Toyota has confirmed it is considering an investment in a potential buyout of long-standing supplier Toyota Industries; the operation is valued at nearly $42 billion USD, according to information relayed by Bloomberg.
A large-scale project still in the exploratory phase
In a document filed with the Tokyo Stock Exchange on Saturday, Toyota stated that it is “currently exploring various possibilities, including a partial investment.”
That statement follows a report that Chairman of the Board Akio Toyoda and the founding family had proposed the acquisition of Toyota Industries through a transaction worth about 6 trillion yen ($42 billion USD).
Cautious response from Toyota Industries
Toyota Industries, valued at approximately 4 trillion yen, confirmed that it had received proposals to go private through an ad hoc entity, while denying any official offer emanating directly from Chairman Akio Toyoda or the Toyota group.
Two sources close to the matter specify that Toyota Industries is considering approaching Toyota and its affiliated companies as well as major Japanese banks to finance the operation.
Improving governance within the Toyota Group
According to those sources, making Toyota Industries private would improve the governance of the Toyota group by ending cross-shareholdings, a traditional practice in Japan but increasingly criticized by regulators and investors for its lack of transparency.
A complex cross-shareholding situation
Last September, Toyota held 24 percent of Toyota Industries, which in turn owned 9.07 percent of Toyota Motor as well as 5.41 percent of Denso, another key supplier to the group. Toyota Industries has already begun to divest some holdings, notably in Aisin, to respond to shareholder pressure demanding better profitability and more strategic investments.
Renewed strategic freedom for Toyota Industries?
One of the sources indicated that privatization would give Toyota Industries more freedom to focus on its growth without the constant constraint of satisfying public shareholder expectations.
The historical importance of Toyota Industries in Toyota's history
Founded in 1926 by Sakichi Toyoda under the name Toyoda Automatic Loom Works, the company initially manufactured automatic looms. It then created an automotive division, which became Toyota Motor.
Today, Toyota Industries remains a major player in the industry: it notably manufactures forklifts, produces engines and assembles models such as the RAV4 for Toyota.