statutes, even if they result in discriminatory treatment some shareholders; however, such decisions must be made by shareholders themselves, acting in the company's best interest; they cannot be made by management to protect itself. The Bull-dog Sauce case arose from the first use of a poison pill by a Japanese company, and resulted in the Supreme Court's first ruling on the subject of takeover defenses.
Factual Background
The Bull-Dog Sauce Co., Ltd. is a Japanese company engaged primarily in the manufacture and sale of food seasonings and sauces; it also owns and leases apartments and buildings.Steel Partners LLC is an American hedge fund with offices in New York and Tokyo. It has invested in several Japanese companies that manufacture food and beverage products, including Bull-Dog Sauce, House Foods
House Foods
is one of Japan's largest food manufacturers and brands. It began in 1913 in Osaka as Urakami Shoten, and began selling curry in 1926.It is listed on Section 1 of both Tokyo and Osaka Stock Exchanges, symbol 2810. It is headquartered in Higashiōsaka, Osaka, Japan.House Foods is well known for its...
, Sapporo, and Nissin Foods; the fund frequently becomes the largest shareholder of a target company and then attempts a takeover or is vocally critical of the company's management. As of August 2007, Steel Partners held stakes in about 30 Japanese companies.
On March 30, 2007, Sapporo Holdings Ltd. shareholders voted two-thirds in favor of poison pill
Poison pill
A shareholder rights plan, colloquially known as a "poison pill", or simply "the pill" is a type of defensive tactic used by a corporation's board of directors against a takeover...
takeover defense measures in response to a takeover threat from Steel Partners.
Nippon Broadcasting Case
The Tokyo District Court and Tokyo High Court rulings both cited the Tokyo High Court's 2005 Nippon Broadcasting Case ruling. In that case, the High Court ruled that a board of directors was generally not allowed to issue discriminatory stock warrants to prevent a shareholder from effecting a hostile takeover. However, The High Court noted an important exception: a board of directors was allowed to discriminate against a shareholder if that shareholder possessed a "abusive motive" (濫用目的). (This language was echoed in the High Court's ruling in the Bull-Dog Sauce Case, in which the High Court found Steel Partners to be an "abusive acquirer" (濫用的買収者); see below.) The High Court laid out four examples of clearly abusive motives: (1) greenmailGreenmail
Greenmail or greenmailing is the practice of purchasing enough shares in a firm to threaten a takeover and thereby forcing the target firm to buy those shares back at a premium in order to suspend the takeover....
; (2) "scorched earth" tactics (e.g. pillaging intellectual property); (3) aiming to use the target company's assets to pay off the bidding company's debts; (4) aiming to sell off assets to produce a large one-time dividend.
Unocal
Unocal v. Mesa PetroleumUnocal Corp. v. Mesa Petroleum Co.
Unocal v. Mesa Petroleum Co., 493 A.2d 946 is a landmark decision of the Delaware Supreme Court on corporate defensive tactics against take-over bids....
, 493 A.2d 946 (Del. 1985) was a 1985 Delaware Supreme Court case that established standards for determining the acceptability of takeover defense tactics such as the poison pill. At the core of the Unocal decision is the so-called proportionality test: a takeover defense is legitimate if the takeover bid presents a threat to the company, and the defense is proportionate to the threat. The Tokyo High Court's ruling in the Nippon Broadcasting Case (see above) has been called a "Unocal rule with Japanese characteristics." Indeed, in the Nippon Broadcasting Case, both sides referenced Unocal in their briefs to the trial court. The influence of Unocal was similarly seen in all three courts' rulings in the Bull-Dog Sauce Case
History of case
- May 2007: Steel Partners was the largest shareholder of Bull-Dog Sauce with 10.25% of shares.
- May 18: Steel Partners initiated a tender offer at ¥1,584 per share with the intention of acquiring 100% of Bull-Dog Sauce stock. It was widely suggested that Steel Partners would attempt greenmailGreenmailGreenmail or greenmailing is the practice of purchasing enough shares in a firm to threaten a takeover and thereby forcing the target firm to buy those shares back at a premium in order to suspend the takeover....
or hope for the appearance of a white knightWhite knight (business)In business, a white knight, or "friendly investor," may be a corporation or a person that intends to help another firm. There are many types of white knights...
, a strategy that had previously proven profitable.
- June 7: Bull-Dog Sauce announced that it opposed the tender offer on the grounds that it could possibly harm the common interests of shareholders. At the same time, Bull-Dog Sauce's management proposed changes in the corporate charter and the issuance of stock warrants (the poison pill) at the general shareholders' meeting on 24 June.
- June 13: Steel Partners responded by seeking an injunction from the Tokyo District Court prohibiting the directors of Bull-Dog Sauce from passing a resolution on stock warrants and blocking issuance of the stock warrants.
- June 15: Steel Partners changed the terms of its tender offer, raising the price to ¥1,700 and pushing the expiration date back from 28 June to 10 August.
- June 19: Steel Partners withdrew the portion of the injunction requesting prohibition of the stock warrant resolution.
- June 24: At the general shareholders' meeting, the Bull-Dog Sauce's proposals to change the corporate charter and issue stock warrants were both approved with 83.4% of the vote.
- June 28: The Tokyo District Court rejected Steel Partners' request for an injunction blocking Bull-Dog Sauce's takeover defense.
- July 9: The Tokyo High Court rejected Steel Partners' appeal, upholding the Tokyo District Court's denial of Steel Partners' injunction request.
- August 7: The Supreme Court rejected Steel Partners' appeal, upholding the decisions by the Tokyo District Court and the Tokyo High Court to deny Steel Partners' motions.
Findings
The following were among the Supreme Court's findings:(1) The principle of shareholder equality, as codified in Article 109-1 of the Company Law, requires that a company treat shareholders fairly based on the type and number of shares they hold. However, if there is a risk that the acquisition of management control by a particular shareholder would harm the company's interests or the common interests of shareholders, discriminatory treatment of said shareholder aimed at preventing such acquisition is not a violation of the principle of shareholder equality unless said treatment is unreasonable.
(2) The question of whether the acquisition of management control by a particular shareholder harms the common interests of shareholders "should be decided by the shareholders themselves, to whom the company's interests ultimately inure, and that decision should be respected unless the general shareholders' meeting was procedurally unfair, the facts upon which the decision was predicated prove to be nonexistent or false, or are there is some other important fault that renders the
decision unjustified."
(3) Steel Partners had the opportunity to express its opinion at the general shareholders' meeting, and it was able to receive compensation that approximated the value of the stock warrants. As such, the stock warrants were not unreasonable or contrary to the principle of shareholder equality.
(4) A takeover defense plan (such as a poison pill) need not be laid out by management prior to a takeover attempt in order to be fair.
(5)Stock warrants that discriminate against certain shareholders with the aim of supporting the company's management or retaining control in shareholders who support said management is blatantly unfair. The present case does not meet that
description, however.
Validation of Tokyo District Court Ruling
The Supreme Court's ruling was viewed as a clear expression of preference for the District Court's ruling that the identity of the decisionmaker determines the legitimacy of a takeover defense: shareholders are generally legitimate, whereas managers are generally not. See points (2) and (5) in above section "Findings". The District Court in turn had relied on the earlier Nippon Broadcasting Case to support these rulings. See above section "Legal Background."Rejection of Tokyo High Court Ruling
The Supreme Court did not adopt the Tokyo High Court's ruling that a discriminatory stock warrant may be used because a hostile bidder is an "abusive acquirer." In reaching this ruling, the High Court had relied on the four examples of "abusive motives" given in the Nippon Broadcasting Case. See above section "Legal Background."Impact
The Supreme Court decision was widely seen as a validation of the legality of the poison pill takeover defense scheme under Japanese law.Although the Supreme Court did not validate the Tokyo High Court's finding that Steel Partners was an "abusive acquirer," the High Court's derogatory label received significant attention in the press and the business community.
In November 2007, Bull-Dog Sauce estimated a consolidated net loss of 1.7 billion yen for the full year to March, largely as a result of the fight against Steel Partners. Bull-Dog's market capitalization shrank by 45%, from 32.2 billion yen in June 2007.
On March 28, 2008, Sapporo shareholders voted to renew the company's poison pill takeover defense plan.
On April 18, 2008, Steel Partners sold its remaining stake in Bull-Dog Sauce.
See also
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- Japanese lawJapanese law-Historical Developments:Pre-Modern History The early law of Japan was heavily influenced by Chinese law. Little is known about Japanese law prior to the seventh century, when the Ritsuryō was developed and codified. Before Chinese characters were transplanted and adopted by the Japanese, the...
- Judicial System of JapanJudicial system of JapanIn the judicial system of Japan, the postwar constitution guarantees that "all judges shall be independent in the exercise of their conscience and shall be bound only by this constitution and the Laws"...
- Landmark Cases of the Supreme Court of JapanSCOJ Landmark Cases-Landmark Cases of the Supreme Court of Japan:-See also:*Politics of Japan*Japanese law*Judicial System of Japan*2008 Decisions of the Supreme Court of Japan-References:***, trans. Daryl Takeno, Asian-Pacific Law & Policy Journal...