Toyota buyout bid is getting even more egregious

Toyota Tsusho

03/12/2025 03:07

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.

By Hudson Lockett

HONG KONG, Dec 3 (Reuters Breakingviews) - Surely a seasoned activist investor should have no trouble squeezing more money out of a buyout whose terms have only got more egregious over time. The $33 billion insiders offered in June to take Toyota Industries 6201.T private already undervalued the forklift truck and car-parts maker by as much as 38%, Breakingviews calculated. That has now increased to 50% due to a rally in stakes it holds in other companies. Yet its own shares have barely budged despite Elliott Investment Management recently building a roughly 5% stake. That suggests the Florida-based firm may have set itself a Sisyphean task.

The benefit of the deal is that the bidding consortium of Toyota Motor 7203.T, its Chair Akio Toyoda and the broader group’s unlisted real-estate firm Toyota Fudosan would unwind one of the most value-destructive cross-shareholdings in Japan. Trouble is, they’re doing it in a way that benefits them at the expense of independent shareholders. Even the special committee tasked by Industries’ board with evaluating the deal twice rejected the 16,300 yen per share offer for not being in outside investors’ interest, before finally accepting it.

That it’s a low-ball bid has been made even more stark by the jump in value of the stakes Industries owns in fellow listed group companies Toyota Motor, Denso 6902.T, Toyota Tsusho 8015.T and Aisin 7259.T. These shares have increased by an average 35% since the bidders unveiled their proposed buyout. That equates to an extra 2,000 yen per share for the target, or about 600 billion yen ($3.9 billion) in total. Yet Industries’ stock has added barely half of that.

Elliott could hold out for a slightly better offer accounting for the stock rally, or go to court if Toyota group decides to use its sway over some 55% of shares – most of which are owned by Toyota group companies - to squeeze out minority shareholders at a lower price than warranted.

Intriguingly, although it has accepted the consortium’s offer, Industries’ special committee still hasn’t recommended the deal to minority shareholders. That might seem encouraging for Elliott’s case. But Japanese courts don’t like ruling on valuation, preferring instead to focus on procedure: mainly whether the target negotiated for a higher price and whether ample time was allowed to attract and thoroughly vet rival offers. This deal has ticked both of those boxes, and if most outside investors do end up tendering their shares it would be hard to convince a judge they were wrong to do so.

Elliott’s other option is to raise its stake further, perhaps to 10%. This would give it a bigger voice in court for minority investors, signal its commitment to existing shareholders wary of throwing their lot in with the fund and perhaps entice other activists to join the fray. The hope would be that the prospect of opponents joining forces would force the Toyota group to cough up more cash. A boulder is, after all, easier to push uphill with help.

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CONTEXT NEWS

Toyota Industries disclosed on November 11 that Elliott Investment Management had taken a stake of 3.26% in the company by the end of September, following Toyota group plans unveiled in June to take the forklift-truck and car-parts maker private.

The activist fund confirmed in a statement that it had built a “significant investment” in the firm, adding it “believes the proposed transaction very significantly undervalues Toyota Industries and reflects a process that has lacked transparency and has fallen short of proper governance practices.”

Elliott’s stake has since risen to about 5%, according to people familiar with the matter.

Group stocks held by Toyota Industries have rallied https://www.reuters.com/graphics/BRV-BRV/movabqawqpa/chart.png

(Editing by Antony Currie; Production by Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on LOCKETT/ hudson.lockett@thomsonreuters.com))