Singapore-based hedge fund 3D Investment Partners sought a court injunction on Thursday to block Japanese drug wholesaler Toho Holdings' (8129.T) takeover defence, challenging the growing use of 'poison pill' strategies against activist investors.
The request to the Tokyo District Court could test whether companies can deploy such defences against activist shareholders who are not seeking control in Japan, the world's second-largest market for activist campaigns after the United States.
Toho's largest shareholder, 3D is seeking to raise its stake to 27% from 24% but faces a poison pill provision that would trigger a discriminatory warrant issuance designed to dilute its holding if it acquires additional shares.
Shareholders backed Toho's proposal authorising the measure with 54.7% support at the annual general meeting in June.
In a statement, 3D said it had no intention of acquiring management control, as a 27% stake falls short of a level Toho has said would confer effective veto power.
Therefore the prerequisite for triggering the measure, a threat to management control, does not exist, it said.
Toho, however, told shareholders ahead of the June meeting that a stake of 27% would allow 3D to exert significant influence over management and potentially pressure it to prioritise short-term gains.
ANTI-ACTIVIST PILLS
More recently, however, contingency-based poison pills targeting specific investors have increasingly been used.
Advisory firm IR Japan says a record of 10 such measures were adopted last year, often to prevent activist funds from raising stakes beyond roughly 20%, a level some companies argue can confer significant influence.
Government takeover guidelines permit poison pills aimed at giving shareholders time and information to assess a buyout bid.
However, critics say that such measures used against investors who are not seeking control risks entrenching management and undermining efforts to boost corporate governance.
Allowing such defence measures could weaken the disciplinary pressure on management from capital markets, said Manabu Matsunaka, a professor at Nagoya University Graduate School.
"If management is confident its own strategy is right, it should devote its resources to explaining that strategy to shareholders, rather than seeking support for defense measures," he said.
