Lion's plan is a so-called "trust-type" shareholder rights plan, of the kind adopted by a number of Japanese companies in 2005. Assuming the plan is approved by shareholders at the March 30 meeting, Lion plans to issue stock acquisition rights (warrants) for more than 600 million shares to Mitsubishi UFJ Trust and Banking, as the trustee of a new trust. The number of warrants represents 191 percent of the number of outstanding Lion shares as of the fiscal year-end. In the event the plan is triggered, Lion shareholders (other than the would-be acquirer) would be designated as beneficiaries of the trust, and the warrants would be transferred from Mitsubishi UFJ Trust to the beneficiaries. The warrants would be exchangeable for shares of Lion common stock at a one-for-one ratio.

The poison pill plan is designed to be triggered when a "specified large shareholder"-- defined as a party who holds or is attempting to acquire more than 20 percent of Lion shares--emerges, and the company deems the acquisition or attempted acquisition to be coercive or otherwise detrimental to shareholders. In making such a determination, the board would "assign maximum value to the recommendation" of a committee drawn from among the company's non-executive directors and statutory auditors. If the plan is triggered, Lion shareholders will have the right to exercise the warrants for JY 1 per share, thereby diluting the holdings of the potential acquirer. The exercise period for the warrants is set to expire on March 31, 2009, and if Lion decides to renew the plan, shareholder approval will again be required.

Lion's plan has positive features, including the absence of "dead-hand" provisions, an effective three-year sunset provision, and the fact that the independent committee will be able to hire legal and financial experts at the company's expense. Nonetheless, the ISS recommendation-research staff is advising shareholders to oppose the plan. First, Lion's 11-member board will have only two non-executives following this annual meeting. To ensure that the board remains responsive to shareholders after the introduction of a poison pill, ISS believes that independent directors should make up at least 20 percent of the board. Second, the poison pill is accompanied by another defense, namely an article amendment to eliminate all vacant seats on the board. This change will make it more difficult to elect shareholder candidates, as it will require management nominees to be defeated to make room for the shareholder nominees.

The takeover defenses proposed by Torigoe and CAC, both of which are holding their meetings on March 30, are what are known in Japan as "advance warning-type" defenses. These do not require a shareholder vote in Japan, and may be implemented with a board resolution; for this reason, those measures likely will far outnumber trust-type poison pills in 2006. However, Torigoe and CAC have chosen to present their plans to shareholders for a vote.

In both cases, any suitor that acquires 20 percent or more of the target company's issued share capital will be asked to explain the purpose of the bid, the method used to value the target's shares, the method used to raise funds, the identity of parties who offer those funds, and the bidder's strategic plan for the company if successful.

Once this information is obtained, the board would then ask the bidder to delay launching a tender offer until the board (or in the case of Torigoe, an independent committee) could study the information presented, and present an alternative plan where appropriate. The waiting period at Torigoe will be set at 60 days; at CAC, it will be 60 to 90 days, depending on whether the deal is an all-cash acquisition or involves a share exchange. However, if Torigoe's independent committee decides that it needs more time to make a recommendation, the committee can extend the waiting period.

If the would-be acquirer fails to comply with these rules, then the independent committee (at Torigoe), or the board acting on the advice of a special committee (at CAC) may act to dilute the holdings of the bidder by issuing warrants to all other shareholders. However, even if the bidder does comply with the rules, the companies may take such action if the board or the committee decides that the bid would clearly damage shareholder value (e.g., an attempt at "greenmail' or asset stripping). Should these plans be triggered, warrants would be issued to all shareholders other than the hostile bidder, and thus ordinary shareholders would not find their stakes diluted. However, those shareholders could potentially be denied the opportunity to receive a takeover premium for their shares.

Among the other companies which have announced "advance warning" takeover defenses in recent weeks are brewery and beverage holding company Sapporo Holdings, pharmaceutical maker Eisai, railway operators Hankyu Holdings and Keihan Electric Railway, biotechnology venture firm AnGes MG, and chemical manufacturer Tosoh. Many other companies are considering such measures, urged by law firms and investment banks, which see a huge business opportunity in designing such defenses and helping companies to implement them. In most of these cases, shareholders will not be able to vote on the adoption of the defense itself. If they decide that a plan is sufficiently objectionable, they may choose to vote against the re-election of directors. As shareholders evaluate these defenses, key issues will include the composition of the committee that will evaluate any bid, and the respective authorities of the committee and the full board.

Japanese companies that implement takeover defenses via a board resolution are required to note this fact in their proxy circulars. However, the quality as well as the timing of such disclosure varies considerably from company to company. Shareholders can expect to see takeover defenses announced--often at the last minute--by many of the companies that have problematic governance practices, such as insider-dominated boards, opaque capital strategies, or poor disclosure practices. Investors may conclude that it is precisely these companies whose shareholders have the most to lose from a takeover defense that insulates management from the threat of a hostile bid.