I. Introduction

When a listed company receives an acquisition proposal at a price materially above its historical trading price, should the board necessarily treat the proposal as a “Desirable Acquisition” merely because the price is high? The Japanese government, METI’s Q&A on the Guidelines for Corporate Takeovers, published on July 30, 2026^[1] (the “Q&A”), answers that question by explaining that a Desirable Acquisition means an acquisition that contributes both to enhancing the target company’s corporate value and to securing the common interests of shareholders, and that a high acquisition price alone is not sufficient.

The Q&A further explains that, after sincere consideration, a board of a target company may decide not to accept an acquisition proposal or may support the proposal that contributes most to enhancing corporate value among competing proposals. At the same time, when a board decides to accept a proposal of an acquisition, the Q&A indicates that the board must make reasonable efforts to secure transaction terms that protect the benefits shareholders should receive, and must be prepared to explain the basis for its decision. This article briefly explains the purpose of the Q&A and its practical implications. It first reviews the 2023 Guidelines for Corporate Takeovers (the “Guidelines”)^[2], then summarizes why the 2026 materials were prepared and what conclusions they reached, then discusses each Q&A topic, and finally addresses practical concerns.

II. Overview of the Guidelines

The Guidelines were formulated by METI (the Ministry of Economy, Trade and Industry) on August 31, 2023. They primarily address acquisitions of control of listed companies and may cover acquisition proposals made without the consent of the target company (i.e., unsolicited buy-out offers).

III. Why the Q&A Was Formulated, and Its Conclusions

1. Background

The first background factor was that the Guidelines have increasingly been referenced in the Japanese market. Since the Guidelines were formulated, the number and value of M&A transactions involving Japanese companies increased for two consecutive years in 2024 and 2025, and both the number and value of such transactions reached record highs in 2025. The number of delistings on the Tokyo Stock Exchange also increased for two consecutive years, reaching a record 125 in 2025. By stated reason, 55 delistings, or 44%, resulted from acquisitions by third parties; 34, or 27%, resulted from acquisitions by controlling shareholders or similar parties; and 26, or 21%, resulted from management buyouts.^[3]

This trend has also appeared in unsolicited acquisition proposals. In recent years, the Japanese market has seen an actual increase in acquisition proposals made without the prior consent of the target company, a type of proposal that historically had been relatively uncommon. METI study group materials state that, after the Guidelines were formulated, four unsolicited M&A transactions occurred in 2024, of which two succeeded, and eight occurred in 2025, of which four succeeded.^[4] Notable examples include Nidec’s 2023 proposal for TAKISAWA Machine Tool, Dai-ichi Life Holdings’ 2023 competing proposal for Benefit One, KKR’s 2026 proposal for Mandom, and EQT’s proposed acquisition of Kakaku.com, and the subsequent joint counterbid by LY Corporation and Bain Capital. The contest remains ongoing. These examples show that, around and after the publication of the Guidelines, practice has been developing in which boards and special committees also consider unsolicited and competing acquisition proposals from the perspective of enhancing corporate value and securing the common interests of shareholders. They therefore illustrate the impact that the Guidelines have had on Japanese takeover practice. Unsolicited and competing proposals are likely to continue increasing.

The second background factor was that, in Diet deliberations and other forums, concerns had been raised that the purpose of the Guidelines might not be sufficiently understood. Specifically, the issues discussed included five misunderstandings: that corporate value is the same as, or subordinate to, the common interests of shareholders and therefore any high-price acquisition must be desirable; that a proposal at a price higher than historical market prices must enhance corporate value and therefore cannot be rejected; that opposition by employees, labor unions or other stakeholders cannot be considered; that, if there are multiple proposals, the board must select the proposal with the highest price; and that any departure from the Guidelines immediately constitutes a breach of directors’ “duty of care”, not the fiduciary duty.

2. Process

In February 2026, METI indicated that it would survey stakeholders’ understanding of the Guidelines and, if insufficient understanding was found, communicate the purpose of the Guidelines. The hearings of practitioners confirmed that the Guidelines might not have been fully understood, or that perceptions differed among stakeholders. Following a public comment process, the final Q&A was published on July 30, 2026.^[5]

3. Conclusion: Maintaining the Guidelines and Clarifying Their Purpose

The core conclusion of the Q&A is that the basic thinking and principles of the Guidelines remain valid, and that METI would maintain the Guidelines while using the Key Points and the Q&A to promote a more accurate understanding of their purpose and better practice.^[6]

The Key Points and the Q&A clarify and disseminate the purpose of the best practices set out in the Guidelines; they are not intended to amend the Guidelines or revise the best practices. The Key Points function as an executive summary of the Guidelines and the Q&A, with references to the relevant provisions. In substance, the Q&A can be summarized as follows. Whether an acquisition is desirable depends on enhancement of corporate value and is not determined solely by price. A board has broad discretion under “the business judgment rule” in deciding whether to accept an acquisition, and alternatives such as a “stand-alone” plan or a partnership with another party may be viable. Qualitative factors may be reflected in corporate value through future cash flows or the discount rate, but such effects should be quantified to the extent possible and should not be used as a tool for management entrenchment. The Guidelines do not impose Revlon duties, but if the board decides to accept an acquisition, it must make reasonable efforts to secure transaction terms that protect the benefits shareholders should receive. Finally, if the board makes a business judgment after sincere consideration in line with the best practices, a breach of the duty of care is generally not expected merely because an acquisition different from the board’s preference ultimately succeeds.

IV. Purpose of Each Q&A

Question 1: Desirable Acquisition

The significance of Question 1 lies in the conclusion that a Desirable Acquisition is not determined by price alone, and in the analytical framework that separates enhancement of corporate value from securing the common interests of shareholders. A high acquisition price is important from the perspective of shareholder interests, but the board must separately consider whether the price properly reflects post-acquisition enhancement of corporate value and whether the increase in corporate value is fairly distributed to shareholders through appropriate transaction terms. Question 1 should therefore be understood as confirming that, while acquisition price is an important factor indicating the target company’s post-acquisition corporate value, an acquisition is not a Desirable Acquisition unless it contributes both to enhancement of the target company’s corporate value and to securing the common interests of shareholders. A high price alone is not enough.

Question 2: A “Bona Fide Offer”

Question 2 addresses the threshold for when a board must consider an acquisition proposal. The key point is that specificity, legitimacy of purpose and feasibility are factors for determining whether the proposal is worthy of consideration; they should not be used as a checklist for finding formal defects and avoiding review. The Q&A clarifies the purpose of the Guidelines’ caution that boards should not interpret “bona fide offer” arbitrarily and should not lightly reject proposals that may enhance corporate value.

Accordingly, in practice, a board should not exclude a proposal merely because certain points remain undetermined at an early stage. It should use additional questions, information requests and related opportunities to determine whether the proposal can reach a level that permits substantive consideration. For example, uncertainties regarding financing, competition law or foreign exchange approvals, other required permits, or a controlling shareholder’s willingness to sell should be assessed by distinguishing uncertainty that objectively makes implementation unlikely from uncertainty that could be resolved through additional explanation by the acquirer or due diligence. On the acquirer side, a mere expression of interest or price indication may be insufficient; the acquirer is expected to specify, to the extent possible, its post-acquisition policy, financing support, principal terms and regulatory path.

Question 3: Sincere Consideration

Question 3 is central to the entire Q&A. It confirms that the board of directors has broad discretion based on the business judgment rule, while also clarifying that this discretion is not unlimited; the board must conduct a reasonable review and is accountable to shareholders. If the target company rejects a takeover proposal and opts for a “stand-alone” strategy, it is important for the company to compare the acquirer’s proposal with its own corporate value enhancement measures and to explain the reasons why its strategy surpasses the takeover proposal and to explain its commitment to enhancing corporate value. The term “stand-alone” here means continuing to operate under the then-current management or shareholder structure.

Therefore, the practical focus of Question 3 is not whether the board of directors has the discretion to reject the offer, but rather the reasonableness of the deliberations supporting that discretion and the board’s accountability to shareholders. The target company is responsible for comparing and evaluating, as quantitatively as possible, the acquisition price and corporate value enhancement measures proposed by the acquirer against alternative proposals—such as a stand-alone strategy or a partnership with a third party—to determine which would contribute to enhancing corporate value over the medium to long term, and for explaining the rationale for its decision to shareholders.

If the target company lacks information necessary for its evaluation, it may ask the acquirer questions within reasonable limits; however, such questions must not be used as a means for the target company to stall for time. These Guidelines also state that excessively detailed questioning must not be used as a de facto measure to block the acquisition. On the other hand, since the target company bears the responsibility to compare the acquisition proposal with the stand-alone scenario and to provide an explanation, transparency on the part of the acquirer is also essential. It can be said that the acquirer is also required to provide information that allows for an assessment of its track record, as well as the synergies and dis-synergies of the acquisition proposal.

Question 4: Corporate Value

Question 4 defines “corporate value” as the sum of the discounted present values of future cash flows, while indicating that factors such as employees, business partners, the supply chain, technical information, compliance, and sustainability may also be considered in the assessment of corporate value to the extent that they can reasonably be expected to affect future cash flows or the discount rate. Therefore, the Q&A should be understood not as recognizing qualitative factors as independent grounds for rejection, but rather as setting forth the conditions under which such factors may be reflected in corporate value. For example, factors related to economic security restrictions should not be incorporated into enterprise value in an abstract manner; rather, they must be examined in terms of how they affect future cash flows or the discount rate—such as through supply disruptions caused by changes in suppliers, a decline in competitiveness due to the leakage of technical information, or increased risks associated with compliance with laws and sanctions. Furthermore, Question 4 confirms that the target company’s board of directors must not arbitrarily manipulate the discount rate in the share value calculation, thereby overvaluing or undervaluing the enterprise value.

On the other hand, this framework carries the risk that qualitative factors could be used as a pretext for rejecting an acquisition for achievement of the management entrenchment. At the same time, circumstances such as the departure of key employees following an acquisition, a reduction in business volume by major clients, or an increased risk of leakage of critical technology should not be excluded from consideration, as they could actually impair corporate value. However, because these factors are difficult to measure quantitatively, there is a risk that management might cite abstract concepts such as “corporate culture” or “employee anxiety” to protect and maintain their own positions.

Accordingly, where a target company decides not to accept an acquisition proposal on the basis of qualitative factors or dis-synergies, it is expected to identify specifically which businesses, business partners, personnel, licenses and permits, and supply chains would be affected, and to model that impact as quantitatively as possible, taking into account how it would be reflected in revenue, profit margins, capital expenditure, the cost of capital, and the timing of realization.

Question 5: Relationship Between Corporate Value and Acquisition Price

Question 5 addresses the complex issue that, while the acquisition price is a key factor indicating the post-acquisition enterprise value, it does not always accurately reflect an increase in enterprise value. In practice, a high acquisition price gives rise to a presumption that the acquirer anticipates an increase in the target company’s corporate value, which in turn leads to a presumption that the target company’s corporate value will indeed increase following the acquisition. However, this two-step presumption is not absolute; while a high price is an important factor, it does not, by itself, prove that corporate value will increase after the acquisition.

In exceptional cases, a high acquisition price may be offered even though the acquisition does not sufficiently contribute to an increase in corporate value, or the proposal that contributes most to an increase in corporate value may not coincide with the proposal offering the highest acquisition price. For example, if it can reasonably be expected that the acquisition will have a negative impact on the target company’s future cash flows or discount rate, yet the acquirer increases distributions to shareholders by unduly reducing the stake of other stakeholders, or if the post-acquisition corporate value is overestimated, the acquisition price may not be commensurate with the post-acquisition corporate value. If management determines that the acquisition price does not align with the post-acquisition corporate value (i.e., if they deem the acquisition price to be too high), they must provide a compelling explanation to shareholders. Therefore, Question 5 should not be understood as broadly granting the target company “leeway to reject a high offer”; rather, it requires the target company, if and when rejecting a high offer, to explain how it verified the prospects for corporate value growth that the price is supposed to reflect, and why it determined that this would not lead to an increase in the target company’s corporate value.

From the shareholders’ perspective, this decision carries the risk of forcing them to forgo an opportunity to sell at a high price. Therefore, if the target company determines that the post-acquisition enterprise value does not align with the acquisition price, it is insufficient to simply state that “the acquirer has overvalued the company” or that “there are diseconomies of scale.” The target company must demonstrate, as quantitatively as possible, how the acquirer’s proposal affects the target company’s future cash flows or discount rate, and explain the assumptions, data, and methods on which this determination is based, so that shareholders can evaluate its rationality.

Question 6: Where the Board Decides to Accept an Acquisition

Question 6 addresses whether the highest acquisition price should be selected when multiple acquisition proposals are received. While it confirms that the Q&A does not adopt the Revlon duty under Delaware law, it also indicates that, as a matter of course, price considerations may not be disregarded. Ordinarily, the proposal offering the highest acquisition price is the proposal that contributes most to enhancing corporate value. If the two do not coincide, the target company’s board of directors should negotiate with the acquirer so that they are aligned. If, despite such efforts, they still do not coincide, the Q&A states that the board of directors may, within the scope of business judgment, agree to the acquisition proposal that contributes most to enhancing corporate value, provided that it fulfills its accountability to shareholders. At the same time, the Q&A also states that the ultimate authority to decide which acquisition proposal to select rests with the shareholders, and does not deny the possibility that an acquisition proposal not agreed to by the directors, including the proposal offering the highest price, may ultimately be selected.

Therefore, the practical significance of Question 6 is not simply that “the highest price need not be selected.” Rather, it lies in treating the selection of a proposal other than the highest-priced proposal as an exceptional case, and in requiring sincere negotiations, the search for other potential acquirers, verification by a special committee, and an explanation to shareholders in order to justify that exception. Since some foreign investors may take the Revlon duty for granted, when explaining that Japan does not adopt the Revlon duty, it is also necessary to explain carefully that the price terms of the transaction are important and that reasonable efforts are required to secure the benefits that shareholders should enjoy.

Question 7: Nature of the Guidelines

Question 7 confirms that the Guidelines are not legal norms that directly define the content of directors’ duty of care, while explaining that acting by reference to the best practices may reduce directors’ risk. It does not mean that compliance with the Guidelines always confers immunity, nor that any departure from the Guidelines is immediately unlawful. Rather, the Guidelines should be understood as a code of conduct for later reviewing what information the board gathered, what comparisons it made and how it explained its decision.

V. Practical Implications

1. Evaluation

Resolving the Misunderstanding of a Compulsory “For Sale” State and Reducing Board Hesitation

The greatest significance of the Q&A is that METI expressly states that, even under the Guidelines, boards have broad discretion under the business judgment rule and may choose options including a stand-alone plan, and that if the board reaches a judgment after sincere consideration, a breach of the duty of care is generally not expected even if a different acquisition ultimately succeeds. Excessive litigation-risk sensitivity among outside directors and special committee members could have led them to retreat into the formal benchmark of the highest price, rather than focusing on the quality of their review.

Clarifying Discretion and Strengthening the Corresponding Explanatory Obligation

At the same time, the Q&A does not merely recognize discretion. It also sets out disciplines including quantitative comparison, persuasive explanation where quantification is difficult, prohibition on arbitrary manipulation of discount rates, and prohibition on using difficult-to-measure qualitative value as a tool for entrenchment. If the board decides not to accept an acquisition, it should be prepared to explain to shareholders, based on quantitative comparison, why it believes that the company’s own corporate value enhancement measures will exceed the corporate value expected from the acquisition over the medium to long term. METI has also responded that these statements restrain management entrenchment.

In response to an opinion that, if the company relies on a stand-alone plan, management must be able to show why that plan can outperform the acquisition proposal, what is different from prior management initiatives, and in some cases a strong commitment including resignation of officers, the Q&A also notes that, when explaining to shareholders, it may be useful to discuss management’s past track record, future corporate value enhancement measures, and commitment to enhancing corporate value. Boards should therefore quantitatively evaluate alternatives including the stand-alone plan, consider factors other than price, and explain their logic.

2. Concerns

Risk of Overreliance on Qualitative Factors

The Q&A did not resolve all practical concerns. One of the most common concerns is that, while corporate value is considered a quantitative concept, the Q&A indicated that qualitative factors—such as employees, business partners, the supply chain, technical information, compliance, sustainability, and economic security—could be incorporated into corporate value assessments. This raises the concern that the management of the target company might be able to frame their reasons for rejecting an acquisition too broadly. The Q&A does provide certain safeguards by requiring that, for qualitative factors to be reflected in corporate value, an impact on future cash flows or the discount rate must be reasonably foreseeable, and by stipulating that a persuasive explanation to shareholders is necessary when quantification is difficult. However, the Q&A does not explain how such factors should be quantified in practice, what weight should be given to factors that cannot be quantified, what constitutes a “reasonably foreseeable” impact, or what level of qualitative explanation is sufficient for shareholders.

Insufficient Specificity of Explanations to Shareholders

While the Q&A states that the final decision on an acquisition proposal rests with the shareholders, it merely outlines a basic direction regarding the target company’s board of directors’ accountability to shareholders, without explaining the specific details. Concerns have been raised that if the target company rejects a proposal offering a reasonably high premium or endorses a proposal that is not the highest bid, it should disclose the specific details in a comparable manner. In response, METI maintains the position that the content and extent of such explanations should be determined on a case-by-case basis and has not established specific guidelines. Consequently, at this time, it cannot be said that the legal framework and other mechanisms sufficiently ensure the practical implementation of comparable information disclosure and verifiable explanations necessary for the final decision by shareholders—as envisaged by the Q&A—to function effectively. At the very least, the directors of the target company must make the basis and process for comparison transparent enough to allow shareholders to assess the reasonableness of waiving their opportunity to accept the acquisition price; it is desirable to establish a legal framework that ensures this.

Issues Left to Future Practice and Development

The primary scope of the Q&A is the situation in which the board of directors of the target company considers a takeover proposal, decides whether to accept it, and selects from among multiple proposals. Therefore, the Q&A does not provide direct solutions to issues that have become problematic in recent takeover bid practices, such as takeover defense measures and advance notice of counter-takeover bids. These issues remain matters to be addressed not through the interpretation of the Q&A, but through the tender offer system, information disclosure regulations, takeover defense measures, and future market practices and court precedents.

Notes

[1] METI, Q&A on the Guidelines for Corporate Takeovers (reference English translation), July 30, 2026, available at: METI, Q&A on the Guidelines for Corporate Takeovers. ↩

[2] METI, Guidelines for Corporate Takeovers—Enhancing Corporate Value and Securing Shareholders’ Interests (reference English translation), August 31, 2023, available at: METI, Guidelines for Corporate Takeovers. ↩

[3] METI, Fair Acquisition Study Group, 9th meeting, Material 4, Secretariat Explanatory Materials, pp. 3-5, Feb. 4, 2026. ↩

[4] METI, Fair Acquisition Study Group, 9th meeting, Material 4, Secretariat Explanatory Materials, p. 6, Feb. 4, 2026 (prepared by METI based on RECOF DATA as of Jan. 13, 2026), available at: METI, Secretariat Explanatory Materials. ↩

[5] METI, Interpretation of the Guidelines for Corporate Takeovers, July 30, 2026, Attachment 2; METI, press release, METI Formulates Key Points and Q&A on the Guidelines for Corporate Takeovers, July 30, 2026, available at: METI press release. ↩

[6] METI, Key Points of the Guidelines for Corporate Takeovers—Reconfirmation of the Intent for More Appropriate Practice (reference English translation), July 30, 2026, available at: METI, Key Points of the Guidelines for Corporate Takeovers. See also METI, Interpretation of the Guidelines for Corporate Takeovers (reference English translation), July 30, 2026, available at: METI, Interpretation of the Guidelines for Corporate Takeovers. ↩