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Stock in Toyota Industries fell 12% on Wednesday as minority shareholders proposed privatization of $330 billion, which has stomped their rights by smuggling auto parts suppliers.
The 99-year-old contract to remove the 99-year-old forklift, auto parts and textile loom suppliers, which was spun out in 1937, warns that unfair prices and lack of transparency are Japan’s escapism to a decade of progress in corporate governance reform.
“The directors of Toyota Industries behave shamelessly. They have accessed Fox to Henhouse,” said Drew Edwards, head of Japanese equity at Asset Manager GMO, which has held less than 1% of the company for over a decade.
“The risks of governance at Toyota Industries have been obvious for a long time and were discounted to valuations when we invested. However, this proposal is even worse than I think,” he added.
“I have an inbox full of investors who are absolutely alive about this – and they should be,” said another investor at Toyota’s supplier. Others say it is “completely unacceptable” and minorities “absolutely screwed” under the terms of the trade.
The Toyota Industries stock, also known as TICO, closed at 16,200 yen per share on Wednesday, falling below the offer price of 16,300 yen, according to the broker.
Some activists were monitoring the situation and shareholders were considering their options, according to first-hand knowledge.
“I think there’s a very high chance that the TICO board, brought about by minority investors who were abused by TICO, will be targeted for class action lawsuits brought about by TICO’s abused minority investors,” said John Seagrim, CLSA at London-based Japan Equities Broker.
The offer represented a 23% premium on Toyota industry stock prices before the proposed transaction was made public, but was far below market expectations of over 18,000 yen per share based on certain media reports.
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Under the largest take private deal in Japan’s history, Toyota Food Sun, the private real estate group, will ultimately account for 99.44% of the voting rights of the new holding company owning Toyota Industry.
The Japanese government and regulators have encouraged businesses to rewind their mutual retention networks. This is an interconnected portfolio of ownership of listed Japanese companies that helps to protect poor performance management.
Minority shareholders said the Tokyo Stock Exchange’s concerns over Take Prebel at a discounted price that has hit small investors. The exchange is moving to implement stronger rules this summer to protect minorities.
This transaction could reduce the web of stockholdings between various Toyota companies. The main shareholders of Toyota Fed Sun are Toyota Motor, Toyota Industries, Toyota Suppliers, and Toyota Suppliers, chaired by Reedoda, a part of the founding family.
Investors have vented their complaints that car manufacturer Toyota Motor effectively funds the transaction, but has not appeared as a buyer.
“This can be seen as a transition from the existing cross-structure between listed group companies to a new structure centered around Toyota Fed Sun’s opaque entities and their subsidiaries,” said Seiji Sugiura, an analyst at Tokyo Tokyo Intelligence Lab.
At an investor briefing on Tuesday, shareholders accepted questions about price adequacy from Toyota Industries management, and requested details on how the offer price was calculated, according to attendees.
Toyota Industries reiterated its belief that prices reflect “intrinsic value” based on advice from financial advisors. He also noted that a special committee was established to determine the offer. Toyota Motor did not immediately respond to requests for comment.
Some analysts said fair prices depend on how US tariffs are deployed. Independent analyst Travis Lundy said Toyota companies should pay around 23,000 to 24,000 yen per share to reflect the full value of the Toyota industry, including undervalued real estate assets.
“It’s bad for the Toyota minority. Low prices. Minimal transparency. It’s awful,” he writes. “But if you dig into the structure of trade and economics, it’s worse than it looks.”
A minimum of 42.01% of Toyota Industries stocks must be bid by shareholders for an offer to succeed by December.
