The Toyota group sweetened a bid to privatize a key unit on the eve of its tender period, but that's unlikely to placate investors who say the new price still undervalues the company with the shares already outpacing the revised offer.
Bending to pressure from a vocal contingent of minority shareholders in Toyota Industries Corp., the parent group backtracked on previous statements about standing firm and raised its ante to ¥18,800 per share ($118.56), a 15% increase. But the stock rose as much as 5.9% to ¥19,095 soon after the start of trading in Tokyo on Thursday.
That suggests that, far from easing the path to a deal, investors will demand an ever-higher premium in line with their lofty valuations. Hugh Sloane of UK-based fund Sloane Robinson, which owns stock in Toyota Industries, argues the company is worth at least ¥25,000 per share. With global activists, including Elliott Investment Management, having openly challenged the offer, the outcome could shape future buyouts across corporate Japan.
"Toyota is trying to acquire Toyota Industries on the cheap," Sloane said. "This will encourage activists to press the trade."
The tender offer begins Thursday and will run through Feb. 12. 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.
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 capitalization. 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 major activist fund Elliott Investment Management revealed it had built a 5% stake in Toyota Industries. Weeks later, Bloomberg reported the US-based 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, 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.
But it's unclear if enough minority investors will agree and sign off on the deal. 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."