Toyota Motor chairman Akio Toyoda and his founding family are understood to be exploring the possibility of a $42 billion buyout of Toyota Industries to consolidate his grip on Japan’s biggest business empire amid a wave of M&A activity playing out within the country.
Toyota Industries – which has been under shareholder pressure to unwind its cross-shareholdings to boost shareholder returns and make investments - admitted to receiving proposals about going private through a special purpose company.
However, it remains unclear whether an initial proposal for a buyout – which is understood to be 40% over its closing stock price on Friday - came from the Toyota group or another third party.
The common practice of cross-shareholding in Japan has come under increasing scrutiny from the country’s regulators and shareholders as it can exonerate management from serving the specific interests of general shareholders.
In response to growing shareholder calls to enhance returns and streamline its investment strategy, Toyota Industries has already sold some of its stakes in affiliated companies including Aisin.
It’s understood that Toyota Motor - the world’s second-most valuable auto company - and its affiliates hold 38% of Toyota Industries, while Toyota Industries holds 9.07% of Toyota and 5.41% of Denso another key Toyota supplier.
Assuming the deal proceeds it would rank among the biggest buyouts globally on record.
The buyout would bolster the Toyota Motor chairman's personal stake (currently less than 1%) and influence over the broader Toyota group, which includes suppliers and holdings in other businesses, including rival carmakers.
The buyout proposal by Akio Toyoda - the grandson of Toyota’s founder - comes months after the collapse of a similar bid to take Japanese retailer Seven & I Holdings private.
Assuming the bid proceeds, financing is expected to include a personal investment by Akio Toyoda – who stepped aside as Toyota Motor’s chief executive officer in 2023 - plus loans from Mitsubishi UFJ Financial Group and Japan’s other megabanks.
Founded in 1926 as Toyoda Automatic Loom Works, Toyota Industries is a major manufacturer of forklifts and produces the RAV4 sport utility vehicle for Toyota Motor as well as engines.
An automotive division within the company was created and later spun off as Toyota Motor.
It’s understood that the current wave of M&A activity playing out within Japan is partly due to a push by Japan’s government and regulators for companies to rapidly improve corporate governance.
The Tokyo Stock Exchange is also trying to reform so-called parent-child listings, where a large company controls a listed subsidiary.
“While we have seen the unwinding of cross-shareholdings within the Toyota group over the past two years, we have been focusing on Toyota Industries as the ‘final boss’ of corporate governance reforms,” Bernstein analyst Masahiro Akita wrote in a note.
The Toyota Motor Corp (TYO: 7203) stock price was JPY2,690 at the time of writing, with a market cap of approximately JPY42.49 trillion.
