The Merger Control Review: Japan

Introduction

Merger control together with Japan's first competition rules were introduced in Japan by the 1947 Japanese Antimonopoly Act (AMA). Merger control is enforced by the Japan Fair Trade Commission (JFTC), which was established as an independent administrative office with broad enforcement powers. The JFTC is composed of a chair and four commissioners and has primary jurisdiction over the enforcement of merger control under the AMA.

i Pre-merger notification

Types of regulated mergers and thresholds

Share acquisitions, mergers,2 joint share transfers, business or asset transfers and corporate splits (or demergers) are subject to prior notification under the AMA if they exceed certain thresholds. M&A transactions whose schemes involve more than one of these transactions (e.g., reverse triangular mergers that involve a merger between a target and a subsidiary of an acquirer and an acquisition by the acquirer of shares in the target) are separately analysed at each step of the transaction and may require separate filings for each of the various transactional steps.

Joint ventures are also subject to the notification requirement if they satisfy the thresholds for the type of transactions used to form a joint venture, such as share acquisitions and asset acquisitions. Unlike the regime in the EU, Japanese law does not distinguish between full-function and non-full-function joint ventures. Notification may be also required when a partnership (including a limited liability partnership) formed under Japanese law or under foreign laws acquires shares in another company through partnership. The controlling company of such partnership should file a prior notification if the filing thresholds are otherwise satisfied.3

Generally speaking, no notification is required for transactions that amount to internal reorganisations of companies within a combined business group.4

Domestic turnover

Domestic turnover, which is defined as the total amount of the price of goods and services supplied in Japan during the latest fiscal year,5 is used as a decisive factor in the calculation of thresholds. The same thresholds will apply to both domestic and foreign companies.

According to the Merger Notification Rules,6 the domestic turnover of a company includes the sales amount accrued through direct importing into Japan regardless of whether the company has a presence in Japan.

To be precise, domestic turnover is the total amount of the following three categories of sales:7

  1. sales amount derived from the sale of goods (including services) sold to domestic consumers (excluding individuals who are transacting business);
  2. sales amount derived from the sale of goods (including services) supplied in Japan to business entities or individuals that are transacting business (business entities) (excluding sales of goods where it is known that such goods will be shipped outside Japan at the time of entering into the contract, without any changes made to their nature or characteristics); and
  3. sales amount derived from the sale of goods (including services) supplied outside Japan to business entities where it is known that such goods will be shipped into Japan at the time of entering into the contract, without any changes made to their nature or characteristics.

In cases where the calculation of domestic turnover cannot be made in strict compliance with these rules, it is also permitted to use a different method to calculate the amount of the domestic turnover as long as it is in line with the purpose of the above-specified method and in accordance with generally accepted accounting principles.8

Notification thresholds for each type of transaction

Under the AMA, different notification thresholds apply depending on the different types of transactions, namely, share acquisitions, mergers, joint share transfers, business or asset transfers and corporate splits.

For share acquisitions (including joint ventures), the thresholds are based on both domestic turnover and the level of shareholding in the target. First, the aggregate domestic turnover of all corporations within the combined business group of the acquiring corporation must exceed ¥20 billion, and the aggregate domestic turnover of the target corporation and its subsidiaries must exceed ¥5 billion to meet the filing requirement.9 Second, such acquisition must result in the acquirer holding more than 20 per cent or 50 per cent of the total voting rights of all of the shareholders of the target (i.e., an acquisition that increases a shareholding from 19 per cent to 21 per cent is subject to a filing, while an acquisition that increases a shareholding from 21 per cent to 49 per cent does not require one).10 A minority ownership of over 20 per cent will be caught regardless of whether the acquirer will take control of the target company.

For mergers and joint share transfers,11 the thresholds are based on domestic turnover. The aggregate domestic turnover of the combined business group of one of the merging companies, or of one of the companies intending to conduct the joint share transfer, must exceed ¥20 billion to meet the filing requirement. Furthermore, the aggregate domestic turnover of the combined business group of one other participating company must exceed ¥5 billion.12

For business or asset transfers, the thresholds are based on domestic turnover. The aggregate domestic turnover of all companies within the combined business group of the acquiring company must exceed ¥20 billion to meet the filing requirement. For the transferring company, separate thresholds are applied depending on whether the target business or asset is the whole business or asset of the company or a substantial part of the business or asset thereof. In the former case, a threshold of ¥3 billion of domestic turnover applies to the transferring company; in the latter, the same shall apply to that attributable to the target business or asset.13

For corporate splits, there are a number of relevant thresholds depending upon the structure of the transactions, but the ¥20 billion and ¥5 billion thresholds (or lower thresholds) similarly apply.14

In the case of a merger, corporate split or joint share transfer, both companies intending to effect such transactions have to jointly file.15 By contrast, in the case of a share acquisition or business transfer, only the acquiring company is responsible for filing.

There are no filing fees under the AMA.

ii Regulations and guidelines relating to merger control issued in the past year

In December 2019, the JFTC amended the Guidelines to Application of the Antimonopoly Act Concerning Review of Business Combination Merger Guidelines (the Merger Guidelines)16 in response to, among other things, the increased necessity of dealing with M&A transactions in the digital market. The key amendments to the Merger Guidelines are as follows.

  1. Market definition: the amended Merger Guidelines clarify that, in the case of a two-sided market, the JFTC will basically define a relevant market for each user segment and then determine how the proposed transaction will affect competition in light of the characteristics of the two-sided market, such as network effects and economies of scale.
  2. Competition analysis for horizontal business combination: according to the amended Merger Guidelines, both direct and indirect network effects may be taken into consideration in a merger review of a two-sided market.
  3. Competition analysis for vertical and conglomerate business combinations: the amended Merger Guidelines provide the JFTC's views on theory of harm, including: (1) input, customer foreclosure and exchange of confidential information in a vertical business combination; and (2) foreclosure through bundling or tying, and access to confidential information in a conglomerate business combination.

In addition to the Merger Guidelines, the JFTC simultaneously amended the Policies Concerning Procedures of Review of Business Combination (the Policies for Merger Review).17 This amendment is significant because the JFTC, in a manner clearer than ever before, indicates its willingness to review M&A transactions that have a large value that will likely affect Japanese consumers, but that do not meet the reporting threshold based on the (aggregate) domestic turnover of the target (non-reportable transactions). Further, the amendment encourages voluntary filing for non-reportable transactions with an acquisition value exceeding ¥40 billion, if one or more of the following factors are met:

  1. the business base or research and development base of the acquired company is located in Japan;
  2. the acquired company conducts sales activities targeting Japanese consumers, such as providing a website or a pamphlet in Japanese; or
  3. the aggregate domestic turnover of the acquired company and its subsidiaries exceeds ¥100 million.

Given that the JFTC recently opened a review of the acquisition by Google LLC of Fitbit, Inc, even though that case did not meet the notification thresholds (see Section II.iii), companies engaging in non-reportable transactions for which any of the above three factors are applicable should pay close attention to the potential need to make a voluntary filing with the JFTC.

Year in review

During the 2020 fiscal year (from 1 April 2020 to 31 March 2021; hereafter FY 2020), the JFTC closed one Phase II case: the share acquisition by DIC Corporation of BASF Colors & Effects Japan Ltd (BCE Japan). Another Phase II case continued in FY 2020, the share acquisition by Korea Shipbuilding & Offshore Engineering Co, Ltd of Daewoo Shipbuilding & Marine Engineering Co, Ltd, is still under review. Among the cases closed during FY 2020, the JFTC has published the review results of DIC's share acquisition of BCE Japan (see Section II.i), the business integration of Z Holdings Corporation (ZHD) and LINE Corporation (LINE) (see Section II.ii) and the acquisition by Google of Fitbit (see Section II.iii).

i DIC's share acquisition of BCE Japan

DIC and BCE Japan are both engaged in the pigment business. DIC filed a notification with the JFTC of its intent to acquire all of the shares in BCE Japan.

Among the various colour indices of pigments that both parties produced, the JFTC identified three colour indices as potential causes for concern, not only because the parties' market shares were relatively high for those indices, but also because interviews with customers revealed that some customers do not consider the parties' competitors to be alternative sources for these three indices based on low quality and uncertainty of supply. The JFTC cleared the transaction based on the parties' proposed remedy under which the manufacturing and sales business of relevant pigments would be divested to a third party.

ii Business integration of ZHD and LINE

Both ZHD and LINE are engaged in digital platform businesses, including the operation of online shopping malls and distribution of content (such as electronic books). The parties notified the JFTC of their contemplated business integration.

After closely examining the areas in which ZHD and LINE intensively overlap, including free news services, digital advertising and payment services, the JFTC indicated its concerns regarding the field of code-based payment services. Code-based payment services consist of a payment method that executes settlement of funds by electronically reading payment information in the form of a bar code or a QR code through a payment app on a smartphone. The parties' market shares for those payment services on a settlement amount basis is approximately 55 per cent for ZHD and 5 per cent for LINE.

Following an in-depth review, including an economic analysis, the JFTC concluded that, although the transaction may not immediately result in substantial restraint of competition, the competitive concerns could not be completely dispelled, based on, among other things: (1) the parties' strong position in the relevant markets; (2) the exclusive dealing conditions that the parties impose on member stores, which decrease competitors' positions in the markets; (3) the difficulty of new entry into the markets; (4) the fact that competitive pressure from adjacent markets (e.g., credit cards and other cashless payment services) and users is not strong or limited; and (5) the parties' internal data,18 which implied their intention to consider raising fees for member stores following the transaction.

To address the JFTC's concerns, the parties proposed the following remedies:

  1. to report, on an annual basis for three years, the market size of code-based payment services, the market position of the parties and their competitors, the parties' fee for member stores, and the parties' utilisation of data relating to code-based payment services;
  2. to discuss the annual reports with the JFTC and consider countermeasures if the JFTC raises competitive concerns about these; and
  3. to remove exclusive dealing conditions that the parties currently impose on member stores.

The JFTC ultimately concluded that, if the parties implemented these remedies, the transaction would not substantially restrain competition in any of the relevant markets.

iii Acquisition by Google of Fitbit

The Google group is active in a wide range of areas, including digital advertising, internet search engines, cloud computing, software and hardware. The Fitbit group mainly manufactures and distributes wrist-worn wearable devices. The acquisition by Google of Fitbit did not trigger mandatory filings in Japan because Fitbit's turnover in Japan was under the ¥5 billion threshold (see Section I.i). However, because the transaction fell within the category for which a voluntary filing is recommended (see Section I.ii), the JFTC initiated an investigation.19

The JFTC indicated certain competitive concerns in terms of the following:

  1. vertical business combination:
    • where the upstream market is the market for providing operating systems for smartphones (Google) and the downstream market is the market for manufacturing and selling wrist-worn wearable devices (Fitbit); and
    • where the upstream market is the market for providing health-related databases (Google/Fitbit) and the downstream market is the market for providing health applications (for wrist-worn wearable devices and for smartphones) (Google/Fitbit); and
  2. conglomerate business combination: where one market is the market for providing health-related databases (Google/Fitbit) and the other market is the market for digital advertising (Google).

In particular, in regard to the first scenario in (a), the JFTC indicated its concerns that Google may foreclose its competitors in the downstream markets by, for instance, refusing access to the Android application programming interface (API) and health-related data provided by Google. Regarding (b), the JFTC was concerned that Google's use of Fitbit users' health-related data for digital advertising may further strengthen its position in the digital advertising market. To address the JFTC's concerns, the parties proposed to provide competitors with access to the Android API and health-related data free of charge for 10 years. Further, Google proposed that, for a period of 10 years, it: (1) would not use health-related data for its digital advertising; and (2) would maintain the health-related data separately from other datasets within the Google group. The JFTC cleared the transaction subject to these conditions.

iv Statistics of the JFTC's activity

According to the JFTC, the total number of merger notifications filed in FY 2020 was 266.

In the past 10 years, there have been a few cases brought into Phase II review each year, while there have been no formal prohibition decisions made by the JFTC. According to the JFTC's statistics, the number of filings and the cases cleared after Phase II review are as follows.

FY 2011FY 2012FY 2013FY 2014FY 2015FY 2016FY 2017FY 2018FY 2019FY 2020
No. of filings275349264289295319306321310266
No. of cases cleared after Phase II review3531331301

The merger control regime

i Waiting periods and time frames

In terms of time frames, the standard 30-day waiting period will apply, which may be shortened in certain cases (see Section III.ii). If the JFTC intends to order necessary measures regarding the notified transaction, it will do so within the 30-day (or shortened) waiting period (which is extremely rare) or, if a Phase II review is opened, within the longer period of either 120 calendar days from the date of receipt of the initial notification or 90 calendar days from the date of the JFTC's receipt of all of the additionally requested information. It should be noted that the JFTC does not have the power to 'stop the clock' in either the Phase I or Phase II review periods. It is, however, possible for the notifying party to 'pull and re-file' the notification during the Phase I period, thereby effectively restarting the clock.

ii Parties' ability to accelerate the review procedure

There is no provision in the law and there are no regulations regarding the ability to accelerate the review process. However, in practice, it may be possible to put pressure on the JFTC by submitting a written request to the JFTC in cases where a filing is made less than 30 calendar days before the planned closing date. The Merger Guidelines state that the JFTC may shorten the waiting period when it is evident that the notified merger may not substantially restrain competition in any relevant market (which means when the JFTC closes its review prior to the expiry of the 30-calendar-day review period).

iii Third-party access to the file and rights to challenge mergers

Access to the file

Generally speaking, no third party has access to the merger notification files. Further, the JFTC does not even disclose the fact of the filing of a merger notification or clearance thereof, except for cases in which a Phase II review is commenced (in which case the JFTC discloses the identity of the companies involved in the notified transactions).20 This means that third parties cannot even confirm whether a merger has actually been notified, unless the case has moved on to Phase II. Apart from these limited disclosures, the JFTC usually discloses details of some major merger notification cases as part of its annual review. Such disclosure is generally subject to obtaining approval for publication from the notifying parties.

Rights to challenge mergers

Interventions by interested parties in JFTC proceedings have not historically been common.

Although third parties may file a lawsuit to ask the court to order the JFTC to issue a cease-and-desist order, the legal path to successfully do so is extremely narrow and does not merit a detailed explanation here. There are two ways for third parties to submit complaints to the JFTC in the course of a merger review: to notify the JFTC's investigation bureau of a possible breach of the AMA;21 or to submit complaints to the mergers and acquisitions division of the JFTC.

In addition, as stated in the Policies for Merger Review, in the event that a merger review moves on to Phase II, the JFTC will publicly invite opinions and comments from third parties. Public hearings can be held22 if deemed necessary, but they have been extremely rare to date. The JFTC sometimes conducts informal hearings, and market tests by way of questionnaires, with third parties, including competitors, distributors and customers, in the course of its review, as it did in the review of the business integration of ZHD and LINE (see Section II.ii).

iv Resolution of authorities' competition concerns, appeals and judicial review

The JFTC can issue a cease-and-desist order when it believes that a proposed transaction has the effect of substantially restraining competition in a particular field of trade (i.e., a relevant market). Prior to issuing a cease-and-desist order, the JFTC will provide, in advance, information about, inter alia, the outline of the contemplated order as well as the underlying facts and the list of supporting evidence to the potential recipients of such order. The JFTC does so to give the potential recipients an opportunity to review and make copies of the evidence (to the extent possible) and to submit opinions as to the possible order.23

When the JFTC issues a cease-and-desist order, the parties to the transaction can appeal to the Tokyo District Court for annulment of the JFTC order.

v Effect of regulatory review

The JFTC frequently holds consultations with sector-specific regulators concerning general issues as to the relationship between the JFTC's competition policy and sector-specific public and industrial policies. In this regard, it is generally understood that the JFTC considers relevant public and industrial policy issues when ruling on a given transaction, without prejudice to the independence of its competition policy review and merger review. Among the various government ministries, the Ministry of Economy, Trade and Industry has been active in advocating competition policy, but depending on the specifics of each case, other ministries may also be involved.

vi Substantive review

The Merger Guidelines set out the various factors that may be taken into account by the JFTC when assessing the impact of notified transactions on the competitive situation. Specifically, the Merger Guidelines provide an analysis of the substantive test for each type of transaction (e.g., horizontal, vertical and conglomerate M&A transactions). One of the important parts of the substantive test analysis is the use of 'safe harbours' measured by the Herfindahl-Herschman Index (HHI) for each of the above three categories (see Section III.vii). It is also suggested in the Merger Guidelines that, both before and after the transaction, the JFTC will closely analyse market conditions from various viewpoints, including whether the transaction may facilitate concentration between market players, to ultimately determine the notified transaction's actual impact on competition.

Additionally, the amended Merger Guidelines suggest that if the transaction parties are both engaged in research and development in competing markets, the proposed transactions will likely reduce potential competition between the parties. The amended Policies for Merger Review, which make clear that the JFTC may request the parties to submit their internal documents concerning the proposed transaction (e.g., minutes of the board of directors, documents used for analysis and decision-making), may be utilised by the JFTC to assess, among other things, the potential effects in terms of research and development activities of the parties.

The detailed method to define the 'particular field of trade' (i.e., relevant market) is also provided in the Merger Guidelines. Importantly, the Merger Guidelines indicate that the geographic market may be wider than the geographical boundaries of Japan, depending upon the international nature of the relevant business. There have been several JFTC cases where the JFTC defined the relevant geographical market to extend beyond Japan.

vii Safe harbours

In the safe harbour analysis, if any of the following conditions are satisfied, the JFTC is likely to consider that the notified transaction does not substantially restrain competition in a relevant market:

  1. horizontal transactions:
    • the HHI after the notified transaction is not more than 1,500;
    • the HHI after the notified transaction exceeds 1,500, but is not more than 2,500, and the increased HHI (delta) is not more than 250; or
    • the HHI after the notified transaction exceeds 2,500 and the delta is not more than 150; and
  2. vertical and conglomerate transactions:
    • the merging parties' market share after the notified transaction is not more than 10 per cent; or
    • the merging parties' market share after the notified transaction is not more than 25 per cent and the HHI after the notified transaction is not more than 2,500.24

The amended Merger Guidelines indicate that even if one of the safe harbour thresholds is satisfied, the JFTC may conduct a substantive review of the proposed transaction if the market shares of the parties do not reflect their potential competitive significance (e.g., due to access to important data or intellectual property).

In addition to the safe harbour, the JFTC is highly unlikely to conclude that transactions falling within the following threshold would substantially restrain competition in any particular market: the HHI after the notified transaction is not more than 2,500 and the merging parties' market share is not more than 35 per cent.

If the notified transaction does not satisfy the requirements for any of the above, the JFTC will likely conduct a more in-depth analysis of the unilateral and coordinated effects of the notified transactions.

viii Gun-jumping

In 2016, the JFTC approved Canon's acquisition of shares in Toshiba Medical, Toshiba Corporation's (Toshiba) medical equipment unit. However, the JFTC also issued a statement warning that the structure of the deal could be deemed to circumvent the law, including the prior notification obligation under the AMA, because the parties had provided that Toshiba could receive the payment of the transaction price of ¥665.5 billion before the JFTC's clearance. Specifically, Canon acquired an equity warrant for which common shares in Toshiba Medical were the underlying securities. In return for that equity warrant, Canon paid to Toshiba an amount virtually equivalent to the consideration for common shares. Further, shares with voting rights in Toshiba Medical were acquired and held by an independent third-party owner up until the time Canon exercised the equity warrant. The JFTC found that the transaction structure formed part of a scheme that was aimed at Canon ultimately acquiring shares in Toshiba Medical.

The JFTC held that since there is no public precedent of its position as to such a transaction structure, it would not impose any sanctions in this case, but warned that similar transaction schemes will be considered to be in violation of the AMA in the future.

Other strategic considerations

i Cooperation between the JFTC and foreign competition authorities

In principle, the JFTC is entitled to exchange information with competition authorities of other jurisdictions based on the conditions set out in the AMA.25 In addition, the Japanese government has entered into bilateral agreements concerning cooperation on competition law with the United States, the European Union and Canada, and multinational economic partnership agreements with competition-related provisions, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Furthermore, the JFTC has entered into inter-agency bilateral cooperation memoranda with various competition authorities.26

The JFTC has a good track record of closely working with other competition authorities. It is reported that the JFTC exchanged information with various authorities, including its counterparts in the United States and the European Union, for example, in the review of the acquisition of Fitbit by Google in 2021 and the acquisition of Celgene by Bristol-Myers Squibb in 2019.

ii Pre-filing consultation with the JFTC

Upon the abolition of the prior consultation procedure in 2011, the JFTC no longer provides its formal opinion at the pre-notification stage, and the review officially starts at the formal notification stage. However, neither of the Phase I or Phase II review periods can be extended even where parties submit a remedy proposal to the JFTC; nor can the JFTC stop the clock.

In practice, the JFTC is flexible about having informal discussions with potential notifying parties upon request or voluntary submission of relevant materials before the formal filings. In fact, in almost all of the recent cases that the JFTC has cleared after Phase II review, the JFTC made specific notes in its announcements that the parties had submitted supporting documents and opinions to the JFTC on a voluntary basis before officially filing the notifications. It is understood that parties to complicated mergers make use of the informal procedure to try and alleviate any potential concerns early. This is also true in multi-jurisdictional merger notifications where the management of the filing schedule is important to avoid conflicting remedies or prohibition decisions among various jurisdictions. In such pre-filing communications, coordination among Japanese and foreign attorneys is of great importance.

iii Special situations

Failing company doctrine

The Merger Guidelines recognise the 'failing company doctrine'. They state that the effect of a horizontal merger would not be substantial if a party to the merger has recorded continuous and significant ordinary losses, has excess debt or is unable to obtain financing for working capital, and it is obvious that the party would be highly likely to go bankrupt and exit the market in the near future without the merger, and so it is difficult to find any business operator that could rescue the party with a merger that would have less impact on competition than the business operator that is the other party to the merger.

Size of a relevant market

The amended Merger Guidelines indicate that in a case in which a relevant market is not large enough for the parties to efficiently compete even without a proposed transaction, such proposed transaction would not substantially restrain competition in the relevant market in general even if only the notifying parties will remain active in the relevant market after the transaction. This principle was applied for the first time to the acquisition by Fukuoka Financial Group Ltd of The Eighteenth Bank Ltd, for which the JFTC issued a press release in 2018 stating that it found no substantial restraint of competition even though the notifying party would remain as only one bank in certain rural areas because those areas were too small for the parties to make a profit regardless of rationalisation of their operations.

Minority ownership interests

Minority ownership of over 20 per cent of the voting rights in a company is a notifiable event regardless of whether the acquirer will take control of the target company (see Section I.i). In addition, under certain circumstances even minority acquisition may be subject to a Phase II review. Moreover, in the JFTC's substantive review, any companies that are in a 'close relationship' with an acquirer or a target may be deemed to be in a 'joint relationship'. Accordingly, these companies could be treated as an integrated group for the purpose of the substantive analysis. For example, the HHI would also be calculated based on the sales data of the integrated group as a whole. In the acquisition of a partial share of Showa Shell by Idemitsu in 2016, the JFTC, for the purpose of its review, assumed that these parties would be completely integrated as one group after the acquisition, although, at the time, Idemitsu only intended to have a minority shareholding in Showa Shell. The joint relationship is determined by taking into account various factors, even though, according to the Merger Guidelines, a minority holding of voting rights of over 20 per cent and the absence of holders of voting rights with the same or higher holding ratios of voting rights would suffice to find such relationship.

iv Transactions below the notification thresholds

Under the AMA, the JFTC can theoretically review any M&A transaction under the substantive test, regardless of whether the filing thresholds are met. The JFTC has actually investigated transactions that had not been notified in the past, including in the case of Google's acquisition of Fitbit and certain foreign-to-foreign transactions. To mitigate the risk of an investigation, even parties to a concentration that is below the threshold level may opt to consult with the JFTC and file notification on a voluntary basis. In practice, the JFTC applies the same rules and guidelines to substantively review these voluntary notifications.

Outlook and conclusions

Although the 2019 amendments to the Merger Guidelines and the Policies for Merger Review were significant, the majority of these simply reflected the developments of practice and case law since the 2011 amendments, which is largely consistent with developments in other major jurisdictions.

The scope of disclosure, which the JFTC has made in relation to its review of Phase II cases and as part of its annual review about recent major cases, seems to have expanded in recent years. For example, in the business integration of ZHD and LINE, the JFTC disclosed specific details of the economic analysis it conducted, thereby giving greater transparency to its review. Although these disclosures have generally been welcomed by practitioners, when compared to the practice of other leading competition authorities, there is still a relative lack of available information as to the JFTC's decisional practice (e.g., few decisions are published), and there are some areas where further clarification or improvements seem necessary (e.g., as to how network effects will be taken into account in a substantive review). It is hoped that the JFTC will take action, for example, through the publication of more decisions in the near future.

Footnotes

1 Yusuke Nakano, Takeshi Suzuki and Kiyoko Yagami are partners, and Kenichi Nakabayashi is an associate, at Anderson Mori & Tomotsune.

2 The JFTC uses the term 'merger' in its English translation of the AMA to describe what is called an 'amalgamation' in many other jurisdictions.

3 Article 10, Paragraph 5 of the AMA.

4 A combined business group consists of all of the subsidiaries of the ultimate parent company. A company will generally be considered to be part of a combined business group not only when more than 50 per cent of the voting rights of a company are held by another company, but also if its financial and business policies are 'controlled' by another company. The Merger Notification Rules (see footnote 6) specify detailed thresholds for 'control' to exist, which might be found even in cases where the ratio of beneficially owned voting rights is even slightly higher than 40 per cent. The concept of control to decide which companies are to be included in the combined business group is in line with the concept of control used to define group companies under the Ordinance for the Enforcement of Companies Act. This concept of control generally (there are still some differences) aligns Japanese merger control with the merger rules of other jurisdictions, especially the EU rules as to the identification of the undertaking concerned.

5 Article 10, Paragraph 2 of the AMA.

6 The Rules on Applications for Approval, Reporting, Notification, etc., pursuant to Articles 9 to 16 of the AMA (as amended) (the Merger Notification Rules).

7 Article 2, Paragraph 1 of the Merger Notification Rules.

8 Article 2, Paragraph 2 of the Merger Notification Rules.

9 Article 10, Paragraph 2 of the AMA.

10 Article 16, Paragraph 3 of the Implementation Rules of the AMA.

11 Under Japanese law, 'joint share transfer' refers to a specific structure stipulated by the Companies Act of Japan that involves two or more companies transferring their shares into a new holding company in exchange for shares of that holding company.

12 Article 15, Paragraph 2 and Article 15-3, Paragraph 2 of the AMA.

13 Article 16, Paragraph 2 of the AMA.

14 Article 15-2, Paragraphs 2 and 3 of the AMA.

15 Article 5, Paragraph 2, Article 5-2, Paragraph 3 and Article 5-3, Paragraph 2 of the Merger Notification Rules.

16 English translation of the amended Merger Guidelines is available at http://www.jftc.go.jp/en/pressreleases/yearly-2019/December/1912173GL.pdf.

17 English translation of the amended Policies for Merger Review is available at http://www.jftc.go.jp/en/pressreleases/yearly-2019/December/1912174Policy.pdf.

18 The parties' internal data was submitted in response to the JFTC's request, which included the minutes of board meetings and management meetings, as well as email communications of directors and employees.

19 See Section IV.iv on the JFTC's authority to initiate investigations into non-notifiable mergers.

20 Policies for Merger Review.

21 Article 45, Paragraph 1 of the AMA.

22 Article 42 of the AMA.

23 Article 9 of the Rules on the Procedures of Hearing of Opinions.

24 Part IV, 1(3) Part V, 1(2) and Part VI, 1(2) of the Merger Guidelines. In practice, if a transaction satisfies the safe harbour conditions in (a) and (b), the JFTC does not conduct any further substantive review of the transaction.

25 Article 43-2 of the AMA.

26 A list of all international agreements and memoranda concerning competition law is available at http://www.jftc.go.jp/en/int_relations/agreements.html.

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