Japanese companies cannot use national security cover to block takeovers, official says By Reuters

By Makiko Yamazaki and Ritsuko Shimizu

TOKYO (Reuters) – Japanese companies cannot use a national security designation as a tool to counter foreign takeovers, a senior finance ministry official said, dismissing speculation that Tokyo’s currency act could be rigged for protectionism.

The comments follow media reports that retail giant Seven & i Holdings is seeking to be classified as “core” for national security under the Foreign Exchange and Trade Act (FEFTA) to reject a takeover bid from Alimentation Canada Couche-Tard.

The senior official, who declined to comment on individual deals, told Reuters the “core” classification issue does not change the government’s security review process in cases of foreign bids for companies designated as significant to Japan’s economy or security.

Seven & i, with a market value of $38 billion, is currently classified in the Treasury Department’s classification list as a company carrying on a “designated” business, not a “core” one.

Businesses considered “core” are those considered crucial to national security, including nuclear power, space and semiconductors.

Foreign entities face stricter requirements to notify the government in advance when they seek to acquire a stake in a company with a business classified as “core” than they do when targeting companies in “non-core” sectors.

But in the case of acquiring control in any so-called “designated business,” a potential buyer must file prior notice, regardless of whether the target is “core” or “non-core,” the official said.

The official added that the classification does not affect the degree of scrutiny during its national security review, saying the government “will review whether the transaction would pose national security risks.”

The ministry’s ranking list of prior notification requirements is based on surveys of all listed companies. The classifications there “are not something that needs government approval,” the official said.

The official declined to be named because of the sensitivity of the issue.

Asked about the reported pursuit of the “core” label, Seven & i said they had responded to the ministry’s latest survey by the August 23 deadline detailing the company’s current structure and business.

The survey is unrelated to the proposed acquisition of Couche-Tard, which the Japanese company unveiled on August 19, Seven & i said.

Convenience stores, Seven & i’s core business, are not a designated sector requiring FEFTA review, but the group has a wide range of businesses, including financial and security.

In 2008, Japan blocked the London-based Children’s Investment Fund from buying shares in Electric Power Development Co, known as J-Power. This is the only agreement that has been rejected under FEFTA, but there are cases where plans have been changed or withdrawn during reviews, according to the finance ministry.