7.M&A

Q2 (Shares Purchase vs. Share Exchange (Kabushiki-Kokan))

Regarding the methods to acquire a target’s shares to make the company a 100% subsidiary, between a share purchase and a share exchange (kabushiki koukan), what are the characteristics of each procedure?

In a share purchase, you must negotiate with each shareholder separately, and each purchase is a separate process. Otherwise the procedures required under the Company Law are simple. But you will need funds to purchase the shares.

On the other hand, in a share exchange (kabushiki koukan), you can acquire 100% of the shares of the target without the consent of each shareholder. So you can avoid a separate negotiation with each shareholder, but you will be subject to certain procedures under the Companies Act, such as a shareholders meeting and prior notice. Also, you can use your own shares as the consideration in the share exchange, so in that case funds are not necessary. In addition, there are restrictions on the ability to void a share exchange, such as the method to make a claim and the time period.

(Posted: January 27, 2012)