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Two Japanese Corporations Settle FTC Antitrust Charges's picture
Commentary by Joel Mitnick

Two Japanese corporations agreed to settle FTC charges for violating the premerger notification and waiting period requirements under the Hart-Scott-Rodino ("HSR") Act.

According to the Complaint, an independent investigation into the Toshiba Corporation found that it had been overstating its profits by billions. To repair its financial statement for FY 2015, Toshiba attempted to sell its subsidiary Toshiba Medical Systems Corporation ("TMSC") before the end of FY 2016 (March 31, 2016). The Complaint alleges that Toshiba did not resolve the TMSC sales process in a timely manner and found that, by early 2016, it would be almost impossible to file premerger notifications and receive premerger clearances in time.

According to the Complaint, to complete the acquisition before the end of FY 2016, Toshiba and one of its potential bidders, Canon Inc. ("Canon"), devised a plan to avoid (i) filing the notification and (ii) observing the waiting period. The companies completed this multi-step process as follows:

1. Toshiba and Canon created a special purpose company, the MS Holding Corporation ("MS Holding").

2. Toshiba rearranged the corporate ownership structure of TMSC by creating (i) new classes of voting shares, (ii) a single non-voting share with rights custom-made for Canon, and (iii) options convertible to ordinary shares.

3. Toshiba sold TMSC's non-voting share and newly created options to Canon for $6.1 billion while simultaneously transferring TMSC's voting shares to MS Holding for a nominal payment of $900.

4. Canon obtained formal control of TMSC's voting shares by exercising its options in December 2016.

The government alleged that the companies were hiding the "true nature of the acquisition" because Canon (i) bore the risks/benefits of TMSC - not MS Holding - and (ii) became the owner of TMSC in March 2016, when it paid Toshiba $6.1 billion.

The government asked the Court to assess a civil penalty of at least $6,360,000 for each Defendant.

According to the proposed Final Judgment, each Defendant will pay a civil penalty of $2.5 million. In addition, the Defendants agreed to (i) establish and maintain a compliance program to address the alleged violations and (ii) comply with inspection and reporting requirements.


Unlike most HSR penalty cases, this one did not allege a mistaken filing analysis but rather an alleged avoidance scheme actionable under HSR Rule 801.90 ("Transactions or devices for avoidance"). A couple of notable takeaways:

  • Fund clients sometimes structure funds with voting rights given to the fund manager and economic rights given to fund investors. This case stands for the proposition that, in such instances, the FTC will look behind the formal division of voting/nonvoting securities to the substance of who has beneficial ownership of the shares (risk of gain and loss, etc.).

  • Although the statute says that "no person shall acquire" voting securities or assets without first making the required filing and observing the appropriate waiting period, the government here obtained voluntary civil penalties from the seller as well as from the buyer. Transaction participants sometimes ask which party bears the HSR risk of not filing in a transaction; this case may be read as saying that both sides bear the risk, at least in an 801.90 context.

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