Photo/Illutration The sign for Tokyo Kikai Seisakusho Ltd. atop a plant in Chiba Prefecture (Toshio Tada)

The Tokyo District Court just made hostile takeover bids more difficult by rejecting a temporary injunction against a defense mechanism put in place by a targeted company.

At issue was the attempted takeover of Tokyo Kikai Seisakusho Ltd. (TKS), a Tokyo-based manufacturer of rotary press machines, by Asia Development Capital Ltd.

Asia Development Capital used its subsidiary, Asia Investment Fund, to acquire about 40 percent of the shares of TKS with voting rights.

At an emergency shareholders’ meeting on Oct. 22, TKS management first limited the voting rights of Asia Development Capital and presented a defense mechanism proposal in the form of a stock acquisition right to other shareholders as a means of lowering the stake held by Asia Development Capital.

Asia Development Capital had sought a temporary injunction against the TKS move, but in the Oct. 29 ruling, Presiding Judge Fumitaka Hayashi described Asia Development Capital's rapid acquisition of TKS shares as “heavy-handed,” which it said meant that other shareholders were unable to secure the information or time to make an appropriate decision.

The court ruled it was not irrational for TKS management to restrict the voting rights of Asia Development Capital because it was up to shareholders to decide if their interests, as well as those of the company, were being threatened.

After restricting the voting rights of Asia Development Capital, the TKS proposal regarding the stock acquisition right was approved by about 79 percent of shareholders who exercised their voting right.

TKS issued a statement on Oct. 29 praising the district court ruling and said it planned to go ahead with the distribution of the stock acquisition rights from Nov. 19.

Asia Development Capital plans to appeal the latest ruling, saying in a statement the district court ruling would damage the transparency of the Tokyo stock market, shake up the fundamental principle of majority rule in capital matters and jeopardize trust in company law.

The ruling will likely impact other hostile takeover attempts, which have increased in Japan in recent years.

One such case involved a public tender offer bid by SBI Holdings Inc. for the acquisition of Shinsei Bank Ltd. turning into a hostile takeover after the bank mulled implementing a similar defensive measure to effectively dilute SBI Holdings stake.

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