Elliott Investment Management's perspectives on Toyota Industries Corp (TYO:6201).
Elliott’s View in Summary
Elliott does not intend to tender its shares into the Revised TOB at the current terms and strongly encourages other shareholders not to tender
Do NOT tender into the Revised TOB
Our Due Diligence on Toyota Industries
We have invested significant time and resources in underwriting our investment in TICO and in crafting a compelling plan for the business to unlock significant shareholder value
Leading Management Consulting Firm
We engaged an industry-leading global consulting firm to analyze TICO’s competitive positioning, market dynamics and growth prospects
Former Employees and Industry Executives
We engaged in dozens of conversations with former employees and industry executives to understand TICO’s businesses, positioning and challenges
Asset Valuation Specialists
We engaged multiple specialist advisory firms to help evaluate asset value including real estate
Specialist Tax Advisors
We engaged a leading accounting firm to evaluate the tax considerations in relation to various scenarios including the Standalone Plan
Legal Counsel
We engaged several Japanese and international law firms to advise on the tender offer and Standalone Plan including corporate, regulatory and governance matters
Financial and Accounting Advisors
We engaged financial and accounting firms to evaluate TICO’s historical financials and KPIs, and to help build a detailed Standalone Plan
World-Class Business Undervalued By Deeply Flawed Revised TOB
TICO is a global leader with a large portfolio of publicly traded stakes, which are straightforward to value. The Revised TOB very substantially undervalues TICO and is fraught with governance failings
World-Class Operating Business
- Fastest-growing large forklift OEM and clear market leader with 28% share
- Strong position in attractive Automation Systems market
Large, Liquid, Publicly Traded Stakes
- Large portfolio of publicly traded stakes, including 9% of Toyota Motor
- These stakes alone represent >85% of post-tax value of the Revised TOB
Egregious Governance Failings
Acceptance of unfair price
- Filings reveal Board / SC knew Revised TOB undervalued TICO, yet still supported the transaction(3)
- Board / SC capitulated at ¥18,800 having said days earlier that ¥18,600 significantly deviated from expectation and needed to be substantially increased, even before a subsequent rally in TICO’s public stakes(4)
Coercive transaction
- Mischaracterization of majority-of-minority condition
- Threat of continued mistreatment of minority shareholders by Toyota Group
Obfuscation of value
- No explanation of the significant value unlocked from post-deal buybacks
- Poor disclosures on valuation work
Conflicts of interest
- Key advisors to SC and Company are affiliated to parties financing the deal for the Buyer
What Has Happened So Far?
Why This Deal Matters
If the Revised TOB succeeds…
…it would represent a major setback for corporate governance, minority shareholder rights and fair M&A in Japan – with a damaging impact on the Japanese market
Economics for TICO Shareholders
- ¥2.2 trillion of value taken from shareholders, including domestic asset managers and Japanese individual investors. This value would instead unfairly accrue to the Toyota Group
Toyota Group Governance
- Toyota Group’s substantial cross-shareholdings and repeat scandals are underpinned by poor corporate governance
- Tolerance of bad governance is a long-term overhang for Toyota Group shareholders
Rights of Minority Shareholders
- Take-privates of Japanese issuers by controlling parent groups are a common feature of the Japanese market but are inherently coercive and require the genuine adoption of comprehensive measures to protect minority shareholders
- If the Revised TOB were to succeed, with such fundamentally unfair terms for minority shareholders, it would set a dire precedent for the other 215 Japanese listed subsidiary groups
Effectiveness of Governance Guidelines
- If METI, TSE or other Japanese governance guidelines are so easily flouted or otherwise used artificially to justify an unfair price, their effectiveness could be reduced, or it would encourage similarly artificial compliance with such guidelines by other corporates. This will have a chilling effect across the entire market
- If transactions as egregious as this can be forced through, there will be ramifications on company valuations and interest in Japanese public markets more broadly
Attractive Operating Businesses and Large Publicly Traded Portfolio
TICO has a strong core forklift business, a range of other high-quality and asset-rich operating businesses, and a significant portfolio of cross-shareholdings
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