Supreme Court, Second Petty Bench · September 30, 2026 · Reiwa 6 (2024) (Kyo) No. 32 · Decision; ruling below quashed and the appeals against the first-instance ruling dismissed

The Court held unlawful a ruling that, in a share purchase demand by dissenting shareholders in a share exchange, took a competing tender offer proposal into account and fixed as the "fair price" under Article 797(1) of the Companies Act an amount higher than the company's offered price; it quashed that ruling and upheld the first-instance ruling adopting the offered price.

Permitted appeal against a modifying ruling by the appellate court on a decision fixing the purchase price of shares

Facts

The appellant company considered a share exchange in which it would acquire all the shares of two wholly owned subsidiaries of a business partner with which it had a capital and business alliance, and the partner would acquire additional shares of the appellant and make it a subsidiary. At about that time, another company holding about 7.69% of the appellant's shares proposed a tender offer for its shares (offer price 2,250 yen per share). The appellant set up a special committee composed of lawyers and outside directors with no interest in the appellant, the partner or the proposer, and had it compare the share exchange with the tender offer proposal. The committee reported that the share exchange should be chosen; the appellant concluded and announced the share exchange agreement, and a general meeting of shareholders approved it. Dissenting shareholders demanded purchase of their shares, and the appellant offered 1,518 yen per share, the highest of the volume-weighted average closing prices from the trading day after the resolution to the date of each demand. The court below held that it could not be said that the share exchange produced no increase in enterprise value, that the exchange ratio was fair, and that the market price underlying the offer appeared to reflect the share exchange, but held that it would be unfair not to take into account the publication of the competing proposal and the valuation estimates, and fixed the purchase price at 1,670 yen per share, 10% above the offered price.

Issue

Where the share exchange ratio is found to be fair, may an amount higher than the company's offered price be set as the "fair price" under Article 797(1) of the Companies Act in consideration of the publication of a competing tender offer proposal and of theoretical share price estimates?

Ruling

After stating the purpose of the share purchase right of dissenting shareholders and the approach of earlier precedents to the fair price, the Court held that the share exchange took effect through a procedure generally recognized as fair: the special committee could be regarded as an independent third-party committee, measures had been taken to exclude an arbitrary decision-making process, and the resolution was lawfully adopted after information forming the basis of the shareholders' judgment was appropriately disclosed. Although the appellant and the partner had long had a capital and business alliance and could not be treated in the same way as companies with no special capital relationship, no special circumstances were apparent showing that the shareholders' reasonable judgment was impeded; the exchange ratio was therefore fair, and the market price after announcement should, absent special circumstances, be regarded as formed on the premise of a share exchange at a fair ratio. The publication of the competing proposal and the estimates did not itself bring about an increase in enterprise value, and before the resolution it had been explained that the estimates were theoretical share prices with no guarantee of being realized as market prices. There was thus no reason for dissenting shareholders to obtain the benefit they would have obtained had the competing proposal been realized, nor any reason to consider the estimates again in calculating the purchase price. The Court held that there was nothing unreasonable in the calculation of the offered price, that the ruling below misapplied Article 797(1), quashed it, and dismissed the appeals against the first-instance ruling. The opinion was unanimous.

Provisions

Companies Act, arts. 797(1), 798(2)