19 January 2011

Equity Finance in Japan: private placement (第三割当増資)

In this post, I will look at how companies, specifically in Japan, use private placement.

Companies can use private placement as a means of:

1. Facilitating strategic alliances with other companies
This can result in cross shareholdings, such as in the case of Hitachi's and Toyo Denki Seizo's purchases of the other party's respective shares. (English, Japanese)

2. Raising funds to drive corporate rehabilitation initiatives
Real estate developer ES-Con Japan has issued press releases concerning its efforts to use private placement as a means of raising funds for its rehabilitation efforts (English, Japanese, refer to press releases dated September 25, 2009).

3. Raising funds for use toward improvements of business operations

4. Thwarting hostile takeover attempts
Some companies have used private placement as a takeover defense strategy whereby shares of the target company are privately placed with a white knight, thereby diluting shareholdings of the party attempting the takeover.
In 2006, for instance, Hokuetsu Paper Mills thwarted a hostile takeover bid launched by Oji Paper through a private placement of newly-issued shares with trading company Mitsubishi Corp. and Nippon Paper.
To learn more about the Hokuetsu incident, see this Japan Times article and these Mitsubishi press releases (Japanese, English) concerning the private placement of Hokuetsu shares.

The Daiwa Institute of Research has released a report on private placement as part of its Corporate Governance Reform series. The report details concerns related to private placement in Japan and provides examples of disputes related to private placement.