TOYOTA Motor’s latest buyback compounded a potentially unwanted side effect of its push to unwind cross shareholdings: a growing backlog of treasury stock in its back pocket.
The Japanese carmaker owned roughly 15 per cent of its own shares at the end of June, data compiled by Bloomberg shows. Earlier this week, it announced a 807 billion yen (S$7 billion) tender offer for stock held by a handful of major Japanese banks and insurers.
The Japanese government’s push to improve corporate governance is driving greater unwinding of cross-held shares, with some businesses choosing to buy back their own shares from strategic partners. Stock repurchases also help enhance the value for existing shareholders when the shares are cancelled, taking them out of circulation. Some activist investors, however, have criticised Japanese companies for not taking the step of cancelling treasury stock and holding too many of them.
“They should cancel the shares,” said Naoki Fujiwara, senior fund manager at Shinkin Asset Management, adding that Toyota may be holding on to the paper to use for acquisitions. “The stock market would appreciate it more if they were cancelled.”
About 3.5 billion treasury shares remain on Toyota’s books, a relatively high figure that surpasses Honda Motor ratio and other competitors in the car industry.
In the past Oasis Management, a Hong Kong-based hedge fund, had called on elevator-maker Fujitec to cancel all its treasury shares.
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On Tuesday (Jul 23), Toyota announced plans to purchase its stock from Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, Tokio Marine Holdings and MS&AD Insurance Group Holdings., via a tender offer at 2,781 yen apiece. The move is part of a one trillion yen repurchase plan the company announced in May.
By employing a tender offer based on prior discussions with major stakeholders, the process can be more orderly and limit any potential price swings, according to Ken Kiyohara, a corporate finance lawyer at Tokyo-based CMA Partners.
“Rather than doing it individually, doing it this way is highly efficient and protects shareholder returns,” Kiyohara said.
While buybacks via a tender offer might be efficient, they can also draw criticism because they are usually conducted at a discounted price.
Rie Nishihara, chief Japan equity strategist at JPMorgan Securities Japan, said the Tokyo Stock Exchange’s push for greater capital efficiency is connected with the accumulation of shares by companies and the need to cancel treasury stock.
“There’s growing demand for that to happen,” she said. BLOOMBERG
