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Toyota is moving to take full ownership of tiny-car maker Daihatsu in a $3 billion deal. Here's why this makes good business sense for the Japanese giant.
Toyota (NYSE:TM) said on Friday that it will buy out Japanese small-vehicle maker Daihatsu Motor (NASDAQOTHHTMY) in a friendly, all-stock deal worth about $3 billion.
Toyota has effectively controlled Daihatsu since 1999, when it took a 51.2% stake. But now it's moving to take full ownership. What does this mean?
A strategic global move by Toyota's CEO
It means that Toyota thinks that small, affordable cars are becoming more important around the world.
That may sound odd to Americans. After all, we just heard Fiat Chrysler (NYSE:FCAU) say last week that it will phase out production of its compact and midsize sedans so that it can use the production capacity to make more SUVs and pickups.
But this isn't about the United States, where a major market shift toward trucks and SUVs means that FCA's move makes some sense. It's about emerging markets.
In places like India and many of the countries in Southeast Asia, advancing economic development is allowing lots of people to buy their first-ever cars. Small, affordable -- but good -- cars are already big sellers in these regions. If Toyota can win over more of those customers now, it'll be in a good position to retain them as their incomes grow and needs shift over time.
Daihatsu specializes in tiny cars -- and tiny trucks, too
Daihatsu is the perfect partner for Toyota. It specializes in small, well-packaged vehicles with tiny 660 cubic-centimeter engines that get tax breaks in many countries. Its products include small commercial trucks as well as passenger cars.
Daihatsu and Toyota have jointly developed products for years. But Toyota said in a statement that taking full ownership would allow it and Daihatsu to pursue a fully unified small-car strategy -- one that will turn the Daihatsu brand into a global one under the Toyota umbrella.
"We see this as the perfect opportunity to cement our relationship with Toyota," Daihatsu President Masanori Mitsui said in a statement. "And by doing so, to embark on a new period of growth, and to elevate the Daihatsu brand to a global standard."
The takeaway for Toyota investors
This is Toyota moving to shore up and deepen an important alliance that will help it build its business in emerging markets. It's a long-term play, to win the long-term loyalty of customers who are just now stepping up to buy their first-ever cars.
A strengthened lineup of mini-vehicles could help Toyota make inroads into the dominance of Suzuki, which controls roughly half of the new-vehicle market in India, and into FCA's large presence in Latin America. It could also help Toyota fend off the increasing threat of inexpensive small vehicles produced by up-and-coming Chinese automakers.
Long story short, it's likely to be seen in time as an astute long-range move by CEO Akio Toyoda.
Toyota and Daihatsu to Strengthen Small Car Operations through Unified Global Strategy
Toyota Motor Corporation (Toyota) and its subsidiary Daihatsu Motor Co., Ltd. (Daihatsu) have reached an agreement whereby Daihatsu will become a wholly-owned subsidiary of Toyota by way of a share exchange (expected to be completed in August 2016).
The purpose of the agreement is to develop of ever-better cars by adopting a unified strategy for the small car segment, under which both companies will be free to focus on their core competencies. Ultimately, this will help Daihatsu and Toyota to attain their joint goal of achieving sustainable growth.
Additionally, the aim of the share exchange is to enhance the value of both brands. Although Toyota and Daihatsu will engage in friendly competition and maintain separate management styles that capitalize on their respective capabilities, bringing the two together under a shared strategy will enable them to jointly overcome otherwise prohibitive obstacles in the future, including resource-intensive undertakings such as the development of next-generation technologies and entry into business areas with growth potential.
Explaining the decision, Toyota President Akio Toyoda said, "This is an opportunity for us both to stop feeling that we need to go it alone, and trust each other to take full advantage of our respective strengths. In other words, we can now focus on our core competencies. That, I believe, is the key to achieving and sustaining global competitiveness."
Daihatsu President Masanori Mitsui commented, "I believe we have now found a course of action that will enable us to continue our growth for the next 100 years. We see this as the perfect opportunity to cement our relationship with Toyota, and, by doing so, to embark on a new period of growth, and to elevate the Daihatsu brand to a global standard."
The key details of the agreement are as follows:
Objective
Under a joint strategy, Toyota and Daihatsu intend to combine their bases of operations in addition to sharing their respective areas of proficiency and technical expertise. This will leverage the advantages of both brands, allowing the development of attractive products that are competitive on a global basis.
Areas of strategic collaboration
a) Small cars
The differentiation between Toyota's and Daihatsu's brands will continue, and the product lineups of both will be optimized in accordance with customer preferences, with Daihatsu taking the lead in developing products offered within the small car lineups of both brands. At the same time, Daihatsu will continue to focus on developing vehicles aimed specifically at customers in the areas in which the brand already has a strong presence, while also honing its expertise and processes related to product planning and technological development for minivehicles.
b) Technology
Both companies will share development and deployment strategies for new technologies from the initial conceptual stages. Toyota's focus will remain on technologies related to the environment, safety, user experience, and comfort, while Daihatsu will continue to leverage its aptitude for turning technologies into packages for vehicles, as well as developing cost- and fuel-efficient technologies. Daihatsu will also contribute to the development of next-generation technologies from the perspective of cost-efficiency and miniaturization. The company's specialized car manufacturing expertise will be shared within the Toyota Group, which will contribute to further enhancing the cost competitiveness of larger vehicles.
c) Operations
Both companies will utilize each other's bases of operations in emerging markets. Daihatsu will take the lead in enhancing efficiency and adaptability in development, procurement, and production processes.
Within Japan, Toyota's sales expertise and infrastructure will be utilized by both companies to improve Daihatsu's branding and profitability.
Outline of the share exchange
1. Timeline of the Share Exchange
Resolution of the board of directors regarding the execution of the Share Exchange Agreement (Both companies) January 29, 2016
Execution of the Share Exchange Agreement (Both companies) January 29, 2016
Record date for the annual general meeting of shareholders to approve the Share Exchange (Daihatsu) March 31, 2016
Annual general meeting of shareholders to approve the execution of the Share Exchange Agreement (Daihatsu) End of June
Last day of trading (Daihatsu) July 26, 2016 (planned)
Delisting (Daihatsu) July 27, 2016 (planned)
Scheduled date of consummation of the Share Exchange (effective date) August 1, 2016
Notes:
- Toyota will consummate the Share Exchange by means of a "simple share exchange" under Article 796, Paragraph 2 of the Companies Act, which does not require approval by shareholders at a shareholders' meeting.
- The expected date of consummation of the Share Exchange (effective date) is subject to change by mutual agreement between Toyota and Daihatsu.
2. Details of Allotment in the Share Exchange
Toyota
(100% Parent Company) Daihatsu
(Wholly-owned subsidiary)
Allotment ratio for the Share Exchange 1 0.26
Number of shares to be delivered in the Share Exchange Common Stock54,035,654 shares (expected)
Note: 0.26 shares of common stock of Toyota will be allotted and delivered for each share of common stock of Daihatsu.
I'm not sure if this is still the case, (as I have not had a chance to sample one of their products for some time), but, for years, Daihatsu was known as the small-car expert in Japan. Seem a like a steal, though, at only $3 billion.
a) Small cars
The differentiation between Toyota's and Daihatsu's brands will continue, and the product lineups of both will be optimized in accordance with customer preferences, with Daihatsu taking the lead in developing products offered within the small car lineups of both brands. At the same time, Daihatsu will continue to focus on developing vehicles aimed specifically at customers in the areas in which the brand already has a strong presence, while also honing its expertise and processes related to product planning and technological development for minivehicles.
How small is small? Will the Yaris and Aygo (city car built by the Toyota Peugeot Citroën Automobile Czech (TPCA) joint venture) be Toyota or Daihatsu products?
b) Technology
Both companies will share development and deployment strategies for new technologies from the initial conceptual stages. Toyota's focus will remain on technologies related to the environment, safety, user experience, and comfort, while Daihatsu will continue to leverage its aptitude for turning technologies into packages for vehicles, as well as developing cost- and fuel-efficient technologies. Daihatsu will also contribute to the development of next-generation technologies from the perspective of cost-efficiency and miniaturization. The company's specialized car manufacturing expertise will be shared within the Toyota Group, which will contribute to further enhancing the cost competitiveness of larger vehicles.
Will there be a new platform (a TNGA-mini) developed specifically for small cars?
Originally Posted by Hoovey2411
Scion will likely benefit from this
Scion could continue as a North America-only brand, but sell badge-engineered Daihatsu products.
1. Toyota has been majority owner of Daihatsu since 1988 and has been working with them closely since 1960's.
2. Due to tax changes, Kei market in Japan is collapsing.
3. Due to economic crisis in South Asia, Daihatsu sales are lower there.
4. Daihatsu knows how to build a low cost attractive car. Look at various Perdua's and then look at Etios.
5. Daihatsu has been working on simplifying car building for 10 years - one of the statements was "Today cars do not have to last 15 years". (15 years is what is Toyota doing and thus cant build competitive low cost car).
6. Toyota Etios has not done well in South America and India.
7. Daihatsu has been barred from China since it is affiliated with Toyota (like Subaru)
8. Despite being majority owners, Toyota could not tell Daihatsu what to do or collaborate on things like Chinese market.
So Toyota is:
1. Saving Daihatsu long term
2. Enabling Toyota synergy by Daihatsu developing low cost models for Toyota in China, India and South America.
I thought they had already bought Daihatsu, but anyway, the Toyota Camry is also sold in Japan as the Daihatsu Altis.
And the Camry and the Altis for that matter are sold in Asia as executive sedans since the Avalon is not available over there (Except for Saudi Arabia, Kuwait and the U.A.E I think) so as a result the Camry in these parts of Asia (and Russia) is surprisingly luxurious with front memory seats, dual zone air conditioning, keyless go and other luxury items that you'd have to upgrade to a Lexus ES 350 to get in the USA.
Before you all cry the ""Oh Asia always get the nice stuff, I wish our Camry was this luxurious".
The Asians have to make to do with a Camry that's more expensive than the American Camry WITH no choice of V6 engine, only the 2.5 4-cyl or the Hybrid (A lesser powered 2.0 16v is available as well) and in some countries the car is not available with electronic stability control and no side and curtain airbags, only two airbags and ABS brakes (Unacceptable in this day and age isn't it?).
P.S: The Russian Camry made in Saint Petersburg.
The Russian Camry is equipped with either a 2.0 16v engine or a 2.5 16v engine, all versions get seven airbags, ABS and stability control. The more expensive versions have the same luxury features of the Asian Camry and choice of 3.5 V6 engines.
01-31-16, 10:31 PM
Toyota Buys Daihatsu
HTMY) in a friendly, all-stock deal worth about $3 billion. 
. Bye bye Scion. Correction, Toyota will benefit from this 