The Japanese government has put the brakes on a plan by Korean private equity fund (PEF) manager MBK Partners to acquire a Japanese machine tool manufacturer.
According to the Nihon Keizai Shimbun (Nikkei) on the 23rd, the Japanese government issued a suspension recommendation to Korea's MBK Partners over its plan to acquire Makino Milling Machine based on the Foreign Exchange and Foreign Trade Act.
Earlier, in April last year, Makino faced a hostile merger and acquisition (M&A) attempt by Japanese motor maker Nidec. At that time, MBK Partners emerged and in June of the same year announced it would make the company a wholly owned subsidiary through a tender offer (TOB).
Nikkei said, "This measure strengthens investment regulations on Japanese corporations and is the first case since the Foreign Exchange and Foreign Trade Act was revised in 2017," adding, "Because machine tools can be diverted to weapons manufacturing, authorities appear to have judged there are security concerns."
Minoru Gihara, the chief cabinet secretary, said at a regular news conference that "as a result of reviews by the Ministry of Finance and the Ministry of Economy, Trade and Industry, it was recognized that there is a risk of a situation arising that would harm national security," and officially announced that a suspension recommendation was issued as of the 22nd.
Machine tools fall under a sector that includes dual-use item technologies (materials that can be used for both military and civilian purposes) and are designated as a core sector under the Foreign Exchange and Foreign Trade Act. For this reason, when overseas investors acquire shares, they must undergo a government review in advance.
Under this recommendation, MBK Partners must decide within 10 days whether to accept it. Kyodo News said MBK Partners must decide by May 1 whether to accept the Japanese government's suspension recommendation.
If MBK Partners refuses the recommendation, the Japanese government can issue a binding "suspension order" under the law. Since the enactment of Japan's Foreign Exchange and Foreign Trade Act, the only case in which a plan suspension order was issued was in 2008, when a British investment fund sought to buy additional shares of power company J-Power.