A ROW over shareholder rights that could shape the future of Japan’s market for mergers and acquisitions developed into a standoff between the Government and the Tokyo Stock Exchange yesterday.

The battle lines also feature Nippon Keidanren, the business lobby, many of whose members live “in constant and unreasonable fear of being taken over by foreign marauders”, according to one senior corporate lawyer. The group is backing the Government.

The argument over whether companies should be allowed to adopt golden shares and other “poison pill” defence strategies has rapidly become an open clash of Japanese and Western business philosophies.

Organisations such as the stock exchange want to change Japanese regulations to protect investors — more and more of whom are foreign — from crude attempts to block bona fide takeover offers. The Government, acting partly under the pressure of Nippon Keidanren, has resisted the exchange’s attempts to establish Western-style corporate governance through its listing rules. The Government is partly concerned that the post office, whose privatisation has absorbed so much political capital, might become a takeover target without golden shares.

Its position is at odds with a pledge made two years ago by Junichiro Koizumi, the Prime Minister, to double foreign direct investment in Japan by 2008. Few mergers and acquisitions (M&A) experts believe that the target will be achieved if Japanese firms are given free rein in fighting takeover bids.

The latest flashpoint came yesterday in the form of a draft proposal, unveiled by Takuo Tsurushima, the stock exchange president. The proposal effectively bans listed companies from having or establishing golden shares that could scotch a takeover bid. A handful of companies where the golden share is held by the Government for strategic reasons would be unaffected.

The proposed rules, which would come into effect early next year, fly in the face of a new corporate code, which will make it easier for Japanese companies to issue golden shares to “safe” investors next year. Under the new code, holders of golden shares could veto bids that raised the value of the target firm’s equity.

“Golden shares may be allowed under Japanese company law, but it is the duty of the Tokyo Stock Exchange to look into measures that are in the interests of shareholders,” Mr Tsurushima said yesterday.

Kaoru Yosano, the Minister for Banking and the Economy, was quick to reject the stock exchange’s proposals. “It isn’t reasonable for listing standards to narrow companies’ options,” he said. This month a Ministry of Economy, Trade and Industry panel said that it favoured allowing golden shares.

The furore has bubbled over after several domestic takeover battles. In those cases, the acquirers took advantage of rules that allow hostile bidders to buy control of a Japanese company without being forced to bid for all of its shares, as is the case in Europe.

“The target company is not left with a great suite of choices if they want to resist that, so they are naturally looking at some of the more toxic defence tactics,” Julian Pritchard, a partner at Freshfields, the law firm, said. “In Europe some companies had golden shares, which in the right circumstances could effectively make them bid-proof. For that reason, there were companies and lawmakers (in Japan) who thought it was ‘just the ticket’, but as a defence tactic it is a very blunt tool.”

UNDER FIRE?

Japanese companies that have looked into poison-pill or other defence strategies within the past 12 months:

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