Toyota Motor, the world's largest automaker, has begun unwinding "friendly stakes" held through cross-shareholdings with other companies for management defense purposes. The Japanese carmaker has faced government pressure to improve corporate governance while battling activist fund Elliott Management over valuation issues in a tender offer dispute.
Reuters reported on the 26th (local time), citing multiple sources, that Toyota is planning a large-scale "strategic cross-shareholding dissolution" to absorb approximately 3 trillion yen worth of Toyota shares held by Japanese banks and insurers after they sell their stakes. Holdings by Sumitomo Mitsui Financial Group (SMBC) and Mitsubishi UFJ Financial Group (MUFG) are among those under consideration.
The move is interpreted as reflecting Toyota's commitment to demonstrating its ongoing governance reforms to shareholders and the government. One source told Reuters, "Toyota wants to show its sincerity about governance reform."
Cross-shareholdings with other listed companies have been a common practice among Japanese corporations. For management, holding friendly stakes offers advantages in defending control and diversifying investment risk. However, the practice has drawn criticism from investors as Japan's characteristic insular management style due to reduced transparency and efficiency.
U.S. activist fund Elliott Management has been particularly aggressive. In June last year, Toyota pursued the delisting of Toyota Industries, its founding company that has served as a de facto holding company and the world's largest forklift manufacturer. Toyota cited future technology innovation centered on "logistics mobility" and governance simplification as justifications. Elliott subsequently acquired stakes in Toyota Industries and criticized the company for "significantly undervaluing its corporate worth."
Toyota raised its tender offer price once, but Elliott maintains the bid "still falls short of intrinsic value" and opposes the sale. Elliott is persuading other shareholders not to tender their shares. Toyota, which stated there would be "no further price increases," extended the tender offer deadline to the 2nd of next month to encourage shareholder participation.
Japanese authorities including the Financial Services Agency and Tokyo Stock Exchange have continued pressing for governance improvements. Regulators revised the "Corporate Governance Code" in 2018 to require disclosure of cross-shareholding reduction policies, followed by a value-up policy in 2023 demanding companies with price-to-book ratios below 1.0 disclose causes of undervaluation and improvement plans. Toyota has been expanding share buybacks since 2024.
Toyota's stake unwinding could grow larger. One source told Reuters, "Toyota aims to complete the sales within this year." Toyota is reportedly prioritizing share buybacks while also considering transferring shares to external investors. Following the news, Toyota shares closed up 1.51% from the previous trading day, buoyed by expectations of large-scale shareholder returns and governance improvements.