Japan’s boom in management buyouts looks set for stricter oversight to protect minority shareholders when companies go private.

The Tokyo Stock Exchange will this month consider changes to the Corporate Code of Conduct that would require firms to improve disclosure of assumptions used to calculate the price of buyouts, and to set up a special committee to hear opinions about the proposed deal.

The move shines a light on concerns of minority shareholders that have arisen as buyouts in Japan rose to the highest since 2011. Hedge funds including Hong Kong-based Oasis Management and US-based Curi RMB Capital opposed plans by a major drugmaker to go private in 2023, arguing the price was too cheap.

“Any tightening of the rules by the TSE means that it would not be possible for managements to take companies private at a low price,” said Shohya Ohkuma, CEO at Japanese advisory firm QuestHub, who previously worked at a Singapore-based activist fund.

Ohkuma said that although he expects to keep seeing companies go private, there will be disadvantages for them, such as having to borrow more. That may result in a smaller number of MBOs, he said.

The surge in management buyouts in Japan has come amid increasing pressure from activist investors to improve corporate value, and the burden of maintaining a listing.

Companies seeking to do such transactions include software developer Fuji Soft, and convenience store operator Seven & I Holdings, which is mulling a ¥9 trillion ($58 billion) deal in what would be Japan’s largest-ever MBO.

The number of such buyouts in 2024 was bigger than the other major stock markets, according to Bloomberg-compiled data. More MBOs have often been seen as a tailwind for the equity market, despite an undercurrent of conflict of interest with management that’s roiled minority holders.

Taisho Pharmaceutical, Japan’s biggest over-the-counter drugmaker, sparked investor concerns when it unveiled plans for management to take it private in 2023.

“Minority shareholders are always forced into a weak position,” said Takamasa Ikeda, a senior portfolio manager at GCI Asset Management. “The price should be carefully verified so that investors’ rights are not undermined,” Ikeda said. He added that overall though, MBOs have been positive for the Japanese stock market, which has seen the Topix Index rally a total of 47% in 2023 and 2024.

The new rules from the TSE should reduce the number of cheaper MBOs by introducing more transparency into the pricing process, said Takahiro Kusakari, co-president of Monex Group-backed Japan Catalyst.