Post by : Rameen Ariff

Photo : Reuters

Investors have reacted negatively to Toyota Motor’s recent plan to buy back Toyota Industries for $33 billion, making it a private company again. This move has caused worries that small shareholders might lose out in this big change for one of Japan’s most important companies.

After the announcement, the shares of Toyota Industries, which is an important part of the Toyota Group, dropped by 12% in the Tokyo stock market. The deal offers to buy each share at 16,300 yen. This price is 23% higher than the price before the news came out in April. However, it is still lower than the 18,400 yen per share price that Toyota Industries was trading at just before the deal was made public. On the day the offer was announced, the shares closed at 16,205 yen.

David Mitchinson, who is the chief investment officer at Zennor Asset Management and owns shares in Toyota Industries, said that while he supports the idea of fixing the issues between Toyota Motor and its subsidiary, he does not like the price being offered. He also mentioned that many shareholders are against the offer, so they will wait and see how things develop before deciding whether to sell their shares.

One good thing about this deal is that some Toyota Group companies will stop owning shares in each other. This kind of cross-ownership has been seen as a problem for good corporate management in Japan. However, the deal also seems to increase the control of the Toyoda family, who founded Toyota, over the whole group.

Japanese regulators and the Tokyo Stock Exchange have been pushing companies to stop these kinds of complicated shareholdings between parent companies and their subsidiaries. Such arrangements have often been viewed as unfair to smaller shareholders and bad for company management. By making Toyota Industries private, the companies say it will allow the subsidiary to focus more on long-term business plans.

As part of the plan, a new holding company will be created. Toyota Fudosan, which handles real estate for the group, will invest 180 billion yen. Akio Toyoda, the chairman of Toyota Motor, will put in 1 billion yen. Toyota Motor itself will invest 700 billion yen in special shares that don’t give voting rights.

Experts say the offer price does not reflect the true value of Toyota Industries, especially its valuable land and buildings. Nicholas Benes, a governance expert and CEO of the Board Director Training Institute of Japan, said this deal is a clear example of minority shareholders being pushed out unfairly by the founders and managers. He believes the price should have been much higher because of the company’s hidden real estate value. He shared these thoughts during a press briefing at the Foreign Correspondents Club of Japan.

Toyota Motor has not yet responded to requests for comment on the deal outside of normal business hours.

Earlier media reports suggested the buyout offer might be around $42 billion, which was much higher than the current offer.

In this deal, Toyota Motor and some other group companies like Aisin, Denso, and Toyota Tsusho will sell their shares in Toyota Industries. At the same time, they will buy back shares they own that are currently held by Toyota Industries.

To give some background, Toyota Motor owned about 24% of Toyota Industries as of last September. On the other hand, Toyota Industries held about 9% of Toyota Motor and more than 5% of Denso.

Toyota Industries started back in 1926 as Toyoda Automatic Loom Works, making automatic looms. Later, it created an automotive division, which eventually became Toyota Motor.