Toyota Group to Privatize Toyota Industries for $33 Billion
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The Toyota group’s proposal to privatize Toyota Industries Corp. is drawing criticism from investors and analysts, who argue the 4.7 trillion yen ($33 billion) deal significantly undervalues the company and risks alienating shareholders with what many view as an unpalatable transaction.
The planned tender offer of 16,300 yen per share from a group led by Toyota Motor Corp.’s Chairman Akio Toyoda represents an 11% discount to the June 3 closing price for the company, which makes textile looms, forklifts and car components.
“The tender offer price is very low compared to our estimate of intrinsic value,” said David Mitchinson, chief investment officer at Zennor Asset Management LLP, which owns Toyota Industries stock. “Many of our concerns around governance have been amply justified by this news.”
The deal, first reported by Bloomberg in April, may inflame concerns over governance far more than it does to placate them. Potentially one of the biggest buyouts on record, the privatization of Toyota Industries could resolve a parent-child structure that has been heavily criticized in the past. At the same time, a takeover may give Toyoda greater influence over the venerable automaker founded by his grandfather and its group companies.
A new holding company will be established to privatize Toyota Industries, according to a statement issued on June 3. That entity will mostly be owned by Toyota Fudosan Co., an unlisted real estate firm that’s chaired by Akio Toyoda. He will personally invest 1 billion yen into the holding company as well.
“The chairman’s involvement isn’t about control over the business, it’s about his commitment to the deal, to provide support on the ground and for the betterment of Japan,” said Kenta Kon, a former Toyota Motor chief financial officer who currently holds key positions at the automaker, Toyota Fudosan and other group companies.
Kon, who took questions during an online news conference, denied that the privatization was a management buyout led by Toyoda. Asked whether there were any concerns that the proposal was well below Toyota Industries’ current market value, Kon said the tender offer represents a significant premium to the company’s shares prior the news of the buyout becoming public in late April.
In early April, Toyota Industries stock was around the 10,765 yen mark, and have climbed more than 40% since then.
“The positive side is that Toyota will become less influenced by foreign investors and short-term market pressures,” said Bloomberg Intelligence senior auto analyst Tatsuo Yoshida. “The negative side is that the Toyota group could become more of a black box that could threaten transparency, independence and supervision.”
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The country’s top banks — Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. — will together lend 2.8 trillion yen to the acquisition company to support the buyout.
In addition to the tender offer for the shares, which is scheduled for December, Toyota Motor will make an effective equity investment of 1 trillion yen at a lower share price, bringing the total deal value to 4.7 trillion yen, well below Toyota Industries’ current market valuation of around 6 trillion yen.
“Paying a premium is standard practice, but a discount leaves a bitter taste,” Masatoshi Kikuchi, chief equity strategist at Mizuho Securities Co. said, noting that activist investors historically oppose discounted tender offers.
Toyota Industries was founded by Toyoda’s great-grandfather Sakichi, whose son Kiichiro went on to create Toyota Motor. It’s now the world’s No. 1 carmaker, ahead of Volkswagen AG, with annual output of more than 11 million vehicles. Akio, Kiichiro’s grandson, led Toyota as CEO for 14 years until 2023, when he stepped aside to become chairman.
There’s a complex web of cross-shareholdings among Toyota group companies, which to a certain extent will be lessened with the privatization of Toyota Industries. The Japanese government has been pushing companies to unwind such arrangements, with the goal of improving corporate governance, enhancing transparency and boosting shareholder returns.
Toyota Industries will hold its annual shareholder meeting June 10, while Toyota Motor’s will take place two days later. The buyout plan comes as Toyota seeks to rebuild trust in its governance after a series of regulatory scandals were uncovered at a pair of subsidiaries that included Toyota Industries.
Investment in the holding company will include 180 billion yen from Toyota Fudosan, 700 billion yen from Toyota Motor in the form of nonvoting preferred shares, as well as Toyoda’s personal investment.
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Additionally, Toyota Motor and its suppliers Aisin Corp., Denso Corp. and Toyota Tsusho Corp. will sell their stock in Toyota Industries and acquire their own shares held by Toyota Industries. While this will dissolve the cross-shareholding between Toyota Industries and those four companies, Toyota Motor will continue to invest in Toyota Industries via the preferred shares, according to the statement.
Toyota group companies will also review their capital relationships to ensure the businesses continue to grow, the statement added.
“The optics of the broader Toyota group funding a deal by the Toyota chairman via his primary vehicle to take control of Toyota stock aren’t very good,” Mitchinson said. “This is a deal for the Toyota group, not for Toyota Industries shareholders.”
