Accelerate Unbinding! Toyota(TM.US) Plans to Sell $19 Billion in Strategic Holdings to Promote Governance Reforms in Japan

Bloomberg News has learned that Toyota Motor (TM.US) is planning to lift restrictions on its strategic holdings of approximately 3 trillion yen (about $190 billion) held by banks and other financial institutions. This move will significantly advance Japan’s corporate reform efforts. If implemented, it will mark Toyota’s accelerated effort to unwind cross-shareholdings. This process, starting in 2024, aims to respond to the Japanese government’s push for large companies to streamline their complex shareholding networks, improve investor returns, and promote fair competition reforms.

Anonymous insiders say that, depending on shareholder willingness to sell, the scale of the sale could be larger. Toyota aims to complete the sale as early as this year, but timing and scale may change, or the plan could be completely shelved.

A Toyota spokesperson declined to comment on the report. After the news was announced, the company’s stock briefly rose before giving back some gains. As of the latest update, the stock was up 0.17% in after-hours trading, at $242.13.

Senior automotive analyst Tatsuo Yoshida said, “The key is whether Toyota will hold the repurchased shares as treasury stock without canceling them, or actually reduce the number of outstanding shares through cancellation.” He also noted that how Toyota uses these repurchased shares is more important.

Earlier reports indicated that Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group plan to reduce their combined strategic holdings of 1.32 trillion yen in Toyota.

Kazuhiro Sasaki, head of Japan research at Philip Securities, believes this news is positive from a corporate governance perspective. He pointed out that financial institutions acting as cross-shareholders are not good governance practice, and Toyota’s plan coincides with Japan’s scheduled revision of the Corporate Governance Code this year, likely aligning with this favorable trend.

However, the overall pace of reform in Japan’s corporate sector has been relatively slow. Toyota’s own push to privatize a key subsidiary has also drawn attention to its reform efforts.

The group’s attempt to acquire Toyota Industries has been strongly criticized by activist investor Elliott Investment Management, which is calling on investors to join forces to block the takeover bid.

This privatization effort is led by Toyota Chairman Akio Toyoda, with the tender offer set to end on Monday. Earlier this month, Toyota Industries stated that Toyota Group was still about 9% short of the two-thirds majority needed to initiate a squeeze-out.