Al Root

The stock market is full of odd situations that offer potential ways to make money. Take the one developing between the activist investor Elliott Management, Toyota Motor, and another Japanese company bearing the Toyota name.

On Wednesday, Elliott said a stake it had in Toyota Industries, a maker of forklifts, had gone beyond 5%, triggering a requirement that it disclose the holding. Toyota Motor said in June that it is seeking to buy Toyota Industries; Elliott believes the price it is offering is too low.

Toyota Motor and Toyota Industries are already linked. The car company owns about 25% of Toyota Industries stock; Toyota Industries has about 8% of Toyota Motor.

While cross-shareholdings in Japan are common, developed with the belief that they promote stability and cooperation, they can make it harder for independent shareholders to press management for change. Regulators in Japan have encouraged companies to unwind cross-ownership in recent years.

Figuring out who owns what can feel like working through advanced math. Company A owns company B, and company B owns company A. What cancels out what?

To keep the Toyota Industries case relatively simple, the forklift manufacturer's shareholdings of three companies -- Toyota Motor, Toyota Tsusho, and Denso -- are worth about $30 billion. The stake in Toyota Motor accounts for the majority of that, with shares worth about $24 billion.

Buying Toyota Industries would allow Toyota Motor to unwind that cross-holding. That simplification would be a theoretical win for corporate governance, but Elliott believes the price doesn't do right by the independent shareholders.

Toyota Industries' value, excluding its stake in the three companies, is about $19 billion. Investors can think of that as the value of Toyota Industries' profitable core business, which is expected to generate 2026 earnings before interest, taxes, depreciation, and amortization of $2.8 billion.

That means the core business is trading for less than seven times Ebitda.

Industrial companies in the Russell 3000 trade for about 22 times the Ebitda generated over the past 12 months, according to Bloomberg. That is only a general indication of valuations.

Germany's KION and America's Hyster-Yale give a better view of what comparable companies are selling for. Both make material-handling equipment. Those two have traded for closer to eight times Ebitda over the past few years.

Paying that multiple for Toyota Industries' business, and adjusting for all of its debt and cash, implies 15% or 20% upside for shareholders of Toyota Industries.

Toyota Industries' stock recently traded for Yen17,770 ($114.63), about 9% higher than the Yen16,300 price offered by Toyota Motor.

That is the opportunity for an investor willing to tag along with Elliott and play a special situation in a foreign land. The process should be wrapped up in early 2026.

In a few months, investors should know if Elliott was successful in getting more money, or if they won't be getting the difference between where shares trade now and the tender price.

Coming into Thursday trading, Toyota' Motors' U.S.-listed American depositary receipts were up about 3% this year and up about 2% for the week.

Write to Al Root at allen.root@dowjones.com

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December 11, 2025 10:19 ET (15:19 GMT)

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