Toyota Industries $42 bln buyout is scrap value
29/04/2025 01:18
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. By Antony Currie MELBOURNE, April 28 (Reuters Breakingviews) - When is a buyout premium not a buyout premium? In Japan, at least, it’s when the cross-shareholdings companies hold get in the way. The issue is going to come into sharp focus if Toyota Motor 7203.T Chair Akio Toyoda and his family follow through on the 6 trillion yen ($42 billion) offer reported by Bloomberg on Friday to take private Toyota Industries 6201.T, the original company in the industrial empire their ancestor founded more than a century ago. The potential target started corporate life as the maker of the world’s first automatic looms, which still accounts for around 2% of its top line. It branched out into carmaking in the 1930s, quickly spinning it off into what is now Toyota Motor. It currently owns around 9% of its erstwhile subsidiary – which in return holds almost a quarter of its former parent. At market close on Friday the stake in Toyota Motor was worth more than 3.2 trillion yen, about $22 billion, equating to about 80% of Toyota Industries’ market capitalisation. Fold in the stakes it owns in 27 other companies, and there’s little if any value ascribed to its own operations. Sure, its car parts business might not be worth a huge amount. It provides engines to some Toyota Motor models as well as building the RAV4 SUV outright, and makes some electronics and air conditioning compressors. But the business only accounts for around a fifth of operating income and sputters along with a sub-4% operating margin, compared with almost 10% at Toyota Motor. The chief money-spinner is its soporifically named Materials Handling Equipment division, which includes the world’s largest maker of forklift trucks and accounts for 75% of operating income. That’ll drive this year’s overall earnings to some 280 billion yen, per analysts’ estimates gathered by LSEG. Pop that on the same 12 times multiple that its nearest rival, Germany’s Kion KGX.DE, trades at, and a standalone Toyota Industries would be worth 3.4 trillion yen. Add that to its Toyota Motor stake, and the company’s implied worth is 6.6 trillion yen, 10% higher than what the Toyodas may put on the table. If their potential offer is an enterprise value, and not just the equity value, it’s even worse: strip out net debt and they might only be dangling 4.8 trillion yen. Granted, unaffiliated shareholders have themselves shown no interest in ascribing the full value to Toyota Industries’ varied parts. But when someone may be about to offer scrap for them, it’s worth fighting for a better deal. Follow @AntonyMCurrie on X CONTEXT NEWS Shares in Toyota Industries on April 28 closed 23% higher, hitting the upper limit allowed following a Bloomberg report on April 25 that Toyota Motor Chair Akio Toyoda and his family, whose ancestors founded the group, had proposed buying Toyota Industries for 6 trillion yen ($42 billion). The Financial Times subsequently said the proposal value includes debt. Toyota Industries said on April 26 that it had received proposals about going private through a special purpose vehicle but denied receiving an offer from Toyoda or the Toyota group. Shares in Toyota Motor closed 3.6% higher on April 28 after the company disclosed it was exploring the possibility of investing in a potential buyout of Toyota Industries. Graphic: Toyota Industries’ wild ride https://reut.rs/3RFkxKy (Editing by Una Galani and Oliver Taslic) ((For previous columns by the author, Reuters customers can click on CURRIE/ antony.currie@thomsonreuters.com))