• Toyota Motor is exploring a potential $42 billion buyout of Toyota Industries.
• The plan could improve corporate governance by unwinding cross-shareholdings.
• Shares of Toyota Industries are expected to surge significantly following the announcement.

Toyota Motor Corporation is weighing the possibility of investing in a buyout of its key parts supplier, Toyota Industries, which could cost approximately $42 billion. According to a filing with the Tokyo Stock Exchange, the automaker stated, "We are currently exploring various possibilities, including partial investment." Reports suggest that this deal could potentially enhance the governance structure of the Toyota group, especially regarding its cross-shareholdings, which have been under scrutiny. However, both companies emphasized that no final decisions have been made yet, according to Channel News Asia and Reuters.

Reports indicate that Toyota Chairman Akio Toyoda and his family are pivotal in proposing the potential acquisition, which could reach around 6 trillion yen. Toyota Industries, with a market valuation of approximately 4 trillion yen, asserted that it experienced proposals to go private, but denied receiving a direct buyout proposal from Toyoda. Additionally, sources revealed that if executed, the buyout would alleviate long-standing cross-shareholdings within the Toyota group, thereby improving transparency and accountability. This situation has evolved amidst increasing shareholder pressure, as noted by India Times, Channel News Asia, and Reuters.

Following these developments, shares of Toyota Industries were poised to surge, with indications that the stock price could hit the daily limit of 16,225 yen, representing a 23% increase from the previous close at 13,225 yen. Such a jump would mark the largest one-day increase for the company in over 40 years, as trading volumes and market interest surged dramatically. This potential rise in stock price comes as investor sentiment builds around the likelihood of the buyout, according to Channel News Asia and Reuters.

Historically, Toyota Industries was established in 1926 as Toyoda Automatic Loom Works, and it has evolved to become a crucial player in the automotive components sector. Notably, it manufactures engines and forklifts and produces the RAV4 SUV for Toyota Motor. As such, the implications of a buyout and strategic restructuring could have far-reaching effects on both entities and their operational focus moving forward, as emphasized by India Times and Reuters.