Toyota Industries investor Zennor says it wants minority safeguards
Toyota Industries investor Zennor Asset Management said a plan by Toyota Motor Chairman Akio Toyoda to take over the Japanese auto parts maker raises governance issues and may undermine minority shareholders' interests.
David Mitchinson, founding partner at Zennor, said the reported ¥6 trillion ($41 billion) buyout plan would benefit the founding family and may undervalue the target's stock and real estate holdings. Mitchinson suggested other options, including a potential takeover led by Toyota Motor.
Toyota Industries, the company founded by his great grandfather, formed a special committee and hired advisers to review the proposal, it was reported last month. Local media on Monday reported that Toyota Industries is set to accept the offer, and the bid will likely be announced in May or June, triggering a jump in its shares the next day.
"There has to be a sufficient economic alignment for people to say this deal is fair and we're at a reasonable level, as opposed to this being really discounted and just a friendly deal to make Akio have more control over Toyota Motor,' said Mitchinson. Zennor holds more than 350,000 shares in Toyota Industries, he said.
A recent wave of buyouts in Japan has raised concerns about unfair valuations. The Tokyo Stock Exchange announced in February that it will require listed companies to disclose real estate values and cross shareholdings in go-private deals.
The outcome of the Toyota Industries deal will serve as a litmus test for the protection of minority shareholders' interest at a time when buyout activities are intensifying in Japan.
Toyota Motor is "examining the optimal approach' regarding its holdings in Toyota Group shares, but no decisions have been made, a spokesperson said. Toyota Industries did not immediately respond to a request for comment.
Mitchinson said that fair valuation of all the assets need to be considered, adding that real estate values on their balance sheet are likely to be understated.
Toyota Industries' unrealized gains in Toyota Motor shares will burden the family with a tax liability, pushing down the price of the takeover, according to Mitchinson. If Toyota Motor bought out the company, instead, it would benefit the broader shareholder base as the capital gains taxes could be exempted by canceling the shares, resulting in a higher valuation.
Mitchinson's view stands in contrast to Dalton Investments, which supports the plan, celebrating it as a turnaround in Japanese companies prioritizing shareholders.
Toyota Industries held about 9.1% stake in Toyota Motor as of last September, according to a statement by the latter. It held ¥1.54 trillion in property, plant and equipment assets as of March 31, according to its financial statement.
Tatsuo Yoshida, a Bloomberg Intelligence senior auto analyst, said that while there is a risk the takeover would turn management into a black box, risking transparency and independence, the company could be "less susceptible to short-term pressure from external investors and the market.'
"We are not against this potential transaction, in principle, but it should not result in a transfer of value to Akio or Toyota Motor,' Mitchinson said, cautioning that much of the information on the plan has come out via media reports and is uncertain. "It may be the best outcome for Akio but it's not necessarily the best outcome for external shareholders.'
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