Toyota is considering buying out Toyota Industries Corp., one of its key part suppliers, in a deal worth $42 billion. In a filing with the Tokyo Stock Exchange on Saturday, the automaker revealed that it is exploring various options, including a partial investment.
Toyota Industries, from which Toyota Motor was spun off in 1937, is the world’s largest producer of forklifts. It also manufactures textiles and critical automotive parts, including engines and hybrid-vehicle batteries, and has a market value of $28 billion. The company stated that it had received proposals to go private but denied any proposals from Toyota Chairman Akio Toyoda or the Toyota group.
According to Reuters, two sources familiar with the matter revealed that Toyota Industries is considering funding options, including input from Toyota, group companies, and major banks, to fund a buyout. The potential transaction would help Toyota unwind cross-shareholdings, improving its corporate governance. Cross-shareholding, where companies hold shares in each other, remains a common practice in Japan. However, it has recently come under scrutiny from regulators as a way to shield management from shareholders. Going private would allow Toyota Industries increased flexibility to execute growth strategies without the pressure of shareholder returns.
As of September 2024, Toyota Motor owned 24% of Toyota Industries. Toyota Industries owned 9.07% of the shares in Toyota Motor and 5.41% in Denso, another major Toyota supplier.
In 2024, Toyota Industries’ reputation took a nosedive when it was discovered that the company incorrectly certified the horsepower output of some engines. This issue led to the suspension of ten Toyota nameplates.
The buyout would allow Toyota Motor to improve governance and control and align with its broader strategy of streamlining its operations, creating more cohesive decision-making between the two companies. However, both companies have stated that no final decisions have been made.
