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Toyota’s $3.1 billion offer to acquire Daihatsu Motor Co. has been highly criticized by shareholders and proxy firms for being on the cheap, emphasizing corporate governance challenges years into Japan Inc.’s effort to become more accessible to investors.

Arga Investment Management LP, which is a fund that holds a 1.4 percent stake in Daihatsu, demands a 73 percent hike in the share increase ratio that the auto manufacturers disclosed in January. Meanwhile, Institutional Shareholders Inc. also disagreed with the terms as they appear inconvenient for minority shareholders.

On Wednesday, a vote by Daihatsu shareholders puts Toyota back under the spotlight a year after objection by ISS and some investors against the establishment of a class of shares that couldn’t be traded for a span of five years. As Prime Minister Shinzo Abe’s administration directs Japanese companies to include independent board members and increase shareholder returns, Toyota is aiming to take over a 51 percent owned affiliate that does not have an independent director.

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“It’s bad for Toyota’s image,” a chief investment officer of Arga said in an interview. “You’ve got the administration trying to make a big case for corporate governance. Here’s the largest corporation in Japan flouting every corporate governance rule you can think of.”

 

Toyota’s Share Ratio

According to Toyota, it assumes to grant 0.26 share for each share of Daihatsu, in an exchange of stock slated for August 1. The leading Japanese automaker determined the ratio based on existing share prices and the value forecasts of both companies, said a company representative. Toyota and Daihatsu delegated third-party valuation firms to guarantee fairness and followed proper procedures.

In Japan, Toyota and Daihatsu stocks fell nearly 3.6 percent on Tuesday. Meanwhile, the benchmark Topix index slipped 1 percent.

Toyota President, Akio Toyoda, believes in the potential of a global small-car brand that can someday be valued comparably to the BMW AG’s Mini. In January, he said he wanted to apply the purchase as a way to speed up the company’s decision making. On the other hand, Daihatsu President Masanori Mitsui, said that the company could no longer afford to build eco-friendly powertrains and advanced safety offerings by itself.

A letter to Mitsui last January indicates that a fair ratio for shareholders would be 0.45 shares, noting the car manufacturer’s strong positions in Indonesia and Japan’s market for small cars.

Within the five year time span ahead of Toyota’s announcement, Daihatsu traded at a 0.34 share ratio on average.

 

Toyota Says Brexit May Result to 10% Duties on Cars

Toyota cautioned that Britain’s exit from the European Union may lead to duties of as much as 10 percent on its UK-manufactured cars.

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In its letter to UK employees on Monday, Toyota said Brexit would push Toyota to reduce costs or increase the value of its cars and endanger sales. The Japanese auto giant provided a copy of the letter, which stated that the company exports nearly 90 percent of the units its manufactures in the UK, and three-quarters of the cars are sold on the European Union.

“Continued British membership of the EU is best for our operations and our long term competitiveness,” Toyota explained in the letter, signed by two executives at its U.K. manufacturing unit and a trade union representative. “We will face significant business challenges as a result of a decision to withdraw from the EU.”

With its $59 billion investment in the UK, Japan Inc. has been vocal in its campaign for Britain to remain within the 28-nation bloc ahead of Thursday’s referendum. 

Toyota claims it is committed to its facilities and employees in the UK, where it built over 190,000 Avensis and Auris cars in 2015.

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