Toyota Motor’s ¥4.7 Trillion Takeover Bid Sends Toyota Industries Shares Tumbling

Toyota Motor Corporation has offered to take its supplier, Toyota Industries Corporation, private with a ¥16,300 a share bid for ¥4.7 trillion ($33 billion). The bid was below Toyota Industries' close price of ¥18,400 on June 3, causing more than 12 percent drop in the supplier's share price in Tokyo morning trading on June 4, when shares had traded as low as ¥16,135.

In the deal structure, Toyota Motor will establish a new holding firm to facilitate the acquisition. Toyota Fudosan, a real estate subsidiary of the group, will provide ¥180 billion, while Toyota Motor Chairman Akio Toyoda is contributing ¥1 billion. Toyota Motor will also put in ¥700 billion in non-voting preferred shares in the deal.

The bid price is a large markdown from current market levels and past expectations, which had been hoping to see a bid of about ¥21,660 per share (approximately $42 billion total).

Minority shareholders and analysts have criticized the offer as under-pricing Toyota Industries' vast real estate holdings and diversified industrial vehicle operations. SmartKarma analyst Arun George opined the ¥16,300 offer "likely undervalues significant real-estate holdings," and dissipates minority shareholders' interests.

Minority shareholders are said to be gearing up to resist the deal in an effort to secure a higher price for their shares.

Toyota Motor has cast the privatization as a bigger move to unwind Toyota Group's long-term cross-shareholdings—a move that Japanese regulators have been pushing in hopes of improving corporate governance. The transaction, assuming success, would relieve Toyota Industries from pressure to maintain shareholder returns, allowing it to redirect its efforts to strategic long-term investment in core businesses like forklifts, logistics solutions, textile machinery, and automotive engine business.

Set up in 1926 under the name of Toyoda Automatic Loom Works, Toyota Industries today manufactures forklifts, compressors, textile equipment, and even engines for models of Toyota Motor, including the RAV4 sport utility vehicle. The company's property investments, especially via Toyota Fudosan, add up to considerable asset value that investors fear will not be reflected in full in the ¥16,300 a-share offer.

In the future, the deal must be approved by Toyota Industries' board and shareholders, including minority shareholder dissidents, before it can move forward. Tokyo regulation of corporate governance and cross-shareholdings is becoming more rigorous, and any potential uprising by minority shareholders could bring a higher negotiated price or other safeguards for non-controlling investors. The transaction, if consummated, would be among the largest of Japan's four recent take-private deals and could set a precedent for other conglomerates to streamline group holding structures in similar ways.