Japanese auto giant Toyota and its two affiliates will divest 8% of supplier Denso, in a USD 4 billion deal that sparked hopes in the markets about the world’s top-selling automaker shedding more of its numerous cross-shareholdings.
The share sale, as reported by Reuters, will be Japan’s second biggest deal-making activity in 2023 and the largest in the global auto industry in more than a decade, as per the London Stock Exchange data.
Denso, known as the world’s second-largest maker of automotive components, will buy back some of its shares in the open market.
“For investors, the deal has reinforced expectations that Japan’s most influential company could accelerate sales of shareholdings in affiliates and partners, a practise known as cross-shareholding. Investors, particularly foreign ones, say it hinders governance and hampers returns,” the report commented.
While companies operating in Japan have reportedly been slowly unwinding their holdings, the trend gained momentum after the Tokyo Stock Exchange in March 2023 urged ventures to “make better use of their capital”.
“We know it’s going to free up some of the capital being locked within the Toyota balance sheet. What’s important is how they’re going to utilise this freed-up capital going forward,” said James Hong, the head of mobility research at Macquarie.
As per Denso, Toyota and its group companies, Toyota Industries and Aisin, will sell their shares in the company to investors. They intend to sell some 256 million shares, worth 589.1 billion yen (USD 4 billion), representing some 8% of Denso.
Following this, Denso will buy back some 125 million shares, to offset the market impact of Toyota’s move.
Toyota’s latest move comes after the automaker’s October 2023 global vehicle production hit a record.
The world’s largest automaker by sales reportedly produced 900,285 vehicles worldwide, up 16.7% from the same period in 2022.
“Overseas productions hit a record high for a single month, rising 8.7% at 617,590. Global and overseas sales reached record highs for October, increasing 7% to 890,241 and 5.2% to 756,245 respectively,” Toyota informed in its market note.
Toyota also sold over 8.46 million vehicles during the first 10 months of 2023, including its luxury Lexus brand.