Canon, Toshiba Chided by Regulators Over $6.5 Billion Deal
June 30 2016 - 8:40AM
Dow Jones News
TOKYO—Japanese regulators warned Canon Inc. that the way it
acquired Toshiba Corp.'s medical-systems unit potentially violated
the law—but that the deal can go ahead.
The rules are ambiguous, regulators said Thursday, but added
that any future transaction like the one between Canon and Toshiba
could be subject to a criminal complaint.
Fujifilm Holdings Corp., loser in the bidding for the unit,
expressed displeasure at the decision.
At issue is the structure of the deal, reached in March and
valued at ¥ 665.5 billion ($6.5 billion). Canon paid the purchase
price up front—Toshiba, having suffered huge losses following an
accounting scandal, needed cash ahead of the March 31 end of its
fiscal year—but didn't immediately receive shares in the medical
unit.
Instead Canon got warrants entitling it to the shares once the
deal received regulatory approval. Until then, the shares would be
parked in a special-purpose company with just ¥ 30,000 ($290) in
capital.
Japanese law says that a company planning an acquisition that
raises antitrust issues must report its plans to the Fair Trade
Commission before an agreement. The commission said Thursday that
the Canon-Toshiba arrangement could be viewed as skirting the law
by effectively doing the transaction first and telling regulators
later.
Takeshi Shinagawa, director of the commission's mergers and
acquisitions division, said it was the first time this technique
had been seen in Japan, and there is no clear rule against it.
"We decided to make an announcement about the warning to let
everyone know that it is not acceptable, so the same method won't
be used in the future," Mr. Shinagawa said, adding that companies
had been asking the FTC whether it passes muster.
Canon said it took the warning seriously. "We will firmly follow
the law while improving transparency of our business," the company
said in a statement.
Toshiba, which also received a warning, said it didn't think
there was anything illegal about the deal—but it would continue to
work on improving compliance.
The medical-equipment business was one of Toshiba's few steady
profit makers. It makes and supplies equipment such as X-ray
machines, computed tomography scanners and
magnetic-resonance-imaging systems.
The unit's sale drew wide interest, including from U.S.
private-equity firms. Ultimately, the bidding came down to Canon,
which is seeking growth drivers as its camera business
deteriorates, and Fujifilm, which has been expanding its medical
business.
That made it a battle between two of Japan's most prominent
executives—80-year-old Fujio Mitarai, who has led Canon for two
decades, and Shigetaka Komori, 76, who is credited with keeping
Fujifilm prospering even after its film business fell off a
cliff.
Fujifilm responded bitterly after it lost, calling the deal's
structure "extremely tricky" and saying Canon treated the FTC with
a lack of respect that "would be unthinkable for a company such as
ours that has a policy of acting openly, fairly and clearly."
Fujifilm said Thursday it isn't satisfied with the FTC's
decision to let the deal stand: "We demand an explanation for why
the scheme was allowed this time when it is not going to be
accepted in the future. It was an unfair fight for us."
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com
(END) Dow Jones Newswires
June 30, 2016 08:25 ET (12:25 GMT)
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