(March 3): Elliott Investment Management is set to make around US$500 million from its months-long tussle with Japan’s powerful Toyota group, according to Bloomberg calculations.
The US hedge fund agreed to tender its shares in Toyota Industries Corp after a group led by business magnate Akio Toyoda — the grandson of Toyota Motor Corp’s founder — raised its offer for the company for a second time.
That brought an end to a high-profile battle between one of the world’s best-known activist funds and a company that is virtually synonymous with Japan Inc. Toyota had argued the deal would unwind cross-shareholdings and make the company more capital efficient. Elliott, alongside other investors, had said the deal was being done for far too cheap.
Elliott’s bumper profit shows the rich pickings available for activist funds in Japan. But it’s less clear what the deal means for the pace of reform in Japan: The battle over the take-private had been closely watched as a test case for how seriously Japanese companies are about reform — and how far investors can push them to make changes.
“The increase in the tender offer price is something of a win for stewardship as Elliott made a fair bit of money for its clients,” said Travis Lundy, an independent equity analyst based in Hong Kong. “But it’s not necessarily a big win for governance.”
Some analysts said the price Elliott accepted still undervalues the company. CLSA’s John Seagrim said the deal, which was led by Toyota Fudosan Co, “is still most definitely a take under.”
See also: Elliott raises Toyota Industries stake in push to block buyout
Elliott had amassed a stake of around 7.1% in Toyota Industries by early February, according to a regulatory filing. The filing shows Elliott acquired its 23.3 million shares at an average price of around ¥17,170, implying a profit of almost ¥80 billion (US$508 million) if it tenders all its shares at the ¥20,600 offer price. The likely profit would be lower after adjusting for costs.
A representative for Elliott declined to comment.
The activist firm publicized its stake in Toyota Industries in November, saying the offer to privatize the company — initially set at ¥16,300 — was too low. Toyota boosted its offer by 15% to ¥18,800 a share in early January, but Elliott continued to push back.
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In previous presentations, the fund had said Toyota Industries is worth at least ¥26,000 — or even ¥40,000 if it stayed public and improves its business strategy. Toyota raised the price again on Monday, and gave investors until March 16 to accept. Elliott said it would do so.
Elliott agreed the deal at a time of turmoil in global markets, with the war in Iran fueling shocks in the price of oil and credit markets increasingly worried about blowups. Elliott has exposure of about £200 million ($266 million) to Market Financial Solutions Ltd, a UK lender which recently collapsed.
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