Toyota plans $5.2B share buyback from banks, insurers

Toyota plans $5.

• Toyota is buying back $5.2 billion of its shares from banks and insurers, to enhance shareholder returns and corporate governance.
• Capital from the buyback is earmarked for Toyota’s carbon neutrality goals, showcasing a commitment to sustainable and responsible growth.

OUR TAKE
Toyota Motor Corp. recently announced plans to buy back its shares from major Japanese banks and insurance companies for $5.2 billion. The move is part of Toyota’s broader strategy to unwind strategic shareholding relationships with its financial partners. The buyback is a response not only to Toyota’s ¥1 trillion ($6.4 billion) share buyback programme announced in May this year, but also to the Japanese government’s strategy of pushing large companies to unwind cross-shareholdings that have developed over decades to cement business relationships. While cross-shareholdings have brought a degree of accountability to company management and improved governance structures, major banks and corporations have been slow to unwind their holdings. Given Toyota’s size and importance, the deal could trigger a broader wave of easing of shareholding relationships in Japan.
–Elodie Qian, BTW reporter

What happened

Toyota Motor Corp. has announced its intention to repurchase shares worth $5.2 billion from major Japanese banks and insurers, in a strategic financial move to unwind strategic shareholdings with financial partners.

This repurchase is part of a larger ¥1 trillion ($6.4 billion) plan initiated in May, aimed at reducing the cross-shareholdings that have been a feature of Japanese business relationships for many years.

Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, Tokio Marine Holdings, and MS&AD Insurance Group are set to tender their shares at a rate of ¥2,781($17.78) each, which is an 11% discount on their closing price on Tuesday.

This discount is expected to be welcomed by shareholders, as it increases their returns and provides capital for Toyota’s transition towards carbon neutrality.

“For shareholders, its good news,” said Seiji Sugiura, a senior analyst for Tokai Tokyo Intelligence Laboratory Co. “Everyone has been waiting ever since Toyota announced its buyback.”

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Why it’s important

Bloomberg reported in June that Mitsubishi and Sumitomo were considering divesting their substantial stakes in Toyota, valued at ¥1.32 trillion ($8.4 billion). With Sompo Holdings also holding a significant stake, the total divestment could exceed ¥3 trillion ($19.2 billion).

The banks and insurers are planning a gradual divestment over several years, which could see their stakes in Toyota significantly reduced or completely sold off. This follows a successful year for Toyota, with shares rising by 26% this year, building on a 43% increase in 2023.

Some Japanese insurers have indicated that they are looking to reduce or eliminate cross-shareholdings, which authorities suspect may be contributing to price-fixing with corporate clients.

Toyota is also reviewing its shareholdings in business partners. The company announced earlier this year that it would sell part of its stake in Aisin Corp, a parts supplier. Denso Corp. and Toyota Industries Corp. have also announced plans to reduce their holdings in Aisin.

In November, Toyota stated its intention to decrease its stake in Denso, an electric parts manufacturer, from 24% to 20%. Additionally, Toyota has committed to selling part of its stake in KDDI Corp, a telecommunications company, for ¥250 billion($1.6 billion). These sales will help to raise funds for Toyota’s shift towards electric vehicles and may also support further share buybacks.