Truth be told, Toyota Motor Corporation is considering a pretty audacious play. They’re working through a possible $42 billion buyout of their main Japanese supplier, Toyota Industries. This ambitious move includes a tender offer of $26 billion aimed at acquiring shares of Toyota Industries at 16,300 yen each. However, this price is notably lower than the last closing price of 18,400 yen prior to the announcement of the deal.
The announcement of the buyout offer took place in April, signaling Toyota’s strategic intentions in the context of Japan’s evolving corporate governance landscape. Japan’s Financial Services Agency has been actively encouraging listed firms to reduce their cross-shareholding arrangements. These settlements were a historic fixture in the relational contracts between Japanese firms.
Satoru Aoyama is director and head of corporate ratings at Fitch Ratings in Japan. Here’s his take on what this possible buyout would mean. He pointed out that Toyota Group has been protecting Toyota Industries from hostile takeovers since 2005. The future regulatory climate is encouraging companies to tear down these protections.
Our investor Arun George, a global equity research analyst, penned this take on the tender offer. He deemed it “ugly.” This is largely due to the fact that the offer price is less than the midpoint of the valuation range suggested by independent financial advisers. This has driven speculation among investors of a bankruptcy within the company.
“The special committee requested three times that the offeror improve its JPY16,300 final offer, but was rebuffed,” – Arun George.
This context for this buyout proposal points to Toyota’s ongoing efforts to improve cohesion within its family, all while facing the increasing scrutiny of regulators. Aoyama commented on this aspect, stating that, “Toyoda’s investment is likely symbolic, enhancing the unity of the Toyota group, though its size won’t grant him full control over Toyota Industries.”
Far from a singular event, this strategic buyout indicates a wider movement within Japan’s corporate sector to decrease cross-shareholding practices, which are known to significantly slow economic growth. Regulators and investors alike are calling for increased transparency and accountability. Toyota’s looming transaction with Toyota Industries comes as an opportunity and threat, for it will have to manage the twin modern governance expectations.