Nireco Co., Japan: Introduction of the Poison Pill

Japanese corporations faced the looming threat of hostile takeovers because of the rapid dissolution of cross-shareholdings that began in the 1990s; in particular, between creditor banks and corporate borrowers. As a result of this uncoupling the share of stable shareholders, those in long-term business relationships with the corporation, fell by half over the past 10 years. On the other hand, foreign ownership of Japanese companies, which used to account for only a small percentage of all outstanding shares, rose rapidly. Thus, the proportion of free-floating shares has risen significantly, implying that buying out a company by means of a takeover bid in Japan has become far easier. Although Japanese corporations have traditionally believed that hostile takeover bids have little chance of success, Hidemaru Yamada, president of Nireco Corp.--a high-tech measuring device manufacturer--felt the need to introduce "poison pill" defenses to counter possible hostile takeover bids from foreign investors. Nireco assessed the situation regarding the introduction of poison pills, taking into account Japan's institutional infrastructure, its laws, and its economic conditions; in March 2005, it announced a "security plan," which included an issue of subscription warrants to existing shareholders in the event of an unfriendly takeover bid.

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