Shares of Toyota Industries took a dramatic 13% plunge on Wednesday, marking their steepest fall in ten months. This significant drop followed the announcement of a $33 billion (4.7 trillion yen) deal by the Toyota Group to take the company private. The deal involves a tender offer of $26 billion for Toyota Industries shares, priced at 16,300 yen each – a considerable discount compared to the 18,400 yen closing price on Tuesday. This unexpected price difference has understandably unsettled investors.
The acquisition will see the creation of a new holding company. Toyota Fudosan, the group’s real estate arm, will contribute around 180 billion yen, while Toyota Motor Chairman Akio Toyoda will invest a symbolic 1 billion yen. Toyota Motor itself will invest approximately 700 billion yen in non-voting preferred shares. Sumitomo Mitsui Banking Corporation, MUFG Bank, and Mizuho Bank will provide additional financing through loans.
This move is part of a larger trend in Japan, where companies are facing increased pressure from regulators and investors to dismantle long-standing cross-shareholding arrangements. The Financial Services Agency has been advocating for a reduction in these arrangements, and this deal reflects a response to that pressure. Satoru Aoyama, head of corporate ratings at Fitch Ratings in Japan, commented that Toyoda’s investment is primarily symbolic, aimed at strengthening group unity rather than securing complete control. He also noted that protecting Toyota Industries from potential acquisitions has been a concern for Toyota Group, with cross-shareholding employed as a safeguard as far back as 2005.
The deal was initially hinted at in April, when Toyota explored a potential $42 billion buyout. However, the final offer price has raised concerns. Arun George, a global equity research analyst on SmartKarma, points out that the offer price is below the midpoint of the valuation range suggested by independent financial advisors. Despite the special committee’s attempts to negotiate a better deal, the final offer price remained unchanged, leading to the significant market reaction.
Toyota Industries, the original founder of Toyota Motor, is a diverse manufacturer producing forklifts, engines, electronic components, and stamping dies. The substantial share price drop underscores the complex factors at play in this major corporate restructuring and the uncertainty it creates for investors.
