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HONG KONG, Feb 13 (Reuters Breakingviews) - Toyota has two options: take it on the chin now or risk a haymaker later. Insiders at the powerful industrial group have just received a stinging bloody nose in their battle to take Toyota Industries (6201.T), opens new tab private for a lowball 5.65 trillion yen ($37 billion). The consortium that includes Toyota Motor (7203.T), opens new tab, its chair Akio Toyoda and the family’s unlisted Toyota Fudosan had to admit on Thursday that they had failed to convince independent shareholders in the forklift and car-parts maker to accept their woefully inadequate bid. So they’re extending their tender offer a couple more weeks. That’s unlikely to win over the many holdouts, leaving the consortium with the unpalatable choice of either raising the price substantially or dropping the deal and having Elliott Investment Management in their face for the foreseeable future.

The wannabe buyers’ announcement, opens new tab gives them time to raise the offer from its current 18,800 yen per share, despite asserting last month that they had “no intention” of doing so. But they also acknowledge that only 33% of outstanding shares have been tendered.

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Paul Singer’s Elliott, which owns a 7.1% stake in the target, says this equates to fewer than one in five independent shareholders tendering. That’s a blow to the consortium’s assertion that the offer price “reflects the intrinsic value” of Industries. The activist on Friday repeated, opens new tab its call for investors not to tender shares and recommended that those few who already have to withdraw.

With Industries shares jumping another 2% on Friday morning to their highest level since the deal’s announcement, the odds of Toyota convincing the other four-fifths to accept the current offer price look slim. The simplest path forward would be to raise their bid to meet Elliott’s stated valuation of 26,134 yen per share for the target. That would offer decent returns to motivate outside shareholders and provide some proof, should the activist press for more in court, that buyers ultimately engaged in good faith negotiation on the target’s valuation, albeit belatedly.

This outcome is hardly ideal for Toyoda’s consortium, but the other option looks positively grueling: walk away from the deal and continue to grapple with the constant hassle of Elliott as Industries’ biggest external shareholder. In this scenario, the combative activist would probably press Industries to sell its cross-shareholdings with the rest of Toyota group and return the capital to all investors, rather than mostly to the insiders’ consortium as envisaged in the buyout offer.

That won’t sit well with Toyota. However, the prospect of Elliott continually jabbing at Industries could yet provide impetus for an equitable deal before the new deadline.

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Context News

• A consortium led by Toyota Motor said in a filing on February 12 that it would extend the tender offer period for its 5.65 trillion yen ($36.9 billion) deal taking Toyota Industries private until March 2. Toyota Asset Preparatory said the extension was being made with an eye to “further increasing the possibility” of the deal’s success at the current offer price of 18,800 yen per share.
• Activist Elliott Investment Management, which holds a 7.1% stake in Toyota Industries, said in a statement on February 13 that fewer than one in five independent minority shareholders had tendered shares and repeated its call for other investors not to do so, arguing the offer “significantly undervalues” the target company.

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Editing by Antony Currie; Production by Aditya Srivastav

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Hudson Lockett

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Hudson Lockett is the Asia Columnist for Reuters Breakingviews in Hong Kong. Before joining Reuters in 2024, Hudson spent seven years at the Financial Times, most recently serving as the paper’s Asia capital markets correspondent. Prior to this he was editor of China Economic Review in Shanghai. Hudson has degrees in Journalism and Japanese from The University of Texas. He speaks Chinese.

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