Toyota Considers Investing in Potential Toyota Industries Buyout

Toyota Motor Corporation has announced that it is weighing the possibility of investing in a prospective buyout of Toyota Industries, a key supplier of parts. Reports suggest the deal could be valued at $42 billion.

In a filing submitted to the Tokyo Stock Exchange on Saturday, the automaker stated, “We are currently exploring various possibilities, which include a partial investment.” This announcement followed reports regarding the potential buyout.

Bloomberg News reported on Friday that Toyota Chairman Akio Toyoda and his family had proposed acquiring Toyota Industries in a deal potentially worth 6 trillion yen ($42 billion).

Toyota Industries, with a market valuation of 4 trillion yen, issued a statement acknowledging that it had received proposals to become a private entity through a special purpose company. However, the company denied receiving a buyout proposal from Akio Toyoda or the broader Toyota group.

According to two sources with knowledge of the situation, Toyota Industries is contemplating involving Toyota, its affiliated companies, and major banks to provide funding for the buyout.

These sources also indicated that the proposal did not originate from Akio Toyoda or the Toyota group.

The sources, who wished to remain anonymous because the matter is not yet public, suggested that taking Toyota Industries private could enhance the corporate governance of the Toyota group by disentangling cross-shareholdings. Both Toyota and Toyota Industries emphasized in their statements that no definitive decision has been made.

As of September of the previous year, Toyota held a 24% stake in Toyota Industries, while Toyota Industries possessed 9.07% of Toyota and 5.41% of Denso, another crucial Toyota supplier.

Toyota Industries has been facing increasing pressure from shareholders to dissolve its cross-shareholdings to improve shareholder returns and facilitate investments.

The company has already divested some of its cross-shareholdings, including shares in Aisin, another core supplier within the Toyota group.

One of the sources mentioned that going private would afford Toyota Industries the latitude to prioritize growth strategies without the pressure of focusing on shareholder returns.

Cross-shareholdings, a common practice in Japan where companies hold stakes in one another, have faced growing scrutiny from regulators and shareholders. This is because the practice can shield management from prioritizing the interests of general shareholders.

Toyota Industries, initially known as Toyoda Automatic Loom Works, was established in 1926 by Sakichi Toyoda to produce automatic looms.

An automotive division was later created within the company and subsequently spun off to become Toyota Motor. Toyota Industries is a prominent manufacturer of forklifts, produces the RAV4 sport utility vehicle for Toyota Motor, and manufactures engines.