Corporate law: Partnerships develop their talent to adapt

For most technology companies, going public to raise research funds is pretty straightforward. But most companies are not like Cyberdyne, a Japanese wearable robotics company whose technology could have military applications.

Founder Yoshiyuki Sankai worried that if Cyberdyne went public, he might lose control and his technology — which allows robots to be controlled by signals originating in the human brain — could be used to build robotic weaponry. He intended it for medical applications.

So Cyberdyne called on Japanese law firm Mori Hamada & Matsumoto, which helped it implement Japan’s first dual-class share structure for a listed company. Mr Sankai, a professor, was able to retain some 90 per cent of voting rights while holding a far smaller percentage of the group’s capital. The firm says the structure ensures that he remains closely involved with the company’s research and development.

On US exchanges that would be unremarkable. Google, Facebook and others have similarly tiered share classes that allocate more power to founders. But it was novel in Japan.

The Cyberdyne deal exemplifies a trend in recent innovation in Asia-Pacific corporate law — taking relatively common legal structures from North American or European law and implementing them in very different legal and regulatory environments.

On the surface, the economics of the product “look the same”, says Tony Grundy, senior counsel with Mori Hamada & Matsumoto, of the firm’s work with Cyberdyne. But, he adds, the underlying legal mechanics are very different.

Sometimes inspiration comes from a firm’s own partners’ experience of working in the US and Europe, or the idea hails from a client’s bankers who are familiar with other markets. In Asia, adaptation, or the creation of new structures, helps growing companies raise capital.

India’s Amarchand & Mangaldas & Suresh A Shroff — which split in May into two firms, one of which is Shardul Amarchand Mangaldas — had been working with Videocon d2h, a direct-to-home broadcasting service provider. US-listed special purpose acquisition company Silver Eagle Acquisition wanted to invest in it. The law firm’s aim with Videocon was to list US depository shares under a law promulgated by Indian regulators last year. It has also helped set up a structure, common in the US but not in India, that allowed earn-out shares — which pay dividends based on the performance of the company after a deal — to be issued to certain parties involved in the investment.

It took meetings with local regulators to ensure the listing, earn-out structure and other items would be approved, says Prashant Gupta, a Shardul Amarchand Mangaldas partner.

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In China too, lawyers find themselves confronted by challenges more familiar in the west. They say local regulations are becoming more comprehensive than they were and Chinese companies’ ambitions and internal controls in matters such as due diligence are becoming more sophisticated. This is to the advantage of companies in negotiations with international partners; but it adds to the challenges facing lawyers on deals between Chinese and foreign companies that want to strike partnerships to help companies enter China, or Chinese companies to go global.

Chinese-Australian firm King & Wood Mallesons represented home appliance maker Qingdao Haier in negotiating a deal that saw US private equity specialist KKR acquire a 10 per cent stake in the Chinese company. The deal is KKR’s largest single deal in China and an unusual example of a foreign private equity group taking a stake in a domestically listed Chinese company. Restrictions on inbound investment had constrained this in the past. The regulatory hurdles KKR faced in partnering with a Chinese-listed non-financial company were substantial, says Xu Ping, a senior partner in Beijing with King & Wood Mallesons.

Amid the challenges facing Asian law firms, often the most innovative work comes from lawyers meeting particular domestic market needs. For South Korean firm Shin & Kim, the problem was to enable the government-backed Korea Deposit Insurance Corporation to privatise a holding company, Woori Finance Holdings, created to collect the assets of a number of banks bailed out by the government.

Privatisation plans had failed three times but Shin & Kim managed to spin off and sell two banks out of Woori by creating multiple holding companies. and merging the banks into them. The structure minimised regulatory restrictions and ensured the pricing was palatable.

“On the prior attempts, the now-successful structure was considered,” says Shin & Kim partner Jae Young Chang. “But many people felt that such structure would be too complex.”

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Letter in response to this report:

Dual-class share structure is permitted in Japan / From Koji Toshima