Japan hits back at overseas M&A

Mr Koizumi is struggling to bring his party with him on reform

Japan's ruling Liberal Democratic Party (LDP) has thrown out plans to ease foreign takeovers of Japanese firms.

LDP Prime Minister Junichiro Koizumi has said he wants to double foreign investment in Japan.

But his plan to let overseas firms buy Japanese ones by swapping shares, a common tactic elsewhere, touched nerves in a country unused to foreign buyouts.

In the wake of several messy takeover battles, the law change has now fallen foul of a key LDP committee.

Until now, foreign firms wanting to use shares - rather than cash - to buy into Japan have had to use their Japanese subsidiaries as a vehicle for the transaction.

Mr Koizumi's idea was to cut out the intermediate stage, hoping to boost Japan's laggardly pace of foreign inward investment amid a 42% rise in mergers and acquisitions during 2004.

But big-name MPs from the LDP, many of them very close to Japan's corporate giants, have been worried about the vulnerability of Japan to foreign takeovers.

"The decision is based on our concern about how Japan should work together with foreign capital, whether it's acceptable to risk being taken advantage of," said one committee member, Yasuhisa Shiozaki.

The law change would have made it more difficult for Japanese firms to mount what are called "poison-pill" defences, where existing shareholders are given the right to buy shares cheaply in the face of a hostile outside takeover.