1. Overview

On March 14, 2025, the Financial Services Agency (FSA) published the draft of the Cabinet and Government Ordinance related to the 2025 amendments to the Financial Instruments and Exchange Act (FIEA) (the "Proposed Ordinance"). The Proposed Ordinance is expected to be promulgated and enforced following the prescribed procedures after the conclusion of the public comments, but no specific enforcement date has been set.
These amendments are based on the "Act for Partial Revision on the Financial Instruments and Exchange Act and Act on Investment Trusts and Investment Corporations" enacted on May 15, 2024 (the "Amended Act") and include amendments to the tender offer rule and the large shareholding reporting rule.

2. Amendments to the Rules Governing the Tender Offer under the Amended Act

The main amendments to the tender offer rule under the Amended Act are as follows:

• The threshold for the mandatory tender offer will be lowered from a shareholding ratio exceeding one-third to exceeding 30%;
• Market trade (on-floor transaction) resulting in a shareholding ratio exceeding 30% will also be subject to the mandatory tender offer; and
• The rapid acquisition rule, which regulates transactions combining on- and off-market trades where a shareholding ratio exceeds one-third, will be abolished.

3. Key Points of the Proposed Ordinance

The Proposed Ordinance addresses issues associated with the tender offer rules identified in the "Report of the Working Group on Tender Offer Rule and Large Shareholding Reporting Rule" (the "WG Report") dated December 25, 2023. The key points are as follows:

(1) Establishment of an Exemption Rule for Certain Purchases

Purchases falling under the following categories will no longer be subject to the mandatory tender offer:

• Insignificant Purchases: Purchases resulting in a net increase of less than 1% over the course of one year (limited to cases where the post-purchase shareholding ratio remains below two-thirds) will be exempt from the mandatory tender offer.
• Streamlined Two-Step Tender Offer for Privatization Transactions: If a tender offeror obtains consent from a shareholder for acquisitions at a price lower than the price offered to the general shareholders and meets all prescribed requirements, including the absence of an upper limit on the number of shares to be acquired, such acquisitions by means outside the tender offer process will be permitted.
• Purchases by Financial Instruments Business Operators: Based on the WG Report's concerns about excessive restrictions under the current 5% rule, purchases by the Type I Financial Instruments Business Operators made in the course of their business, as well as purchases by trust companies for trust property ownership, will be exempt from the mandatory tender offer if certain requirements are met.

(2) Narrowing the Scope of Formal Special Related Persons

The definition of formal special related persons will be narrowed to exclude relatives and the officers of parent or subsidiary companies of the tender offeror.

(3) Regulatory Flexibility

In response to the WG Report's recommendation for an exemption rule for individual cases, regulatory flexibility will be introduced. For certain matters, such as the extension or withdrawal of tender offer periods, individual exemptions may be granted upon the approval of the Director-General of the Kanto Local Finance Bureau.

(4) Expansion of Grounds for Withdrawal

In response to the WG Report's recommendation, the grounds for withdrawal of the tender offer will be expanded, including the introduction of anti-takeover measures after the commencement of a tender offer. Withdrawals will also be permitted with the approval of the Director-General of the Kanto Local Finance Bureau.

(5) Flexibility in Amendment to Purchase Conditions

In response to the WG Report's recommendation, the reduction of the tender offer price will be allowed if the target company distributes dividends during the tender offer period. In addition, the tender offer price may be reduced if a decision is made regarding the distribution of dividends, stock splits, or allotments of shares to shareholders, based on a record date prior to the commencement of settlement of the tender offer.

(6) Other

The Proposed Ordinance also includes changes to the formats of the tender offer notification forms and the opinion statement reports, as well as clarifications regarding the concept of indirect acquisitions.

4. Points of Interest Moving Forward

The Proposed Ordinance is expected to have a significant impact on the practical implementation of tender offers. Key areas to monitor include the results of public comments, potential revisions to the Proposed Ordinance, and the timing of enforcement.