Meeting the challenges of a changing world
Hosking Partners is a London boutique founded in 2013 by Jeremy Hosking, a portfolio manager at Marathon Asset Management for over 25 years. It runs a single global equity strategy built on the capital-cycle, supply-side approach — contrarian, long-term, and unusually diversified (350+ holdings) under a multi-counsellor model, managing around $5.5bn.
In plain words
This report highlights investment opportunities in Japan's stock market, but warns about a common trap: controlling shareholders may use low stock prices to buy out minority investors at unfair prices. The example is Toyota Motor and its affiliates trying to take over Toyota Industries Corp (TICO) at a price that severely undervalues TICO's assets, including its stake in Toyota Motor itself. The process lacks transparency and manipulates voting rules to make it easier for the deal to go through. For regular investors, this means being cautious when investing in Japanese companies with dominant shareholders, especially those with cross-shareholdings or family control.
Hosking Partners points out that the Japanese stock market presents investment opportunities due to low valuations and corporate governance reforms: as of June 30, 2025, its global equity fund had a 14.7% allocation to Japan, with nearly half of the approximately 3,600 companies on the Tokyo Stock E
Theme and Background
This chapter discusses investment opportunities in the Japanese stock market and the progress of governance reforms, while pointing out that during the value unlocking process, controlling management or families may exploit undervaluation for self-interest, harming minority shareholders. The report uses the privatization offer launched by Toyota Motor and its affiliates (including Chairman Akio Toyoda) for Toyota Industries Corp (TICO) as an example, revealing it as a typical case of governance failure.
Core Viewpoint
The author clearly judges: The Japanese stock market offers long-term investment opportunities due to undervaluation (nearly half of TSE-listed companies have a P/B below 1.0x) and corporate governance reforms, but the TICO privatization offer significantly undervalues the assets and is a typical case of controlling management harming minority shareholders. If successful, the transaction would become Japan's second-largest acquisition, but its design is inherently biased toward insiders and lacks transparency, potentially setting a bad precedent for future acquisitions.
Key Arguments and Data
- Valuation and reform backdrop: As of June 30, 2025, Hoskins Global Equity Fund's Japan allocation stood at 14.7%; among approximately 3,600 TSE-listed companies, nearly half have a P/B below 1.0x. Japanese companies' ROE is below the global average, but they are under pressure from policies, exchanges, and activist investors to improve capital efficiency.
- TICO privatization offer price: Y16,300 per share, corresponding to a P/B of 1.0x, an 11% discount to the previous closing price. The report argues that this price significantly undervalues TICO's assets:
- TICO holds Toyota Motor equity valued at Y3.2 trillion;
- TICO is the world's largest producer of forklifts and automotive compressors, with annual operating profit exceeding Y200 billion;
- No disclosure of the valuation methodology for existing businesses or financial forecasts, and it appears to exclude the market value of its vast real estate, strategic holdings, and supplier finance business.
- Governance deficiencies:
- TICO's board did not provide an independent fairness opinion (not mandatory in Japan, but strongly recommended by the TSE's Corporate Governance Code);
- The timing of the offer (June 2025) coincided with the TSE's plan to strengthen disclosure rules for management buyouts in July 2025, which require disclosure of valuation methods for non-operating assets (e.g., real estate, cross-shareholdings) and financial forecast assumptions, yet the offer did not provide such information;
- The special committee gave an unusual 'neutral' recommendation rather than 'for' or 'against'; the report speculates this is because the committee has conflicts of interest with the acquirer but is unwilling to risk violating its fiduciary duty to minority shareholders.
- Manipulation of minority shareholder protection mechanisms: Toyota Motor claims that it only needs to obtain support from 42% of minority shareholders to complete the acquisition, on the grounds that it treats Toyota Group affiliates such as Denso, Aisin, and Toyota Tsusho as 'independent minority shareholders.' This in effect distorts the 'majority of minority protection' rule (which requires majority approval from truly independent minority shareholders), resulting in an extremely low threshold for genuine external shareholders.
Companies/Assets Involved
| Company/Entity | Role | Key Data | Bullish/Bearish |
|---|---|---|---|
| Toyota Industries (TICO) | Target company | Offer price Y16,300/share, P/B 1.0x, 11% discount; holds Y3.2 trillion in Toyota Motor equity; operating profit >Y200 billion; world's largest forklift/compressor maker | Bullish on TICO's true value, considers offer price too low |
| Toyota Motor | Acquirer | Launched offer, manipulated definition of 'majority of minority' | Bearish on its actions: harming minority shareholders |
| Akio Toyoda | Chairman of Toyota Motor | One of the related parties | — |
| Toyota Fudosan | Acquisition vehicle | Partially held by TICO itself, serious conflicts of interest | Bearish on governance structure |
| Denso, Aisin, Toyota Tsusho | Toyota Group affiliates | Treated by acquirer as 'independent minority shareholders,' diluting true minority voting power | Bearish on its role due to conflicts of interest |
Investment Implications
Investors should be wary that in the process of Japan's governance reforms, major shareholders/controlling management may exploit rule loopholes (such as lack of independent fairness opinions, manipulation of the definition of 'majority of minority') for self-dealing transactions. The TICO case exposes weak links in the current implementation of reforms: even as the TSE and regulators improve, large acquisitions may still bypass transparent disclosure. Long-term investors should strengthen oversight of voting rights and active engagement in companies with cross-shareholdings or family control; for such offers, they should reject discounts and push for independent valuations and fair pricing. This case may become a critical touchstone for Japan's governance reforms. If allowed to pass under current conditions, it will erode market confidence in governance reforms.