(Bloomberg) — Toyota Industries Corp., the original company that brought forth the world’s biggest carmaker, will be privatized for ¥4.7 trillion ($33 billion) by a group led by Akio Toyoda — a move that could hand the founding family a stronger grip on Japan’s biggest business empire for significantly less than its current market value.
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The proposal includes a tender offer of ¥16,300 for each share of Toyota Industries, supplier of textile looms, forklifts and vehicle parts. That represents an 11% discount to the company’s closing price on Tuesday. 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 to the acquisition company to support the buyout.
The deal, first reported by Bloomberg in April, would rank among the biggest buyouts on record anywhere and could resolve a parent-child structure that has been criticized in the past. It would also align with the Japanese government’s efforts to encourage large companies to unwind cross-held shares with subsidiaries and other businesses. At the same time, a takeover may give Toyoda greater influence over the venerable automaker founded by his grandfather.
“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.
A new holding company will be established to privatize Toyota Industries, according to the statement Tuesday. That entity will mostly be owned by Toyota Fudosan Co., an unlisted real estate firm that’s chaired by Akio and effectively serves as the Toyoda family’s investment vehicle. Toyoda, who is also chairman of Toyota Motor Corp., will personally invest ¥1 billion 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 to the betterment of Japan,” said Kenta Kon, who was formerly Toyota Motor’s chief financial officer and holds key positions at the automaker, Toyota Fudosan and other group companies.
Kon, who took questions after 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 below Toyota Industries’ current market value, Kon said the tender offer price represents a significant premium to the company’s shares prior the news of the buyout becoming public in late April.
Still, that may not be enough to satisfy some shareholders, with the stock up more than 40% since then.
“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 shares in Toyota Industries. “This is a deal for the Toyota group, not one for Toyota Industries shareholders.”
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 at a lower share price, bringing the total deal value to ¥4.7 trillion, well below Toyota Industries’ current market valuation of ¥6 trillion.
Toyota Industries was founded by Toyoda’s great-grandfather Sakichi, whose son Kiichiro went on to found Toyota Motor. Toyota has become the world’s No. 1 carmaker, ahead of Volkswagen AG, with annual production of more than 11 million vehicles. Akio, Kiichiro’s grandson, led Toyota as chief executive officer 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. Japan is accelerating efforts to unwind such arrangements, aiming to improve corporate governance, enhance transparency and boost shareholder returns.
Toyota Industries will hold its annual shareholder meeting on 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 from Toyota Fudosan, ¥700 billion from Toyota Motor in the form of non-voting preferred shares, and Toyoda’s personal investment.
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.
–With assistance from Momoka Yokoyama, Hideyuki Sano and Kentaro Tsutsumi.
(Updates with detail throughout, comments from executives and analysts.)
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