Toyota Considers Investing in Potential Toyota Industries Buyout

Toyota Motor has announced it is considering investing in a possible buyout of Toyota Industries, a major parts supplier. The deal could be valued at $42 billion.

Following reports about the potential buyout, the automaker stated in a filing with the Tokyo Stock Exchange on Saturday that, “We are currently exploring various possibilities, including partial investment.”

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

Toyota Industries, with a market value of 4 trillion yen, issued a statement saying it had received proposals about going private through a special purpose company. However, it denied receiving a buyout proposal from the Toyota chairman or the Toyota group.

According to two sources familiar with the situation, Toyota Industries is considering involving Toyota, its group companies, and major banks to finance 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, mentioned that if Toyota Industries were to become private, it could improve the Toyota group’s corporate governance by unwinding cross-shareholdings. Both Toyota and Toyota Industries stated that no final decision has been made.

As of September of the previous year, Toyota owned 24% of Toyota Industries, while Toyota Industries held 9.07% of Toyota and 5.41% of Denso, another key Toyota supplier.

Toyota Industries has faced increasing pressure from shareholders to unwind its cross-shareholdings to enhance shareholder returns and facilitate investments.

The company has already sold some of its cross-shareholdings, including stock in Aisin, another core Toyota group supplier.

One source mentioned that going private would allow Toyota Industries to concentrate on growth strategies without being concerned about shareholder returns.

Cross-shareholdings, where companies hold shares in each other, are common in Japan but have been under increasing scrutiny from regulators and shareholders. This practice can shield management from serving the interests of general shareholders.

Toyota Industries, originally 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 spun off as Toyota Motor. Toyota Industries is a major manufacturer of forklifts, produces the RAV4 sport utility vehicle for Toyota Motor, and manufactures engines.