A Tokyo District Court has blocked Toho Holdings from activating a takeover defence aimed at Singapore-based activist investor 3D Investment Partners, in a ruling that could have wider implications for Japanese companies seeking to limit activist shareholders’ influence, according to a report by Bloomberg.
The court granted an injunction preventing pharmaceutical wholesaler Toho from issuing warrants that would have diluted 3D’s stake if the hedge fund increased its holding above 24%.
3D, Toho’s largest shareholder, has been seeking to increase its stake to 27%. Toho has argued that such a holding could give the investor significant influence over the company and potentially encourage management to pursue strategies focused on shorter-term gains.
Toho said in a filing with the Tokyo Stock Exchange that it intends to challenge the injunction.
The dispute centres on the growing use in Japan of so-called poison pills, under which companies issue new shares or warrants in circumstances designed to dilute a particular shareholder. While such measures have traditionally been associated with defending companies against hostile takeovers, Japanese businesses have increasingly considered them as a response to activist investors building sizeable positions.
The ruling comes as shareholder activism continues to expand in Japan, where companies have faced growing pressure to improve capital efficiency, restructure businesses and return more cash to investors.
The case also highlights the tension between giving boards tools to defend against investors seeking substantial influence and preventing takeover defences from being used to protect incumbent management.
Toho’s defence had received support from 54.7% of shareholders at its annual general meeting in June, exceeding the threshold required for the measure to take effect. Previous Japanese court decisions have regarded shareholder approval as one factor supporting the legitimacy of takeover defences.
The Tokyo court’s decision nevertheless prevents Toho from proceeding with the warrant issuance against 3D for now, putting renewed focus on the legal limits around discriminatory takeover measures directed at individual activist shareholders.
Reuters was reportedly unable to obtain immediate comment from 3D Investment Partners.
