CAJ Canon Inc

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 Â¥ 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)

Canon (NYSE:CAJ)
Historical Stock Chart
From Mar 2024 to Apr 2024

Canon (NYSE:CAJ)
Historical Stock Chart
From Apr 2023 to Apr 2024