May Day is Triangular Merger Day in Japan

May 1, 2007
By Ken Worsley

Now that May 1 has arrived, the door is open for those of your wishing to take part in triangular mergers. For those who are wondering how a triangular merger works, Joe Jones at Japan Law Blog has provided some details:

Triangular mergers are a form of merger where the acquiring company establishes a wholly-owned subsidiary, which merges with the target company to bring the target company’s assets under the control of the acquiring company. The shareholders of the target company swap their equity for shares of the acquiring company, so the merger is completed entirely with stock. Unlike some other corporate acquisitions, a triangular merger requires the consent of the target company’s shareholders, and so its utility is in the voluntary consolidation of companies.

Note: A triangular merger requires the consent of the target company’s shareholders. Actually, it requires consent of 2/3 of them.

In other words, this really isn’t simply something for LBO wizards to pull out of their hats. Due to difficulties with PR and logistics, it will not be the tool of choice to pull off hostile takeovers. That, however, has not stopped many in Japan from expressing nervousness over how this new instrument might be put to work. A Japan Times article published today fails to properly describe what a triangular merger is and how it works. The Wall Street Journal has published an opinion piece entitled Why Japan Inc.’s Alarm on Shift In Merger Rules May Be Overdone, which gets to the point that fear of the triangular merger is misplaced, and based more on fear that has been whipped up by Keidanren than anything else.

Filed Under Business, M&A