Japanese government recommends MBK halt Makino acquisition over security concerns

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[Financial News, Tokyo = Reporter Seo Hye-jin] The Nihon Keizai Shimbun reported on the 23rd that the Japanese government had advised MBK Partners to halt its plan to acquire Makino Milling Machine Co., Ltd. (Makino), a major Japanese machine tool maker. The measure, based on the Foreign Exchange and Foreign Trade Act (FEFTA), appears to reflect concerns that machine tools could be diverted for weapons production.
The Nikkei said, "This is the first such case since the FEFTA was revised in 2017 to tighten regulations on foreign investors' investments in Japanese companies."
In 2008, the Japanese government issued an order to stop a plan by a British investment fund to buy additional shares in J-POWER under the FEFTA. So far, that has been the only case in Japan in which a halt recommendation or order was issued through prior screening under the law.
Under the system, MBK Partners must decide within 10 days whether to accept the recommendation. If it refuses, the government may issue an order to stop the acquisition, The Nikkei said.
Machine tools are an industry that includes so-called dual-use technologies, which can also be used to manufacture weapons. In Japan, they are designated as a "core industry" under the FEFTA because of their high security importance. When foreign investors acquire stakes, they must notify the government in advance and undergo screening.
Earlier, Makino faced a hostile merger and acquisition attempt by Nidec Corporation in April last year. At that time, MBK Partners stepped in as a white knight and announced in June that it would take the company private through a tender offer.
At the time of the announcement, MBK Partners expected the tender offer to begin in early December last year, but the schedule was delayed. It had secured approval under U.S. and Chinese antitrust laws, as well as investment screening approvals in the United States, Germany, France and Italy. However, delays continued in Japan's investment screening under the FEFTA. Even on the 10th, the schedule was postponed again, and the new tender offer was expected to begin in late June. It has now run into resistance from the Japanese government.
The Nikkei noted that if MBK Partners withdraws its tender offer following the recommendation to halt the deal, Makino will need to reorganize its strategy to enhance corporate value amid shareholder scrutiny and changing market conditions as a listed company. Even if it chooses independent growth, a review of its management strategy will be unavoidable.
sjmary@fnnews.com Seo Hye-jin Reporter