Toyota and Denso: A $4 Billion Deal Shaking Up the Auto Industry

Toyota Group to Sell 8% Stake in Denso; Investors Push for Further Unwinding

Toyota group plans to sell 8% of its stake in Denso, but investors are calling for further divestment.

In a move that sent shockwaves through the automotive world, Toyota and two of its affiliates have announced plans to divest at least 8% of supplier Denso. This $4 billion deal is not only Japan’s second-largest share sale this year but also the biggest in the global auto industry in over a decade. It’s safe to say that Toyota is revving up its engines and preparing to shake off some of its numerous cross-shareholdings.

For investors, this deal is like speeding down the highway with the wind in their hair, as it reinforces hopes that Japan’s mighty automaker will continue to shed its shareholdings in affiliates and partners. This practice, known as cross-shareholding, has long been a source of frustration for investors, particularly those from foreign shores. They argue that it hampers returns and makes governance a bumpy ride.

While companies have been slowly untangling themselves from these interlocking holdings for years, the tide has shifted into high gear since the Tokyo Stock Exchange urged companies to make better use of their capital. And with this latest move, Toyota is taking the wheel and showing the world that it means business.

“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 utilize this freed-up capital going forward,” said James Hong, the head of mobility research at Macquarie. It’s like taking the parking brake off a high-performance sports car. Let’s see where Toyota takes us next!

Denso, the world’s second-largest maker of automotive components and a key player in the Toyota group, is also making moves of its own to counter the impact of the sale. They plan to purchase some of their own shares in the open market, providing a bit of cushioning for the impact of this groundbreaking deal.

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If all goes according to plan, Toyota will remain Denso’s largest shareholder, albeit with a slightly smaller stake of 20% compared to its previous 24%. This reduction falls in line with Toyota’s guidelines for its group affiliate holdings. In this race for reconfiguration, Denso’s second-largest shareholder, Toyota Industries, will see its stake decrease to around 6%, while Aisin’s stake will be cut entirely.

Racing to offset the market impact, Denso will also be buying back approximately 125 million shares on the open market. It’s like putting the pedal to the metal to regain control. After all, Denso shares did experience a small hiccup, losing 4.9% initially after the news broke.

So fasten your seatbelts and prepare for the ride. This $4 billion deal is just the beginning of a new era for both Toyota and Denso. As we eagerly anticipate the next twist and turn in this narrative, one thing is for certain: the auto industry will never be the same.

Editor’s note: We have reached out to Toyota for a comment, but they were too busy burning rubber on the road of innovation.

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