Toyota Industries sinks after parent takeover bid misses expectations

Investors gave a thumbs-down to Toyota Motor's $33bn (R587.91bn) take-private offer for Toyota Industries on Wednesday, highlighting concerns minority shareholders would be short-changed in a landmark restructuring for Japan Inc.

Shares of Toyota Industries, a key Toyota Group company, fell 12% in Tokyo trade a day after the world's top-selling carmaker unveiled plans to take its subsidiary private. The complex, ¥4.7-trillion (R587.88bn) transaction includes an offer price of ¥16,300 (R2,020) a share for Toyota Industries.

While that represents a 23% premium to the price before news of the deal broke in April, it is well below the ¥18,400 (R2,280) shares were trading at on Tuesday, before the offer was formally announced. The shares closed at ¥16,205 (R2,008) on Wednesday.

“To be clear, we welcome the attempt to clear up the parent-subsidiary governance issue. We don't like the price,” said David Mitchinson, founding partner and chief investment officer of Zennor Asset Management, which owns Toyota Industries shares.

When asked if Zennor would tender its shares, he said: “We will have to see how this develops, as there seems strong opposition from many shareholders.”

While the deal will see some Toyota Group companies unwind cross-shareholdings — a plus for corporate governance — it also appears to strengthen the founding Toyoda family's control over the broader group.

Japanese regulators and the Tokyo Stock Exchange have pressured companies to dismantle long-standing stakes in each other to improve corporate governance.

So-called “parent-child listings”, where both a parent company and its subsidiary are listed, have long been seen as unfair to minority shareholders and a drag on governance.

Going private will allow Toyota Industries to take a longer-term business perspective, the companies said on Tuesday.

A new holding company will be set up for the deal. Group real estate company Toyota Fudosan will invest ¥180bn (R22.38bn), while Akio Toyoda, Toyota Motor's chair, will invest ¥1bn. Toyota Motor will invest ¥700bn (R87bn) in non-voting preferred shares.

Market participants said the price undervalued Toyota Industries' substantial real estate holdings.

The deal was a “prime example” of a squeeze-out of minority shareholders at an unfair price by founders and management said Nicholas Benes, a governance expert and the CEO of the Board Director Training Institute of Japan.

“There's huge hidden asset value in the land and other holdings at Toyota Industries. And the price should have been much higher,” Benes said at a briefing at the Foreign Correspondents Club of Japan on Wednesday.

Toyota Motor did not immediately respond to an email request for comment outside normal business hours.

Media reports had indicated the tender offer would be about $42bn (R748.37bn), a substantial premium to the actual offer.

Toyota Motor and group companies Aisin, Denso and Toyota Tsusho will all sell their shares in Toyota Industries and acquire their own shares now held by it.

Toyota owned about 24% of Toyota Industries as of September last year, while Toyota Industries held about 9% of the carmaker and more than 5% of Denso.

Toyota Industries, formerly Toyoda Automatic Loom Works, was founded in 1926 to make automatic looms. An automotive division within the company was set up and later spun off as Toyota Motor.