Please note that the original article is in Japanese. The following is a summary of its content.
A Domestic Reorganization Triggers SEC Registration
On April 1, 2021, Sawai Pharmaceutical Co., Ltd. established Sawai Group Holdings Co., Ltd. (Sawai GHD) as its new parent company via a stock transfer.
The business driver for this move was reform in Japan’s pharmaceutical industry (e.g., government-led drug price cuts), which is accelerating M&A and strategic alliances. The holding company structure was designed to give the group greater “flexibility and speed” to respond to these changes.
However, this purely domestic reorganization required registration with the U.S. Securities and Exchange Commission (SEC). In preparation, the company filed a Form F-4 with the SEC on November 27, 2020, before its extraordinary shareholders’ meeting.
The U.S. Securities Law: Rule 145
This requirement stems from Section 5 of the U.S. Securities Act of 1933, which requires all offers and “sales” of securities to be registered.
While a reorganization is not a typical sale, Securities Act Rule 145 explicitly defines certain corporate reorganizations—including mergers, stock-for-stock exchanges, and transfers of assets—as a “sale” of securities for the purposes of the Act.
Crucially, this rule is not limited to U.S. companies. It is designed to protect U.S. shareholders, regardless of where the company is located. Therefore, a Japan-Japan reorganization is subject to SEC registration if a sufficient number of U.S. shareholders are involved.
The 10% Shareholder Exemption
An exemption from registration is available, but only if all of the following complex conditions are met (simplified):
- U.S. resident shareholders hold 10% or less of the stock.
- U.S. shareholders are treated equally to non-U.S. shareholders.
- Certain information is disclosed.
Sawai Pharmaceutical had more than 10% U.S. resident shareholders, making it ineligible for the exemption and forcing a mandatory registration.
Precedents: A Common Hurdle for Japanese Companies
Sawai is not alone. This rule has impacted numerous domestic Japanese reorganizations, including:
- Nippon Steel Sumitomo Metal Corporation and Nisshin Steel Co., Ltd. (2018 Form F-4 filing for their stock exchange)
- Coca-Cola West Company, Limited and Coca-Cola East Japan Co., Ltd. (2017 Form F-4 filing for their integration, which became Coca-Cola Bottlers Japan)
- The Bank of Yokohama, Ltd. and The Higashi-Nippon Bank, Limited (2016 joint Form F-4 filing to create their holding company, Concordia Financial Group, Inc.)
The Form F-4 Filing: A Non-Negotiable Hurdle
Even though the Sawai transaction was an internal reorganization with no change in economic value for shareholders, the company confirmed directly with the SEC that registration was non-negotiable.
The filing, Form F-4, is used by Foreign Private Issuers (FPIs) for this purpose. The requirements are extensive:
- Financial Section: Requires, in principle, three years of financial statements (US GAAP or IFRS) audited under PCAOB (Public Company Accounting Oversight Board) standards. It may also require pro-forma financials and separate financials for significant acquisitions under Regulation S-X 3-05.
- Non-Financial Section: Requires a voluminous description of the business, MD&A, risk factors, and the terms of the transaction.
The entire process is time-consuming. After the initial filing, the SEC review and comment process takes at least 3-4 months. This timeline must be factored in before scheduling the shareholder meeting.
The Post-Registration Burden
Successfully registering has a significant consequence: the company becomes subject to ongoing SEC reporting, including filing Form 20-F (annual report) and complying with the Sarbanes-Oxley Act (SOX).
Because this burden is so high, companies that undergo this process almost universally file for de-registration as quickly as possible (typically after filing their first Form 20-F). Given that foreign ownership in Japanese companies remains high (around 30%), this is expected to be a recurring challenge for domestic reorganizations.
