Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. are taking significant steps to unwind their extensive network of cross-held shares. According to sources familiar with the matter, the two Japanese megabanks will divest approximately ¥1.32 trillion (equivalent to $8.5 billion) worth of strategic shareholdings in Toyota Motor Corp. This move signals a growing commitment among Japan’s major corporations to reevaluate their shareholding structures.
Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. will start divesting ¥1.32 trillion ($8.5 billion) worth of strategic shareholdings in Toyota Motor Corp., people with knowledge of the matter said, the strongest sign yet that Japan’s big businesses are getting serious about unwinding their vast network of cross-held shares
The banks will sell in stages and take advantage of Toyota’s plan to buy back its own shares, said the people, who asked not to be identified because the information isn’t public. The world’s No. 1 carmaker announced a ¥1 trillion buyback program on May 8, representing about 3% of its stock and significantly larger than its previous repurchases.
The unwinding is being crafted to minimize the impact on the company’s share price, the people said. Although the government has been pushing corporate Japan to unwind cross shareholdings, forged over decades to cement business relationships, the biggest banks and businesses had been slow to do so. Given its scale and significance, the Toyota deal could trigger a broader wave of looser equity ties in Japan.
Key Points:
- Strategic Divestment:
- Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. plan to sell their Toyota shareholdings in stages.
- They will leverage Toyota’s own buyback program to minimize the impact on the company’s stock price.
- The divestment process is expected to unfold over several years.
- Toyota’s Buyback Program:
- Toyota Motor Corp., the world’s No. 1 carmaker, recently announced a massive ¥1 trillion buyback program. This represents approximately 3% of its stock and is significantly larger than previous repurchases.
- The buyback program aims to enhance shareholder value and streamline the company’s capital structure.
- Broader Implications:
- While the Japanese government has been encouraging corporate Japan to unwind cross shareholdings, progress has been slow.
- The Mitsubishi and Sumitomo Mitsui stake sales could set a precedent, potentially triggering a wave of similar actions across other companies.
- Stake Details:
- Mitsubishi UFJ Financial Group Inc. holds a stake worth roughly ¥700 billion, while Sumitomo Mitsui’s stake is approximately ¥620 billion.
- Both banks will significantly reduce their stakes or divest entirely.
- Market Context:
- Toyota’s share price has seen a robust run-up, rising about 26% this year, in addition to a 43% rally in 2023.
- Some insurers have already indicated their intention to reduce cross-corporate shareholdings to zero.
- Other Players:
- Mizuho Financial Group Inc., the third member of Japan’s trio of megabanks, does not hold a significant stake in Toyota.
- Non-life insurance companies such as MS&AD Insurance Group Holdings Inc., Tokio Marine Holdings Inc., and Sompo Holdings Inc. also hold stakes in Toyota.
- Toyota’s Internal Unwinding:
- Toyota is also unwinding cross-shareholdings within its network of manufacturing partners. For instance, it plans to lower its stake in electric parts maker Denso Corp.
Here are some frequently asked questions related to the recent news about Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. divesting their shareholdings in Toyota Motor Corp:
- Why are Mitsubishi and Sumitomo Mitsui divesting their Toyota shares?
- Both banks are unwinding their extensive network of cross-held shares. This move reflects a broader trend in Japan’s corporate landscape, where companies are reevaluating their shareholding structures.
- The divestment process will occur in stages over several years.
- What is Toyota’s buyback program?
- Toyota Motor Corp. recently announced a massive ¥1 trillion buyback program. This represents approximately 3% of its stock and aims to enhance shareholder value.
- The company will use its own buyback program to minimize the impact on its stock price during the divestment process.
- What implications does this have for other companies?
- The Mitsubishi and Sumitomo Mitsui stake sales could set a precedent, potentially encouraging other companies to reevaluate their cross-shareholdings.
- Some insurers have already indicated their intention to reduce cross-corporate shareholdings to zero.
- How has Toyota’s share price performed recently?
- Toyota’s share price has seen a robust run-up, rising about 26% this year, in addition to a 43% rally in 2023.
- Are other banks involved in Toyota’s shareholding?
- Mizuho Financial Group Inc., the third member of Japan’s trio of megabanks, does not hold a significant stake in Toyota.
- Non-life insurance companies such as MS&AD Insurance Group Holdings Inc., Tokio Marine Holdings Inc., and Sompo Holdings Inc. also hold stakes in Toyota.
- Is Toyota also unwinding cross-shareholdings within its network of manufacturing partners?
- Yes, Toyota plans to lower its stake in electric parts maker Denso Corp as part of its internal unwinding process.