Toyota Industries’ shares nosedive on $33 billion buyout deal — steepest fall in 10 months

Toyota Industries Corp.’s logo at their Nagakusa plant in Obu, Aichi Prefecture, Japan. Shares of Toyota Industries plummeted by up to 13% on Wednesday, reflecting investor disappointment regarding Toyota Group’s proposed 4.7 trillion yen ($33 billion) plan to privatize the company. This move comes at a time when Japanese companies are under increasing pressure from regulators and investors to unravel longstanding cross-shareholding relationships. The Financial Services Agency of Japan has been advocating for a reduction in such arrangements. Toyota initially utilized cross-shareholding in 2005 as a defense mechanism against potential takeover threats, according to Satoru Aoyama, Fitch Ratings’ corporate ratings chief in Japan, as reported by CNBC.

The deal involves a $26 billion tender offer for Toyota Industries shares at 16,300 yen each, significantly lower than the previous day’s closing price of 18,400 yen. A new holding company will be established by Toyota Group for this transaction, with the group’s real estate division, Toyota Fudosan, contributing around 180 billion yen, and Toyota Motor Chairman Akio Toyoda investing 1 billion yen. Toyota Motor intends to invest approximately 700 billion yen in non-voting preferred shares, with additional financing supported by loans from Sumitomo Mitsui Banking Corporation, MUFG Bank, and Mizuho Bank.

Kei Okamura, Neuberger Berman’s managing director and Japanese equities portfolio manager, anticipates more cross-shareholding unwinding within the Toyota Group moving forward. Despite the positive outlook for Toyota Group in the mid- to long-term, some factors indicate that the offer may be unappealing, as pointed out by Arun George, a global equity research analyst on Smartkarma. George highlighted that the offer price fell below the midpoint of the valuation range provided by independent financial advisers.

In April, Toyota had disclosed its interest in potentially participating in a $42 billion buyout of Toyota Industries. Okamura views the deal favorably for Toyota Group, suggesting that the proceeds from unwinding shareholdings could be channeled into growth investments, benefiting capital returns. Toyota Industries, the originator of Toyota Motor, manufactures a variety of goods such as forklifts, engines, electronic components, and stamping dies. This development occurs amidst challenges in the global automotive sector, with U.S. President Donald Trump imposing 25% tariffs on automobile imports in April, a move anticipated to heavily impact Toyota Motor due to its significant U.S. market exposure.