[M&A All About It] Toyota Breaks Circular Shareholding in Japan... Will It Catalyze Hyundai Motor’s Governance Reform?

Toyota Group Reaches Tender Offer Agreement with Elliott on Toyota Industries
5.5 Trillion KRW Deal... Largest M&A in Japanese History
Breaking Cross- and Circular Shareholding, Paving the Way for Founding Family Succession
Implications for Hyundai Motor Group, Korea’s Remaining Circular Shareholding Conglomerate

5.9 trillion yen (approximately 5.5 trillion KRW). This is the amount the Toyota Group has decided to spend to take its affiliate, Toyota Industries, private. It marks the largest-ever M&A deal involving a Japanese company. On March 2, Toyota Group reached a final agreement with activist fund Elliott Management to acquire shares through a tender offer at 20,600 yen per share. Over the course of nine months, the price was raised by 26% from the initial offer of 16,300 yen per share.

On March 9, M&A All About It examined the reasons why Toyota spent such a massive sum to acquire its own affiliate and discussed the implications this deal holds for Hyundai Motor Group, which is the only one among Korea’s top 10 conglomerates to maintain a circular shareholding structure.

Toyota's 5.5 Trillion KRW Unraveling of the "Investment Chain"

The Toyota Group is a company where Japan’s unique “keiretsu” (conglomerate) culture remains deeply rooted. Key affiliates such as Toyota Motor, Toyota Industries, Denso, and Aisin Corp. have held stakes in one another, forming a complex web of cross-shareholdings and circular shareholdings. At the center of this structure is Toyota Industries, the group’s “original” company. The group began in 1926 as a weaving machine manufacturer founded by Sakichi Toyoda, and the automobile division later spun off to become today’s Toyota Motor. Currently, Toyota Industries is almost entirely unrelated to textile machinery and has grown into the world’s largest forklift manufacturer.

The problem with this structure is that, while it strengthens group cohesion, it also leaves the group vulnerable to external threats to management control. As long as Toyota Industries remains publicly listed, external investors can buy up shares and indirectly influence the management of Toyota Motor. In fact, Elliott’s move to increase its stake in Toyota Industries from 3.3% to 7.1%, thereby pressuring for a higher acquisition price, clearly illustrates this risk.

Toyota's solution was to make Toyota Industries a wholly owned subsidiary and delist it. This is being executed in three stages: establishing a new holding company and special purpose company (SPC) under the unlisted Toyota Realty, acquiring all shares of Toyota Industries, and then delisting it through a squeeze-out of minority shareholders. Toyota Industries also plans to sell off its holdings in other group affiliates to break the cross-shareholding and circular shareholding links.

“Expansion of Activist Role in Japanese Capital Markets Also a Factor”

Tae-yong Choi, a researcher at DS Investment & Securities, analyzed, “This tender offer is not just about delisting, but the starting point for a governance restructuring with long-term consideration for succession by the founding family.” He explained that since the founding family’s stake in Toyota Motor hovers at a maximum of around 12%, acquiring more shares alone is not enough to secure robust control. In fact, Toyota is currently undergoing a generational transition, with Akio Toyoda’s eldest son, Daisuke Toyoda (age 38), serving as Executive Vice President of Woven, and working alongside new CEO Kenta Kon.

Another key point in this transaction is the role of activist fund Elliott. When Toyota Group first announced the tender offer in June last year, the acquisition price was 4.7 trillion yen (16,300 yen per share), representing a 23% premium over market value. However, in November, Elliott argued that this fell short of Japan’s average tender offer premium (around 40%), and demanded 26,000 yen per share, leading to a stalemate.

In January this year, Toyota raised the offer to 5.4 trillion yen (a 41.9% premium), but Elliott rejected it. Ultimately, on March 2, the two sides agreed to 5.9 trillion yen (a 55.4% premium). Amid a surge in activist fund campaigns in Japan from about 60 cases in 2018 to nearly 150 in 2024, this case is expected to be a notable example of minority shareholder rights being reflected in actual M&A pricing.

When Will Hyundai Motor Group Reveal Its “Second Succession Blueprint”?

The reason the Toyota case is drawing attention in Korea is because of its structural similarity to Hyundai Motor Group. Hyundai Motor Group is the only one among Korea’s top 10 conglomerates to maintain a circular shareholding structure—“Hyundai Mobis → Hyundai Motor → Kia → Hyundai Mobis.” In 2018, the group attempted to restructure its governance through a spin-off of Hyundai Mobis and a merger with Hyundai Glovis, but withdrew the plan within two months due to controversy over the merger ratio and investor backlash.

DS Investment & Securities summarized the core objectives of Hyundai Motor Group’s restructuring in three points: dissolving circular shareholding, strengthening Chairman Chung’s control, and establishing a governance structure centered on Hyundai Mobis. The similarity to Toyota’s restructuring lies in the fact that it, too, was designed to strengthen, not weaken, the founding family’s control. The report estimated that, as of the end of last year, Chairman Chung would need approximately 5.8 trillion KRW to complete the dissolution of circular shareholding and succession. Of this, about 3 trillion KRW would go toward acquiring Hyundai Mobis shares held by Kia and Hyundai Steel, with the remainder covering succession-related costs for stakes held by Honorary Chairman Chung Mong-Koo in group affiliates.

The key issue is Chairman Chung's ability to raise funds. Unlike 2018, the core affiliates’ corporate values have risen significantly. Hyundai Motor’s market capitalization has surpassed 100 trillion KRW, and the values of Hyundai Mobis, Hyundai AutoEver, and other core affiliates have also increased. This rise in corporate value translates directly into increased value of major shareholders’ assets and provides more leverage for equity transactions.

Another new variable is the potential IPO of Boston Dynamics (BD), an unlisted US robotics company. Chairman Chung is a major shareholder of BD, and if the IPO succeeds, it is expected he could secure an additional 3 to 4 trillion KRW by selling existing shares. His stake in Hyundai Glovis (about 23%) is also considered a key source of funding.

The Impact of Capital Deployment on Governance Structure Transformation

However, there is a crucial difference between Toyota and Hyundai Motor Group. Toyota must spend more than 5.9 trillion yen just to reorganize its internal equity structure. In contrast, analysts note that Hyundai Motor Group can resolve its circular shareholding with relatively less capital, using methods such as equity swaps or the spin-off of Mobis.

Researcher Choi explained, “While Toyota has to use massive capital for internal restructuring, Hyundai Motor Group can focus that capital on building its future value chain. This is a key argument for why it can accelerate its transition from a traditional automaker to a ‘physical artificial intelligence (AI)’ platform provider.”

Meanwhile, the proportion of listed companies maintaining circular shareholding in Japan exceeded 30% in the 1990s, but has now fallen below 10%. In Korea as well, most major conglomerates—including SK, LG, and Samsung—have dismantled their circular shareholding structures, with the Fair Trade Commission recommending such moves and the Commercial Act being amended to strengthen directors’ fiduciary duties. As Toyota unveils its 5.5 trillion KRW “grand plan,” market attention is now focused on what Hyundai Motor Group’s “second blueprint” will look like.

This content was produced with the assistance of AI translation services.