Toyota (NYSE:TM) and two related companies have announced plans to divest a minimum of 8% stake in supplier Denso (6902.T), marking a $4 billion deal.
Details of the move, announced Wednesday, have raised investor expectations that the leading automobile manufacturer globally might further reduce its extensive network of cross-shareholdings.
The sale, initially disclosed by Reuters on Tuesday, is set to become Japan’s second-largest deal this year.
Furthermore, it stands as the most substantial transaction within the global automotive sector in over a decade, according to data from LSEG.
Denso, the automotive components giant and a crucial part of the Toyota conglomerate, intends to repurchase a portion of its own shares from the open market to mitigate the consequences of the recent sale.
This transaction has further solidified investor beliefs that Japan’s most significant corporation might expedite the divestment of holdings in affiliated companies and partners, a strategy commonly referred to as cross-shareholding.
Many investors, especially those from abroad, argue that cross-shareholding impedes effective governance and limits potential returns.
Denso said Toyota and two group companies, Toyota Industries and Aisin, would sell their shares in the company to investors. They intend to sell some 256 million shares, worth 589.1 billion yen ($4 billion) at Wednesday’s closing share price, representing some 8% of Denso.
Should the entirety of the shares be sold, Toyota would still retain its position as the largest shareholder in Denso with a 20% stake in the company.
As for Denso’s second-largest shareholder, Toyota Industries, their stake in the supplier would decrease to approximately 6% from its current slightly over 10%. Meanwhile, the stake held by Aisin would be completely divested.
Separately, Denso revealed that they would purchase approximately 125 million shares through the open market with the aim to counterbalance the potential market effects resulting from the recent sale.
Shares of TM are up 1.61% in mid-day trading on Wednesday.
