Investors gave a thumbs-down to Toyota Motor's $33 billion take-private offer for Toyota Industries on Wednesday, highlighting concerns minority shareholders would be short-changed in a landmark restructuring for Japan Inc.
Shares of Toyota Industries, a key Toyota Group company, fell 12% in Tokyo trade a day after the world's top-selling automaker unveiled plans to take the subsidiary private. The complex 4.7 trillion yen ($33 billion) transaction includes an offer price of 16,300 yen a share for Toyota Industries.
While that represents a 23% premium to the price before word of the deal broke in April, it is well below the 18,400 yen price before the offer was formally announced. Shares closed at 16,205 yen on Wednesday.
"To be clear, we welcome the attempt to clear up the parent-subsidiary governance issue. We don't like the price," said David Mitchinson, founding partner and chief investment officer of Zennor Asset Management, which owns Toyota Industries shares, Reuters reported.
When asked if Zennor would tender its shares, he said: "We will have to see how this develops as there seems strong opposition from many shareholders".
The deal will see a number of Toyota Group companies unwind cross-shareholdings, something Japanese regulators and the Tokyo Stock Exchange have long urged for better governance.
Toyota Industries has been one of Japan's most prominent examples of so-called "parent-child listings", where both a parent company and its subsidiary are listed. Governance experts say such cases are inherently unfair to minority shareholders and a drag on corporate value.
Still, the transaction comes up short in terms of corporate governance, as it both undervalues Toyota Industries' substantial real estate holdings and strengthens the founding Toyoda family's control over the broader group, market participants said.
"There's huge hidden asset value in the land and other holdings at Toyota Industries. And the price should have been much higher," Nicholas Benes, a governance expert and the CEO of the Board Training Institute of Japan, told a briefing on Wednesday.
The deal was a "prime example" of a squeeze-out of minority shareholders at an unfair price by founders and management, he said.
In a statement, Toyota Motor said the interests of Toyota Industries' minority shareholders were being considered. "Taking into account shareholder returns and the tax benefits for Toyota Industries, we have adopted a share buyback scheme" through a tender offer, it said.
It said the deal was part of a broader realignment of capital structures within the Toyota Group as it moved toward becoming a mobility company.
A new holding company will be set up for the deal. Group real estate company Toyota Fudosan will invest 180 billion yen, while Akio Toyoda, Toyota Motor's chairman, will invest 1 billion yen. Toyota Motor will invest 700 billion yen in non-voting preferred shares.
Media reports had indicated the tender offer would be around $42 billion, a substantial premium to the actual offer.
Toyota Motor and group companies Aisin, Denso and Toyota Tsusho will all sell their shares in Toyota Industries and acquire their own shares now held by it.
Toyota owned about 24% of Toyota Industries as of September last year, while Toyota Industries held around 9% of the automaker and more than 5% of Denso.
Toyota Industries, formerly Toyoda Automatic Loom Works, was founded in 1926 to make automatic looms. An automotive division within the company was set up and later spun off as Toyota Motor.
