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The $33bn privatisation of a major Toyota supplier has been called out as a “study in opacity” by an investment industry group, reviving criticism that the transaction “risks squandering” Japan’s efforts to improve corporate governance.
The Hong Kong-based Asian Corporate Governance Association, which represents investors that together manage more than $40tn of assets, released a searing attack on Thursday of Japan’s biggest management buyout, saying it would “serve as a referendum on the credibility of Japan’s corporate governance revolution”.
Toyota Industries last month accepted a ¥16,300 ($113) a share offer led by Toyota Fudosan, a privately held real estate company, and Akio Toyoda, chair of Toyota Motor, the world’s largest carmaker by sales.
While the deal addresses concerns over governance risks arising from Toyota Motor’s web of crossholdings with affiliates such as Toyota Industries, institutional investors have decried the deal for an alleged lack of transparency and perceived low value.
The premium of 23 per cent above the share price before media reports of the deal is below the average premium for management buyouts in Japan of 44 per cent, according to the industry body.
The association said the special committee that reviewed the offer had not fought hard enough for a fair price and was not independent enough, a criticism levelled by many overseas and retail investors in Toyota Industries.
“The process that led to the deal’s terms is, by any international standard, a study in opacity,” said Anuja Agarwal, head of research for Japan and India at the ACGA. “Beneath the surface, the deal exposes the persistent fragilities of Japan’s corporate governance regime and the enduring power of entrenched interests.”
The Japanese government and the Tokyo Stock Exchange have been pushing for corporate governance reforms over the past decade. They have made strides such as increasing the number of independent directors in listed groups and sharpening companies’ focus on investor returns.
But many international investors believe the Toyota Industries buyout represents a crossroads that will raise questions about whether Japan has enough measures in place to protect minority investors’ interests.
Toyota Motor declined to comment, and Toyota Industries did not immediately respond to a request for comment.
Toyota Industries has argued that the valuation was deemed to be fair based on assessments by external advisers to the company and special committee, including SMBC Nikko and Mitsubishi UFJ Morgan Stanley.
Toyoda, who will own 0.5 per cent of Toyota Industries after contributing ¥1bn of his own money, has denied that the deal strengthens his control over the company and said it would allow Toyota Industries to pursue long-term growth. The company’s business spans forklifts, car parts and textile looms.
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Shareholders including London-based fund Mondrian Investment Partners have contended that the independent advisers used an inappropriate methodology to value Toyota Industries that resulted in an “unjustifiably low” valuation.
“It is abundantly clear that the tender offer grossly undervalues Toyota Industries,” Mondrian told the Financial Times last month, calling for “greater transparency over valuation assessments”.
SMBC Nikko and Mitsubishi UFJ Morgan Stanley did not immediately respond to a request for comment.
For the deal to succeed, at least 42 per cent of Toyota Industries shares must be tendered. However, companies under the Toyota Group umbrella such as Denso, Aisin and Toyota Tsusho collectively own 12.2 per cent, and they are considered independent minority shareholders by the company.
ACGA called this interpretation to be “perhaps the most egregious governance failing” in the deal.