Forget Loeb. Toyota Courts Japan’s Mom-and-Pop Investors

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Toyota Motor Corp. Mirai Fuel-cell Powered Vehicle
Toyota began working on fuel-cell cars in 1992 and only introduced its first model featuring the technology, the Mirai sedan, in December. Photographer: Akio Kon/Bloomberg

Billionaire investors like Dan Loeb may be heroes on Wall Street, but Toyota Motor Corp. would prefer more people like Hisashi Nakanishi.

The 77-year-old Japanese retiree plans to invest in an unusual new stock from the carmaker that hedge funds are unlikely to touch. The Model AA shares, named after Toyota’s first car, lock up investors’ money for five years in exchange for interest payments no higher than 2.5 percent.

Nakanishi is a sign of support for Toyota President Akio Toyoda’s effort to attract investors who will stick around for the long-term. The automaker has said institutional investors are unlikely to buy the shares because they can’t be traded for half a decade. Rather, it is seeking buy-and-hold individuals who like the Model AA’s protection against any loss of principal and the opportunity to benefit if Toyota’s common shares rise.

“For a retiree like me, the most important factor in making investments is stability,” said Nakanishi, who spent his career at Kintetsu Corp., a Japanese railroad company. “We don’t want to take risks.”

Toyota will announce earnings at 3 p.m. Friday in Tokyo. The company may post a record 2.18 trillion yen ($18 billion) in net income for the year ended March, according to the average of 27 analyst estimates compiled by Bloomberg. The company’s shares rose 0.5 percent to 8,252 yen as of 9:40 a.m., extending their gain this year to 9.2 percent.

Fuel Cells

The carmaker’s effort to create a new kind of security comes amid clashes between activist investors and corporations. Loeb successfully pressed Japanese robot maker Fanuc Corp. to return more cash to shareholders this year, while Harry J. Wilson won payouts from General Motors Co.

Toyota said April 28 it will offer as much as 500 billion yen of the Model AA shares and use the proceeds for research and development, including work on the fuel cells that will power its next-generation cars.

The company’s goal with the shares is to better match up the amount of time investors hold stock with the time it takes to create new technologies. Toyota began working on fuel-cell cars in 1992 and only introduced its first model featuring the technology, the Mirai sedan, in December.

Buyers of Model AA shares will have the option of either selling them back to Toyota at the issue price, or converting them into common stock, after five years. They’ll collect an annual dividend that starts at 0.5 percent and increases by 0.5 percent each year to a maximum of 2.5 percent.

GM, Fanuc

“As long as you’re a listed company, you can’t select your shareholders,” Takashi Hiroki, chief strategist at Monex Securities in Tokyo, said by phone. “But Toyota’s new class of shares is a new approach to choose their investors. Toyota is expressing who they want to be purchased by.”

The push for patience differs from moves made by Fanuc and GM this year.

Fanuc, a leading maker of industrial robots, said last month it would double its dividend payout ratio to 60 percent this fiscal year, after Loeb called on the company to return more cash to shareholders. Loeb’s hedge fund Third Point LLC said in February it had acquired a stake in the company and urged it to buy back stock.

GM said in March it would buy back $5 billion in shares by the end of 2016. The U.S. automaker will also adopt a strategy of returning any cash in excess of $20 billion on its balance sheet to shareholders, after activist investor Wilson, who was working with four hedge funds, had requested a board seat.

Toyota’s Cash

By comparison, Toyota had 4.54 trillion yen ($38 billion) in cash and short-term investments on its balance sheet at the end of last year.

Toyota’s dividend compares favorably with the best interest rate Japan’s banks offer on fixed deposits, which is about 0.35 percent.

“This looks attractive to me,” said Shinko Tsukiyama, a 40-year-old housewife in Nagoya, Japan. “We have been searching for other kinds of financial products than stock but haven’t found any that can give us a high enough return.”

Toyoda, 58, addressed about 4,000 individual investors at an event in March in Nagoya about his management philosophy. Sales volume, revenue, operating profit and return on equity are not a focus, he said -- they’re a byproduct of emphasizing the development of better cars and Toyota’s workforce.

The grandson of Toyota’s founder has for years said he wants to find investors with a similar mindset.

“We want investors to look at us with a warm attitude, compared with the current attitude of, ‘How much profit will Toyota make this year, or next year?’” he told reporters in 2012. “We really want them to change.”

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