Toyota Plans $42bn Buyout Deal for Its Biggest Subsidiary

Emmanuel Addeh in Abuja 

Toyota Motor has proposed a $42 billion deal to take the company’s biggest subsidiary, Toyota Industries, private as the world’s largest automaker seeks to cement control and streamline its notoriously complex governance structure. 

In recent years, Japan’s most powerful company has faced increasing investor pressure to simplify its web of interconnected equity holdings that the group holds across tens of suppliers and affiliate automakers.

Toyota Industries, formerly Toyoda Automatic Loom Works, was founded in 1926 by Sakichi Toyoda to manufacture automatic looms. An automotive division within the company was created and later spun off as Toyota Motor. Toyota Industries is a major manufacturer of forklifts, produces the RAV4 sport utility vehicle for Toyota Motor as well as engines.

“We are currently exploring various possibilities, including partial investment,” the automaker said in a filing with the Tokyo stock exchange at the weekend, following reports about the possible buyout.

Bloomberg News reported that Toyota Chairman Akio Toyoda and his founder family have proposed acquiring Toyota Industries. Toyota Industries, which has a market value of 4 trillion yen, said in a statement it had received proposals about going private through a special purpose company but denied it had received a buyout proposal from the Toyota chairman or the Toyota group.

Two sources familiar with the matter said Toyota Industries is considering tapping Toyota and its group companies as well as major banks to fund a buyout. They also said the proposal did not come from Akio Toyoda or the Toyota group.

The sources, who declined to be identified as the matter is not public, said if Toyota Industries were to go private, it would help improve the Toyota group’s corporate governance as cross-shareholdings would be unwound.

Both Toyota and Toyota Industries said in their statements that nothing had been decided, Reuters said.

Toyota owned 24 per cent of Toyota Industries as of September last year, while Toyota Industries held 9.07 per cent of Toyota and 5.41 per cent of Denso, another key Toyota supplier.

Toyota Industries has faced increasing shareholder pressure to unwind its cross shareholdings so that it can boost shareholder returns and make investments. It has sold some of its cross shareholdings including stock in Aisin, another core Toyota group supplier.

One of the sources said going private would also give Toyota Industries the freedom to focus on growth strategies without worrying about shareholder returns.

Cross-shareholdings, where companies hold shares in each other and are very common in Japan, have been under increasing scrutiny from regulators and shareholders as the practice can insulate management from having to serve the interests of general shareholders.

Shareholder approval for Toyoda fell to a record low of 72 per cent last year, prompting the carmaker to increase the number of non-executive directors on its board ahead of this year’s annual meeting.

Within the carmaker’s sprawling empire, Toyota Industries is considered one of the most important suppliers for the group since it owns a 9.1 per cent stake in the carmaker and was intimately tied to the founding of the company. 

Japan’s auto suppliers, and Toyota’s in particular, have also become a target for activist investors who are betting both that corporate governance reform will force carmakers to buy in their subsidiaries and that competition will demand changes to their supply chains.

Toyota has previously made other automobile body suppliers into fully owned subsidiaries such as Toyota Auto Body and Kanto Auto Works in 2012, FT reported separately.