March 1, 2007

JFE Announces Policy Toward
Large-scale Purchases of JFE Shares (Takeover Defense Measures)

Name of company: JFE Holdings, Inc.
Representative: Fumio Sudo, President and CEO
Listings: Tokyo, Osaka and Nagoya stock exchanges in Japan
Code number: 5411
Contact: Shuichiro Hayashi, Manager
Public Relations Sec., General Administration Dept.
Tel: +81-3-3217-4030, Fax: +81-3-3214-6111

JFE Holdings, Inc. (“JFE”) hereby announces that its Board of Directors has decided, at the meeting of the Board of Directors held on March 1, 2007, to adopt a policy toward (i) any purchases of JFE shares by a group of shareholders1 with the intent to hold 20% or more in the voting rights ratio2, or (ii) any purchases of JFE shares resulting in the voting rights ratio of a group of shareholders being 20% or more (except for cases where the Board of Directors has given consent in advance of the purchases set out in (i) or (ii) above). A purchase of JFE shares set out in (i) or (ii) above will be hereinafter referred to as a “Large-scale Purchase.” A person, a company, a corporation or any other entity that intends to conduct a Large-scale Purchase will be hereinafter referred to as a “Large-scale Purchaser.” This policy will be hereinafter referred to as the “Policy.” Five corporate auditors of JFE (three of whom are outside corporate auditors) were present at the meeting of the Board of Directors at which the Policy was adopted. Each corporate auditor stated his agreement with the Policy on the condition that the Policy is duly implemented. The status of the major shareholders of JFE as of September 30, 2006, is described in Attachment 1 hereto. JFE hereby notes that, as of today, it has received no proposal, etc. for a Large-scale Purchase of JFE shares.

JFE’s Board of Directors plans to propose the continuation of the Policy at the ordinary general shareholders meeting to be held in June 2007 (hereinafter referred to as the “Ordinary General Shareholders Meeting”). The proposal shall be included as an agendum for approval to confirm the intention of the shareholders of JFE as a step for such continuation, because adopting the Policy and taking the countermeasures pursuant thereto may have some impact on the shareholders of JFE.

1. Programs to improve JFE Group’s corporate value and the common interests of the shareholders

(1) Programs to improve corporate value and the common interests of the shareholders in the medium-term business plan

Basic stance on corporate vision and management

As stated in our corporate vision, the basic aim of the JFE Group is to become a company seeking to maximize its corporate value and the common interests of the shareholders by making all possible efforts to “contribute to society with the world’s most innovative technology.”

The Group has approximately 700 engineers engaged in research and development with the aims of meeting the evolving needs of our customers and communities and furnishing them with stable, efficient supplies of leading-edge products and services. In addition to future-oriented basic research and development of advanced products, services and production processes, we also invest aggressively in our facilities and their maintenance so as to improve the productivity of our business assets.

Results to date

In the First Medium-Term Business Plan (covering fiscal years from April 2003 through March 2006) implemented immediately after the JFE Group’s establishment, the main focuses were on strengthening profitability and making substantial improvements in its financial position. Our objective was to lay foundations that would bring us up to the starting line as a global company, and our efforts enabled us to substantially outperform initial targets.

In particular, we were able to significantly expand profits in our core steel operations by: 1) substantially increasing production and productivity through efficient capital investments and higher capacity utilization; 2) bringing the Group’s strengths into play by expanding sales of advanced, proprietary products (“Only One” products) and products in which we enjoy a predominant share (“Number One” products). We also trimmed assets for the Group overall, thus achieving substantive improvements in our financial position.

Second Medium-Term Business Plan basic policies and progress

The basic policies of the Second Medium-Term Business Plan (fiscal years from April 2006 through March 2009) are to solidify our base for global growth and excellence by:
1) establishing stable, higher-profit operations, 2) making bold, flexible strategic investments and strengthening research and development, 3) enhancing corporate social responsibility and corporate governance, 4) improving financial health, and 5) actively returning profits to shareholders.

Earnings during the first year of the plan are forecast to be above target, with consolidated ordinary income of 500.0 billion yen and net income of 295.0 billion yen. While the profits of foreign competitors tend to be vulnerable to swings in the highly volatile steel market, the JFE Group has adopted a strategy of concentrating on high-value-added products that give it stable, high profitability, and this strategic choice is now bearing fruit.

JFE is also proactive in returning profits to shareholders. Our guideline for this fiscal year is to pay a dividend of 120 yen/share (compared to 15 yen/share immediately after the Group was established). In addition, in November 2006 we initiated a share buyback of 120.0 billion yen and completed it in February 2007.

Our share price has risen significantly as a result of these efforts. As of February 28, 2007 the company has a market capitalization of approximately 4.3 trillion yen, a substantial increase of 3.5 trillion yen over the market capitalization at the time of establishment.

Consolidated net sales
Years ended/ending March 31 2003 2004 2005 2006 2007(e) 2nd medium-term
business plan
Consolidated net sales (billion yen) 2,426.8 2,473.7 2,803.6 3,098.3 3,270.0 NA
Percentage of Only One and Number
One products in net sales *
7% 13% 17% 21% 24% 30%

* JFE Steel’s non-consolidated net sales



Consolidated ordinary income(bar graph)
Years ended/ending March 31 2003 2004 2005 2006 2007(e) 2nd medium-term
business plan
Consolidated ordinary income (billion yen) 104.6 218.3 460.6 517.3 500.0 500.0
Debt-to-equity ratio 346% 246% 149% 89% 83% 50%


Years ended/ending March 31 2003 2004 2005 2006 2007(e)
Dividend (yen/share) 15 30 45 100 120
Closing share price at fiscal year end
(yen/share)
1,500 2,845 2,990 4,750 * 7,290

* As of February 28, 2007



Cash Flow Utilization Plan in Second Medium-Term Business
(April 2006 through March 2009)

Source Use
Net income 800 billion yen Dividends 200 billion yen
(Payout ratio: approximately 25%)
Repayment of
interest-bearing debt
400 billion yen
Investing/financing 200 billion yen
Promotion of new growth strategy

We are increasingly confident of success in achieving the targets of the Second Medium-Term Business Plan, and are also planning to pursue a new growth strategy that will enable the JFE Group to emerge as a global player.

Global steel demand is forecast to continue to grow, primarily in East Asia where the JFE Group enjoys a strong network. We anticipate similarly high growth rates for the high-end steel that is the Group’s predominant strength. We are focusing on two primary areas to increase production and sales of high-end steel: 1) further strengthening our domestic production base and 2) strengthening international alliances. We are confident that these efforts will further expand the Group’s profits and increase its presence on the global steel market. We will if necessary implement the new growth measures during the course of the Second Medium-Term Business Plan.

Turning to the engineering business, the JFE Group has resolved to strengthen its competitiveness by shifting and concentrating its resources to the areas in which we excel as a means of combating the difficult business environment. We will take advantage of our wealth of experience, expertise and technology in the energy and environmental fields in order to expand our business in areas such as new energy sources, energy conservation and recycling.

Together with all our stakeholders

The JFE Group seeks to win the solid support and cooperation of all its stakeholders. We offer tours of our steel mills to facilitate communication with our shareholders. We enter into technology partnerships with customers that help to improve the competitiveness of the Japanese manufacturing sector. We also develop environment-friendly technologies, promote job creation and mid-career hires, maintain healthy labor-management relations, continually improve the safety of our work environments and endeavor to live in mutual harmony with our communities.

Consolidated net sales
Years ended/ending March 31 2004 2005 2006 2007
Graduate hiring (persons) 277 256 235 488
Mid-career hiring (persons) 54 74 119 121

(2) Strengthening corporate governance by electing outside directors

One of the basic objectives of the Second Medium-Term Business Plan is further strengthening of our corporate governance. We believe that rigorous transparency and equity of our management will lead to sustainable improvements in corporate value and the common interests of the shareholders.

The JFE Group comprises a number of different businesses overseen by JFE, which is a pure holding company. Under this system, individual operating companies are responsible for the execution of their own business and work so as to improve the effectiveness of their management. Nonetheless, we are also keenly aware of the need for further improvement through strengthening of our corporate governance.

To achieve this we will, as recently announced, be tabling a proposal at this year’s Ordinary General Shareholders Meeting under which two out of seven directors of JFE will be elected as outside directors and the term of directorship will be shortened from two years to one.

2. Basic Philosophy Regarding the Adoption of the Policy

JFE does not dismiss the notion of a revitalization of corporate activities and economy through a change of control. JFE believes that when a Large-scale Purchase is commenced, the shareholders of JFE should, in principle, make decisions as to whether or not the Large-scale Purchase is acceptable.

However, with respect to a Large-scale Purchase or a proposal related to a Large-scale Purchase, JFE recognizes that the shareholders of JFE need to carefully evaluate the effects of the Large-scale Purchase or the proposal on the corporate value of JFE and the common interests of the shareholders, taking into account the Large-scale Purchaser’s business descriptions, business plans, and investment track record, etc. For this purpose, JFE believes that both the Large-scale Purchaser and JFE’s Board of Directors should provide the shareholders with necessary and sufficient information, opinions and suggestions, and that the shareholders should be given necessary and enough time to review them.

Based on the basic philosophy mentioned above, JFE’s Board of Directors has established rules concerning Large-scale Purchases of JFE shares (hereinafter referred to as the “Large-scale Purchase Rules”), as described below. The Board of Directors will require any Large-scale Purchaser to comply with the Large-scale Purchase Rules. If the Large-scale Purchaser does not comply with the Large-scale Purchase Rules, the Board of Directors intends to take certain countermeasures. Moreover, in cases where it is clear that a Large-scale Purchase will cause irreparable damage or loss to JFE, or where a Large-scale Purchase will cause severe damage to the corporate value of JFE and the common interests of the shareholders, then the Board of Directors intends to take certain countermeasures even if the Large-scale Purchaser has complied with the Large-scale Purchase Rules.

In order to ensure that the decision by JFE’s Board of Directors on the effects of a Large-scale Purchase on the corporate value of JFE and the common interests of the shareholders and the invocation of countermeasures based on the Policy, will be made in a transparent, objective, fair, and reasonable manner, a Special Committee will be established which will be composed mainly of persons such as the outside directors (candidate) of JFE.

3. Establishment of Large-scale Purchase Rules

JFE’s Board of Directors believes that a Large-scale Purchase which is conducted in compliance with the Large-scale Purchase Rules benefits both the corporate value of JFE and the common interests of JFE’s shareholders. The Large-scale Purchase Rules require that (i) a Large-scale Purchaser provide necessary and sufficient information to the Board of Directors, and (ii) a Large-scale Purchaser be permitted to commence the Large-scale Purchase only after the prescribed period during which the Board of Directors will assess the Large-scale Purchase.

First, a Large-scale Purchaser is required to provide JFE’s Board of Directors with necessary and sufficient information (hereinafter referred to as the “Large-scale Purchase Information”) so that the shareholders of JFE may make decisions and the Board of Directors may form its opinion. The Large-scale Purchase Information will include the following:

(1)
an outline of the Large-scale Purchaser and its group;
(2)
the purposes and terms of the Large-scale Purchase;
(3)
the basis for determination of the purchase price and the source of the funds for purchase;
(4)
management policies and business plans of JFE Group which the Large-scale Purchaser intends to adopt after the completion of the Large-scale Purchase;
(5)
policies dealing with JFE Group’s customers, suppliers, local community, employees, and any other stakeholders of JFE Group which the Large-scale Purchaser intends to adopt after the completion of the Large-scale Purchase; and
(6)
in cases where the Large-scale Purchaser conducts business of the same kind as the business of JFE Group, the Large-scale Purchaser’s view on the legality of the Large-scale Purchase in terms of the Antimonopoly Law and overseas competition laws.

Since details of the Large-scale Purchase Information may vary depending on each specific Large-scale Purchase, JFE, first of all, requires the Large-scale Purchaser to submit to JFE a letter of intention to comply with the Large-scale Purchase Rules, specifying the name of the Large-scale Purchaser, address, governing law of incorporation, name of its representative, contact details in Japan, and an outline of the proposed Large-scale Purchase. Within five business days after receipt of such letter, JFE will deliver to the Large-scale Purchaser a list of the Large-scale Purchase Information to be initially provided by the Large-scale Purchaser. If the information initially provided by the Large-scale Purchaser is deemed insufficient as the Large-scale Purchase Information, JFE may require additional information until it receives necessary and sufficient information. JFE's Board of Directors will disclose the proposed Large-scale Purchase and all or part of the Large-scale Purchase Information submitted to the Board of Directors at such time as it deems appropriate, if such disclosure is considered necessary for the shareholders to make their decisions.

After all the Large-scale Purchase Information is provided, JFE’s Board of Directors should be allowed a sixty day period (in the case of the purchase of all JFE shares by a tender offer with cash-only (Japanese Yen) consideration) or a ninety day period (in the case of any other Large-scale Purchase), depending on the level of difficulty of the assessment, as the period during which it will assess, examine, negotiate, form an opinion and seek alternatives (hereinafter referred to as the “Assessment Period”). The Large-scale Purchase, therefore, will be commenced only after the Assessment Period has elapsed. The Board of Directors will thoroughly assess and examine the Large-scale Purchase Information with advice from outside professionals during the Assessment Period, and disclose its opinion. As mentioned above, the Board of Directors may negotiate with the Large-scale Purchaser in order to improve the terms of the proposed Large-scale Purchase or it may offer alternative plans to the shareholders, as necessary.

4. Action plans in response to the Large-scale Purchase

4.1 If a Large-scale Purchaser does not comply with the Large-scale Purchase Rules

If a Large-scale Purchaser does not comply with the Large-scale Purchase Rules, JFE’s Board of Directors may take countermeasures against the Large-scale Purchaser to protect the corporate value of JFE and the common interests of the shareholders. Countermeasures include the issuance of stock acquisition rights or any other measures that the Board of Directors is permitted to take under the Company Law or other laws and JFE’s articles of incorporation. The Board of Directors will make decisions on the invocation of countermeasures by referring to advice from outside professionals, such as lawyers and financial advisers, and respecting the recommendations of the Special Committee to the maximum extent possible. The Board of Directors will adopt specific countermeasures which it deems appropriate at that time. If the Board of Directors elects to make a gratis allotment of stock acquisition rights, the outline of the issuance thereof will, in principle, be as described in Attachment 2 hereto. If the Board of Directors elects to issue stock acquisition rights as a countermeasure, it may determine the exercise period and exercise conditions of the stock acquisition rights in consideration of the effectiveness thereof as a countermeasure.

JFE believes that the establishment of the Large-scale Purchase Rules and countermeasures to be taken in the event of non-compliance with such rules are reasonable and appropriate in order to protect the corporate value of JFE and the common interests of the shareholders. JFE recognizes that the aforementioned countermeasures may cause damage or loss, economic or otherwise, to a prospective Large-scale Purchaser who does not comply with the Large-scale Purchase Rules. Thus, JFE is hereby advising, in advance, against commencing a Large-scale Purchase that does not comply with the Large-scale Purchase Rules.

4.2 If a Large-scale Purchaser complies with the Large-scale Purchase Rules

The purpose of the Large-scale Purchase Rules is to provide an opportunity for the shareholders of JFE to receive necessary information about the purchase of such number of JFE shares as may influence the management of JFE, as well as the opinions, and alternative plans from the incumbent Board of Directors, in order that they may determine whether or not such proposed purchase is acceptable, from the perspective of protecting the corporate value of JFE and the common interests of the shareholders. If a Large-scale Purchase is conducted in compliance with the Large-scale Purchase Rules, the Board of Directors does not intend, in principle, to prevent the Large-scale Purchase at its own discretion.

However, in the exceptional case where it is clear that a Large-scale Purchase will cause irreparable damage or loss to JFE or where it will cause severe damage to the corporate value of JFE and the common interests of the shareholders (in the judgment of JFE’s Board of Directors made by referring to advice from outside professionals, such as lawyers and financial advisers, and respecting the recommendations of the Special Committee to the maximum extent possible), the Board of Directors may take countermeasures described in 4.1 above to prevent such Large-scale Purchase. In such a case, the Board of Directors will make an appropriate disclosure at an appropriate time. In principle, any one of the following will be deemed to constitute a case where it is clear that a Large-scale Purchase will cause irreparable damage or loss to JFE or where it will cause severe damage to the corporate value and the common interests of the shareholders:

(i)
Case where a purchaser implements an acquisition that will cause obvious harm to the corporate value and the common interests of the shareholders by actions including the following:
(1)
To buy up JFE shares and to force JFE into purchasing such shares at an inflated price;
(2)
To achieve an advantage for an acquirer to the detriment of JFE through actions such as the temporary assumption of control over JFE’s management and the acquisition of JFE’s material assets, etc. at a below-market price;
(3)
To divert JFE’s assets to secure or repay debts of an acquirer, its group companies, etc.; or
(4)
To cause JFE to declare temporary large dividends, or to sell JFE shares at an inflated price as a result of a sudden rise in stock price because of the declaration of temporary large dividends, by temporarily controlling JFE’s management to bring about a disposal of high-value assets, etc. that have no current relevance to JFE’s business.
(ii)
Case where a purchaser implements an acquisition that may have the effect of forcing shareholders into selling shares, such as coercive two-tiered tender offers (i.e., acquisition of shares (including a tender offer) that may result in the second-stage acquisition terms which are less favorable than the first-stage acquisition terms or may instead cause the second-stage acquisition terms to be unclear).
(iii)
Case where the interests of customers, suppliers, local community, employees and any other stakeholders of JFE may be damaged and, as a result, the long-term corporate value and the common interests of the shareholders may be severely impaired by the acquisition of the management control of JFE by a Large-scale Purchaser.
(iv)
Case where acquisition terms (including the amount and type of consideration for the acquisition, the timing of the acquisition, the legality of the acquisition method, the probability of the acquisition being accomplished, and post-acquisition policies dealing with JFE’s customers, suppliers, employees, and any other stakeholders of JFE) are significantly inadequate or inappropriate in light of JFE’s intrinsic value.

4.3 Establishment of the Special Committee

The Special Committee will be established as an organization independent from JFE’s Board of Directors, in order to ensure that the decisions as to whether or not a Large-scale Purchaser has complied with the Large-scale Purchase Rules and whether or not countermeasures should be taken will be made in a transparent, objective, fair and reasonable manner. The Special Committee will have three members, who will be appointed from among the outside directors of JFE, outside corporate auditors of JFE, experienced corporate managers, persons with knowledge of the investment banking industry, lawyers, certified public accountants, tax advisors, academic experts, or persons of similar qualifications. In this regard, the names and career summaries of the initial members of the Special Committee at the time of adoption of the Policy are described in Attachment 3 hereto.

JFE’s Board of Directors will consult the Special Committee and obtain recommendations from the Special Committee in deciding whether or not it should take countermeasures. The Special Committee will discuss and resolve the matter consulted by obtaining, at the cost of JFE, advice from third parties independent from the management of JFE (including financial advisers, certified public accountants, lawyers, consultants or any other professionals) and requesting JFE’s directors, corporate auditors, employees, etc. to be present and to explain necessary information at meetings of the Special Committee. The Special Committee will also submit recommendations to the Board of Directors based on such discussions. The Board of Directors will respect such recommendations to the maximum extent possible in making decision whether or not the Board of Directors will take countermeasures.

5. Effect on JFE’s shareholders and investors

JFE does not anticipate that taking countermeasures will cause shareholders, other than the Large-scale Purchaser, economic damage or loss of any rights, however, in the event that JFE’s Board of Directors determines to take a specific countermeasure, the Board of Directors will disclose such countermeasure in a timely and appropriate manner pursuant to relevant laws and stock exchange regulations. Shareholders must take necessary steps to enter a share transfer in the shareholders’ register prior to the record date of the issuance of stock acquisition rights, which will be determined and publicly announced by the Board of Directors in order to acquire stock acquisition rights upon the invocation of a countermeasure. Further, shareholders may need to apply for acquisition within a certain prescribed period, depending on the issuance methods for stock acquisition rights, in addition to entering a share transfer in the shareholders’ register. In addition, in order to exercise stock acquisition rights and acquire stock, shareholders need to pay the exercise price within a certain prescribed period. JFE will announce the details of such procedures in accordance with relevant laws and stock exchange regulations when the Board of Directors actually determines to issue stock acquisition rights.

Even after the record date for the issuance of stock acquisition rights has passed or the allotment of stock acquisition rights has taken effect, JFE may cancel the allotment or acquire those stock acquisition rights without consideration or delivery of JFE shares to the holders of such rights up until the day immediately prior to the date of commencement of the exercise period of such rights due to circumstances such as a Large-scale Purchaser’s withdrawal of its Large-scale Purchase of JFE shares. In these cases no dilution of stock value will occur, and investors who have sold or otherwise disposed of JFE shares anticipating that the dilution of stock value will occur may suffer certain losses as a result of stock price fluctuations.

6. Effective term of the Policy

The Policy will remain effective until the conclusion of the Ordinary General Shareholders Meeting to be held in June 2007. If the continuation of the Policy is approved by the shareholders of JFE at the Ordinary General Shareholders Meeting, the Policy will remain effective until the conclusion of the ordinary general shareholders meeting relating to the final fiscal year ending within two years after the date of the Ordinary General Shareholders Meeting. The same will apply thereafter.

JFE’s Board of Directors will make prompt disclosure regarding the continuation of the Policy if so determined by the Board of Directors. The Board of Directors intends to review the Policy from time to time from the viewpoint of protecting the corporate value of JFE and the common interests of the shareholders, taking into account the enactments and amendments of various applicable legislation including the Company Law and the Securities and Exchange Law.

If JFE’s Board of Directors passes a resolution to abolish the Policy, then the Policy will be abolished at that time even during the effective term of the Policy. Further, even during the effective term of the Policy, the Board of Directors may review and amend the Policy in accordance with the recommendations of the Special Committee to the maximum extent possible.

Notes: 1.
A group of shareholders means (i) a holder (defined in Paragraph 1, Article 27-23 of the Securities and Exchange Law, including a person, a company, a corporation or any other entity deemed as a holder pursuant to Paragraph 3 thereof) of shares and other securities (defined in Paragraph 1, Article 27-23 of the Securities and Exchange Law) and any joint holders (defined in Paragraph 5, Article 27-23 of the Securities and Exchange Law, including a person, a company, a corporation or any other entity deemed as a joint holder pursuant to Paragraph 6 thereof), or (ii) a person, a company, a corporation or any other entity who makes a purchase (defined in Paragraph 1, Article 27-2 of the Securities and Exchange Law, including a purchase made on a securities exchange market) of shares and other securities (defined in Paragraph 1, Article 27-2 of the Securities and Exchange Law) and any specially related parties (defined in Paragraph 7, Article 27-2 of the Securities and Exchange Law).
Notes:2.
The voting rights ratio means (i) in the case of item (i) in note 1 above, the shareholding ratio (defined in Paragraph 4, Article 27-23 of the Securities and Exchange Law) of the holder (taking into account the number of shares (defined in the said paragraph) held by any joint holders), or (ii) in the case of item (ii) in note 1 above, the sum of the shareholding ratio (defined in Paragraph 8, Article 27-2 of the Securities and Exchange Law) of the purchaser and its specially related parties.In calculating the voting rights ratio, the annual report, semi-annual report or the treasury stock purchase report of JFE, whichever has been submitted to the authorities most recently, may be referred to in deciding the total number of voting rights (defined in Paragraph 8, Article 27-2 of the Securities and Exchange Law) or total number of issued shares (defined in Paragraph 4, Article 27-23 of the Securities and Exchange Law).

(English Translation of the Japanese original)

This translation has been prepared for reference only. The Japanese language version will control if any discrepancy arises.