Toyota Industries’ shares nosedive on $33 billion buyout deal — steepest fall in

Shares of Toyota Industries slumped as much as 13% Wednesday, after Toyota Group’s reported 4.7 trillion yen ($33 billion) deal to take the company private.

This deal comes at a time when Japanese firms are facing mounting pressure from both regulators and investors to unwind long-established cross-shareholding ties. Japan’s Financial Services Agency has been calling for a reduction in cross-shareholding arrangements.

“Going forward, there will be more of these unwinding of cross shareholdings amongst the Toyota Group,” said Kei Okamura, managing director and Japanese equities portfolio manager at Neuberger Berman.

The deal includes a tender offer of $26 billion for shares of Toyota Industries at 16,300 yen apiece, according to Reuters, sharply lower than the 18,400 yen it closed on Tuesday before the deal was announced.

Toyota Group will create a new holding company for the deal, with the group’s real estate arm Toyota Fudosan investing about 180 billion yen, while Toyota Motor Chairman Akio Toyoda will invest 1 billion yen. Toyota Motor will invest about 700 billion yen in non-voting preferred shares.

Other financing will be backed by loans from Sumitomo Mitsui Banking Corporation, MUFG Bank, and Mizuho Bank.

There are some factors that suggest that the offer is “unattractive,” Arun George, a global equity research analyst, said on SmartKarma. 

George pointed that the offer price was below the midpoint of the valuation range given by the commissioned independent financial advisers.

“The special committee requested three times that the offeror improve its JPY16,300 final offer, but was rebuffed,” said George.

Back in April, Toyota said it was exploring investing in a potential $42 billion buyout of Toyota Industries. Toyota Motor, which spun off from Toyota Industries in 1937, noted in a regulatory filing that it was “exploring various possibilities, including partial investment” in Toyota Industries.

The deal is a positive for Toyota Group, said Okamura. Over the mid- to long-term, if these shareholdings are going to be unwound and if the proceeds are going to be used for growth investments, it bodes well for capital returns.

Toyota employed cross-shareholding back in 2005 to protect itself against acquisition threats, Satoru Aoyama, head of corporate ratings at Fitch Ratings in Japan, told CNBC.

Toyota Industries, which founded Toyota Motor, produces a range of products including forklifts, engines, electronic components, and stamping dies.