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Special Kei

27 January 2016 By Quentin Webb

Toyota Motor could make a handy tune-up with a buyout of Daihatsu Motor. The world’s biggest carmaker is considering taking out minority shareholders in its $5.4 billion subsidiary, in what amounts to a sensible bit of house-keeping. A bolder follow-up would be to take control of affiliate Subaru.

Responding to a report in Japan’s Nikkei newspaper, Toyota says it constantly ponders its relationship with Daihatsu, of which it owns slightly more than half. That includes thinking about partnerships or a restructuring leading to whole ownership.

A full buyout would be a long way from transformational for Toyota, whose own market value exceeds $190 billion. However, it would still eliminate inefficiencies. While Daihatsu’s focus on mini-vehicles caps profitability, greater purchasing power and cutting overlaps would help Toyota lift the unit’s 9 percent EBITDA margins closer to the group’s 15-percent-odd level. Plus small cars, vital to any push deeper into emerging markets, are something of a weak spot at Toyota.

A deal would also eliminate one of the troublesome “parent-child” relationships between listed parent and majority-owned subsidiary that are too prevalent in Japan. Investors in the parent tend to worry they don’t get all they might out of ownership; investors in the subsidiary fret that they can be short-changed in dealings between the two sides. Bringing the two together should in theory create value on both sides.

Moreover, a share swap would be a good way to soak up some of Toyota’s huge store of treasury stock, which as of end-September was equivalent to nearly 9 percent of its outstanding shares.

Further out, Toyota could try some bolder dealmaking. On Jan. 27 both it and Suzuki Motor roundly denied reports of a tie-up – no surprise given the fiercely independent Suzuki has just extricated itself from a failed alliance with Volkswagen, and competes head-on with Daihatsu in Japan’s small “kei” car market.

A better option could be to buy Subaru from Fuji Heavy Industries. Toyota already owns 16.5 percent of Subaru, which has transformed itself into something approaching the Japanese Volvo: making rugged SUVs that sell well in North America. Not something you can say of Daihatsu’s tiddlers.


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