(Jan 15): Elliott Investment Management rejected the Toyota group’s sweetened bid to privatise a key unit, with the investor calling on other shareholders to oppose the offer and push for a better price.
Toyota had bent to pressure from a vocal contingent of minority shareholders in Toyota Industries Corp and raised its offer to ¥18,800 per share (US$118.50 or $152.62), a 15% increase. But the stock climbed as much as 6.8% to ¥19,255 on Thursday, adding weight to demands from some investors for a higher premium.
Elliott, the most vocal opponent of the proposal, said on Thursday that the new tender offer price continues to “very substantially” undervalue Toyota Industries and isn’t in the best interest of minority shareholders. The company is worth more than ¥25,000 per share, the US-based activist fund said in a statement.
“Elliott does not intend to tender its shares under the current transaction terms and will be encouraging other shareholders not to support the tender,” it said.
Hugh Sloane of UK-based fund Sloane Robinson, which owns stock in Toyota Industries, is also arguing for ¥25,000 per share.
“Toyota is trying to acquire Toyota Industries on the cheap,” Sloane said. “This will encourage activists to press the trade.”
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Protest campaign
The tender offer begins on Thursday and will run through Feb 12, with the outcome potentially shaping future buyouts across corporate Japan. If completed, the company, which makes textile looms and forklifts, will fall under the control of an unlisted real estate company called Toyota Fudosan Co, which is chaired by Akio Toyoda, who also leads the board of Toyota Motor Corp and is the grandson of the carmaker’s founder.
The offering had been scheduled to start in December, but was postponed after the approval process was delayed by antitrust regulators in various countries.
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When the Toyota group announced its take-private bid last June, its offer translated into a transaction valued at around ¥4.7 trillion, an 11% discount to its market capitalisation. Critics immediately demanded more transparency into a deal that would strengthen the founding family’s influence over Japan’s largest business group and amount to one of the largest acquisitions on record anywhere.
The protest campaign got a shot in the arm in November, when Elliott revealed it had built a 5% stake in Toyota Industries. Weeks later, Bloomberg News reported the investor had begun approaching other stakeholders in Japan to build support to fight the acquisition.
Elliott has sought to build a consensus around the idea that Toyota Industries deserves a much higher premium in part because it owns about ¥6.1 trillion worth of shares in other companies, mainly within the Toyota group.
“This higher offer is almost worse than the original given that Toyota Industries’ group shareholdings are worth ¥5,300 per share more now than they were in June,” said Stephen Codrington, the chief executive officer of Codrington Japan, an independent research firm.
Kenta Kon, Toyota Motor’s chief financial officer, who also holds key positions at other group companies including at Toyota Fudosan, told reporters on Wednesday that the enhanced offer is a better reflection of that latent value and should address those concerns.
It’s unclear if enough minority investors will agree and sign off on the deal. Electronics maker Ibiden Co said on Thursday that it plans to tender about US$328 million worth of shares in Toyota Industries.
But some observers say the Toyota group may need to cough up more cash to secure the takeover.
“The higher takeover bid still seems to fall short of fair value,” said Julie Boote, an analyst at London-based research firm Pelham Smithers Associates Ltd. “The only way to explain the price hike now is to say that this was an act of goodwill towards minority shareholders.”
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