The Japanese Diet yesterday enacted corporate laws that would make it easier to set up a company and execute mergers and acquisitions, which in turn should boost foreign direct investment.
The government of Prime Minister Junichiro Koizumi has been trying to revitalize the world's second-largest economy by encouraging investments abroad and domestic start-ups.
He has set the target of doubling Japan's stock of inward foreign direct investment to ?13.2 trillion (US$120 billion dollars) by the end of next year from ?6.6 trillion in 2001.
The upper house approved a new corporate law and amendments to existing laws, which had already been approved by the lower house, a parliamentary official said. The new corporate law was approved with a 201-to-9 vote.
The changes will take effect by early 2007, the official said.
The new set of rules is designed to ease the requirements for conducting mergers and acquisition and spinning off a unit.
The enactment came a year later than originally planned as the government wanted to give local companies enough time to take defensive measures against potential hostile takeover bids by foreign firms, which will now be allowed to use their own local subsidiaries to control Japanese firms.
That type of takeover is known a triangular merger.
"The delay of the triangular merger term sends foreigners the message that Japan doesn't want FDIs, which in turn bring FDIs to China instead," said Richard Collasse, chairman of the European Business Council.
The new law will make it easier for companies to adopt poison pills through equity warrant issues that will give shareholders the right to buy more shares at a lower price and make a takeover bid more expensive and time-consuming.
Some Japanese groups have been considering boosting cross-shareholdings to better prepare for possible hostile takeover bids before the laws to facilitate increased foreign investment take effect.
The move has also been spurred by the recent failed attempt by local Internet start-up Livedoor to win control of the country's largest broadcaster, Fuji Television, by buying into a group radio station.
Toyota Motor, ranked number one in Japan and second in the world to ailing US giant General Motors, said earlier this month that it would consider a poison pill in a broad sense to block any hostile takeover bids.
The new law will also allow companies to be established with an initial capitalization of just ?1, which the government hopes will help revitalize the private-sector.
Despite the new laws, the American Chamber of Commerce in Japan (ACCJ) said it was concerned that Japan might be backsliding in its promise to help increase foreign investment.
"Unfortunately portfolio investors and direct investors are getting mixed messages about Japan's capital investment markets, and its commitment to good governance and market principles," said Debbie Howard, president of ACCJ.
"For example the new corporation law does little to improve corporate governance and transparency, while at the same time it enables take over defenses that could allow managers to abuse discretion and entrench themselves," Howard told reporters.
Finance ministry data yesterday showed that foreign direct investment Japan in the year to March nearly doubled from a year earlier to a record ?4.03 trillion, mostly from the North American financial and insurance sector.
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