(Bloomberg) — Toyota Motor Corp. Chairman Akio Toyoda’s bid to buy out Toyota Industries Corp. could pit him against Japan’s efforts to reform its corporate landscape by demanding more shareholder accountability from top businesses.
While the $42 billion take-private attempt is being cheered by investors — Toyota Industries’ stock climbed by the daily limit of 23%, and Toyota Motor jumped as much as 5.6% — the potential move could also mark a retreat in the Toyota Group’s attempts to unwind cross-shareholdings and appoint more independent directors.
The chairman holds less than 1% of Toyota Industries, but the company has a 9.1% stake in the carmaker, and much depends on how these holdings are rationalized if and when the deal proceeds.
Some analysts note that bringing Toyota Industries further under the control of the carmaker and Toyoda would be counter to the government’s goal of dismantling cozy business relationships to boost merger and acquisition activity, including from foreign entities.
“It’s unclear whether this will become a trigger for further unwinding of Toyota Group firms’ cross shareholdings or, to the contrary, a trigger for maintaining their cross shareholdings,” said Masayuki Murata, general manager of balanced portfolio investment at Sumitomo Life Insurance Co. Taking Toyota Industries private on its own “doesn’t solve the governance issue, so it depends on what they will do from here,” Murata said.
The uncertain reading of Toyoda’s buyout plan reflects the crossroads at which Japan’s corporate giants find themselves.
On the one hand, the reforms have ushered in an unprecedented wave of foreign acquisition interest and activist investor activity scrutinizing companies from SoftBank Group Corp. to Tokyo Gas Co. Yet domestic corporate giants have also fought back against losing control, including the takeover and delisting of Taisho Pharmaceutical Holdings Co. by a member of its founding family and Seven & i Holdings Co.’s attempts to evade a buyout.
Toyota Industries will now join the operator of 7-Eleven convenience stores as a test case of how far-reaching corporate reforms will be. The Japan retailer’s founding family mounted a high-profile buyout attempt to fend off Canadian rival Alimentation Couche-Tard Inc.’s takeover interest, but failed to muster the funding.
Funding is unlikely to be an issue for Akio Toyoda, whose personal financing would be supplemented by loans from from Mitsubishi UFJ Financial Group Inc. and Japan’s other megabanks, Bloomberg News reported, citing a person familiar with the matter.
Still, the move could also align with the Japanese government’s corporate reforms, which include scrutinizing parent-child relationships that involve an affiliate or unit that shouldn’t have been listed in the first place. The deal would build upon changes Toyota has already undertaken to unwind cross-shareholdings and simplify its governance structure. Independent directors now account for a majority of its board.
“It’s a mutually positive outcome for both Toyota and Toyota Industries,” said Kelvin Leung, a portfolio manager at Robeco Hong Kong.
Toyoda’s buyout plan comes as the automaker seeks to rebuild trust in its governance after a series of regulatory scandals were uncovered at a pair of subsidiaries that included Toyota Industries. In September, it raised the size of its stock repurchase plan to ¥1.2 trillion ($8.4 billion) as it saw strong demand in Japan, Europe and North America. The company said the plan, originally announced in May, will last through April 2025.
A month later, in October, Denso Corp. — a major supplier to Toyota — followed suit when it said it plans to buy back up to ¥450 billion of its own shares. Shortly after that, Toyota Industries announced it was going to sell all of its 185 million shares in Denso, representing a 5.9% stake in the company.
The proposal could foreshadow other efforts to consolidate the Toyota Group, according to Kei Okamura, a portfolio manager at Neuberger Berman in Tokyo
“There’s going to be a few other names that have been on the radar of institutional investors,” he said. “It’s not going to end here.”
–With assistance from Alice French, Momoka Yokoyama and Hideyuki Sano.
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