When Should a Special Committee Be Established? What the Fuji Soft Tender Offer Shows About Practical Timing

There is room to establish a special committee well before a target company formally receives a takeover proposal. Fuji Soft's competing tender offer — where the company moved to form its special committee as soon as it recognized that multiple bidders might approach — offers a useful precedent for front-loading beyond the "as promptly as possible" standard set out in METI's Fair M&A Guidelines.

What Is a Special Committee, and Why Is It Established?

A special committee is a voluntary body convened to supplement or, in effect, substitute for the board's role in situations — such as management buyouts or a controlling shareholder's acquisition of a subsidiary — where structural conflicts of interest risk compromising the board's independence. Its independent members examine and decide on the merits of the M&A, the fairness of the deal terms, and the fairness of the process, acting from the standpoint of enhancing corporate value and protecting general shareholders' interests (METI, Fair M&A Guidelines, June 28, 2019, https://www.meti.go.jp/policy/economy/keiei_innovation/keizaihousei/pdf/fairmaguidelines.pdf).

The guidelines are explicit that a special committee is not a neutral third party standing equidistant from the acquirer, the target company, and general shareholders. It is an advocate for the interests of the target company and its general shareholders.

Why Does Timing Become a Point of Contention?

The guidelines state that once a target company has received a takeover proposal, it is desirable to establish a special committee "as promptly as possible." A "takeover proposal" here means a bona fide acquisition proposal that is objectively concrete and feasible (Guidelines, Section 3.2.4.1).

Delayed formation draws criticism because, if deal terms have effectively been locked in and are difficult to reverse by the time a committee is set up, the very purpose of establishing one is substantially undermined. The guidelines acknowledge that some preparatory period — for candidate selection, for instance — is unavoidable, but caution against needlessly delaying formation. In other words, the real question is not whether a committee is formed, but at what stage of the negotiation it becomes involved.

What the Fuji Soft Tender Offer Shows About Practical Timing

Fuji Soft's case, which developed into a competing tender offer, illustrates how far the "as promptly as possible" standard can be pushed forward in practice. At a board meeting on September 12, 2023, Fuji Soft resolved to establish a special committee composed solely of its six independent outside directors. The trigger was a wave of going-private proposals from multiple private equity funds, following engagement from shareholder 3D Investment Partners; Fuji Soft judged that securing fairness and transparency in its review process required this step (Fuji Soft Corporation, "Notice Regarding the Status of Deliberations on Measures to Enhance Corporate Value," January 12, 2024, https://www.fsi.co.jp/company/news/20240112.html).

At that point, no specific acquirer had made a definitive tender offer announcement — several funds were merely signaling interest. What followed, as is publicly known, was a competing process between KKR and Bain Capital that played out from 2024 into 2025. The specific pricing and exchange-ratio terms of that contest fall outside the scope of this article, but the salient point is this: Fuji Soft formed its special committee at the stage when it became apparent that multiple bidders might approach simultaneously, and carried that independent review structure through the entire subsequent negotiation. That is a step ahead of the literal floor the guidelines set with the phrase "once a takeover proposal is received" — a genuine case of front-loading in practice.

How Should a Special Committee's Membership Be Determined?

The guidelines require members to be independent both from the acquirer and from the outcome of the M&A itself. Where independent outside directors are available, it is desirable in principle to draw committee members from among them; the guidelines cite outside directors' legal accountability through election at the general meeting (AGM), their involvement in management decisions at the board level, and their working familiarity with the target company's business as the reasons they are best suited to the role. Where outside directors alone cannot ensure sufficient independence, adding outside Audit & Supervisory Board members (a body distinct from a US/UK-style audit committee) or outside experts — or composing the committee entirely of them — is treated as an acceptable second-best option.

Fuji Soft's special committee, composed solely of six independent outside directors, aligns with the form the guidelines treat as most desirable. It is also worth noting, as a point of practical relevance, that the guidelines favor having the independent outside directors and auditors themselves take an active role in the selection process.

What Does Case Law Say About Disputes Over Timing and Composition?

One case that can be cited by name is the Tokyo Kikai Seisakusho matter (Supreme Court, Third Petty Bench, decision of November 18, 2021). To be precise, however, the dispute in that case did not concern the timing or composition of a special committee itself. In response to a rapid open-market share accumulation by Asia Development Capital and related parties (roughly 40% acquired in under three months), Tokyo Kikai Seisakusho's board resolved on August 30, 2021 to issue share warrants carrying discriminatory exercise conditions, conditional on shareholder approval. At an extraordinary general meeting on October 22 of that year, the issuance was approved by a 78.96% vote under a majority-of-minority (MoM) framework that excluded interested parties from voting. The Supreme Court upheld the entire process, dismissing the special and permission appeals (commentary: Japan Exchange Group Financial Instruments and Exchange Act Research Group, "Recent Trends in Takeover Defense Measures (2)," November 25, 2022, https://www.jpx.co.jp/corporate/research-study/research-group/cg27su00000086b6-att/20221125_1.pdf).

The central battleground in that case was the legality of confirming shareholder intent when triggering a defense measure — it was not a case in which a special committee's adequacy was directly reviewed. That said, the court's evident willingness to scrutinize the procedural fairness of defensive measures closely is a related theme: a special committee whose timing or composition amounts to little more than a formality could well be examined under a similarly strict lens. Published case law that squarely litigates special committee timing or composition remains limited, which means that, for now, compliance with the guidelines' standards functions as the practical line of defense.

How Does a Special Committee's Role Differ from That of Outside Directors?

Outside directors are members of a statutory corporate body under the Companies Act, elected at the general meeting (AGM) and bearing ongoing responsibility for management decisions generally. A special committee, by contrast, is not a statutory corporate body — it is a temporary body voluntarily convened for an individual M&A transaction. The guidelines state that an outside director's core expected role is to run the special committee properly, while specialized judgment itself should be supplemented through advisors' input rather than the directors' own expertise. The fact that an outside director lacks M&A-specific expertise is, on its own, no reason to exclude them from committee membership.

Because a special committee is not a statutory corporate body, the final decision on whether to support an M&A transaction ordinarily rests with the board. The guidelines state it is desirable for the board to understand and grasp the substance of the special committee's judgment and to give it maximum deference; where an independent special committee has functioned effectively, the board can fulfill its accountability by relying on that judgment.

FAQ

Q1. Does a special committee have to be composed entirely of outside directors?

Not necessarily. Where independent outside directors are available, the guidelines favor drawing members from among them in principle; where independence would otherwise be compromised, adding outside Audit & Supervisory Board members or outside experts — or composing the committee entirely of them — is accepted as a second-best approach (METI, Fair M&A Guidelines, June 28, 2019).

Q2. What are the risks of delaying the formation of a special committee?

If deal terms have effectively been locked in and are difficult to reverse by the time the committee is established, the purpose of forming it is substantially undermined. The guidelines accept that some preparatory period — for candidate selection, for instance — is unavoidable, but caution against needlessly delaying formation.

Q3. What authority should be granted to a special committee?

It is desirable for the committee to have real influence over the negotiation of deal terms. This can take the form of the committee negotiating directly under delegated authority, or of internal staff and advisors conducting negotiations while the committee confirms strategy in advance, receives timely reports, and offers views and instructions along the way. The guidelines also describe an operating model in which the board decides in advance that it will not support the M&A if the special committee finds the deal terms inadequate — effectively securing something close to a veto.

Summary

For a confidential initial consultation (free of charge), contact us through our enquiry form.

※ This article organizes general points and is not advice on any specific matter. Specific consultations are handled on a confidential basis.