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Elliott Management, one of the world’s most prominent activist investors, has urged shareholders to block an attempt by Toyota Motor to take its largest subsidiary private in a ¥5.4tn ($34bn) deal that has become a test case for corporate governance reform in Japan.
Last week, Toyota Motor raised its offer to buy forklift maker Toyota Industries by 15 per cent to ¥18,800 per share from the ¥16,300 proposed last year after being criticised by investors and analysts for undervaluing the business and using opaque valuation methods.
Elliott launched a broadside against the revised offer in a public letter to shareholders on Monday, saying that it does not intend to tender its shares and that it “strongly” encourages other shareholders to take the same position.
“The new price continues to very substantially undervalue Toyota Industries, whose intrinsic net asset value is ¥26,134 per share or almost 40 per cent above the revised [tender] price,” said the US-based fund, which owns more than 5 per cent of Toyota Industries’ stock and is the company’s largest independent shareholder.
“If successful, the revised [takeover bid] would represent a major setback for corporate governance, minority shareholder rights and fair M&A in Japan,” Elliott added.
Toyota Industries share price rose almost 8 per cent last week after the latest offer to trade at ¥19,440 on Monday.
Elliott added that it had “been discussing a standalone plan” with Toyota Industries for several months. The investor said that with its plan, the company could “achieve a valuation of more than ¥40,000 per share by 2028” by unwinding more cross-shareholdings, consolidation initiatives and further governance reforms.
The activist investor is hoping to generate enough leverage to force Toyota Motor to pay more for the company, a top producer of forklifts, equipment used in ports and automotive parts.
“Independent shareholders have the opportunity to determine whether they receive fair value for their investment — either through meaningfully improved transaction terms or through the company pursuing a standalone path,” Elliott said.
But Elliott faces an uphill battle to extract more value from Toyota Motor, according to analysts and other investors.
Toyota will need to acquire two-thirds of the stock to trigger a squeeze out. According to people familiar with the transaction, the car group already has close to 50 per cent of the stock, taking into account cross-shareholdings and companies close to Toyota.
The revised offer for Toyota Industries “can be viewed as reasonably reflective of intrinsic value”, as it is broadly in line with the company’s peak share price in June, said Bernstein in a note, adding that the new offer represents a 42 per cent premium to the level prior to the initial news reports.
“[The] fact that one of Japan’s largest companies has responded positively to engagement from minority shareholders regarding its [takeover bid] terms and conditions is, in our opinion, a sign that the pace of corporate governance reform in Japan could really start to accelerate again from here,” said Bruce Kirk, an analyst at Goldman Sachs.
