Toyota Motor Corp (ADR) (TM) Gets Shareholders Nod For Model AA shares

Fearing that its shares could be diluted in the market, Toyota Motor Corp (ADR) (NYSE:TM) has announced an ambitious buyback plan for its stock. The Japanese giant automaker plans to buy back stock worth $4.9 billion as it looks to shield long term investors from stock dilution effects.

What are Model AA Shares?

Model AA Class shares will have voting rights like owners of common stock but investors must hold on to the shares for five years. After that, investors have the option to sell them back to Toyota at the original purchase price, convert them into common stock or continue holding the special stock.  The shares are almost like a convertible bond with voting rights and will pay out 0.5% dividend the first year, and yield will increase 0.5 percentage points every year until the fifth year, where they will be fixed at 2.5 percent.

Foreign Investors Uproar

The automaker has already received approval to issue Model AA shares. The shares are expected to bolster the car maker’s domestic stakeholders. However, the decision has not gone well with foreign investors as the shares will not be listed and will only be available in Japan but still have voting rights.

The issuance of the Class shares should offer shareholders more options affirms Toyota Motor Corp (ADR) (NYSE:TM) President Akio Toyoda. The executive also believes that it is a step in the right direction in making capital markets in Japan more active while widening the range of offerings.

Toyota on its defense affirms that the offer specifically targets shareholders that are ready to support its costly investments especially in the development of cars that could take years to pay off. About 75% of shareholders backed the proposal.

Foreign investors find themselves on a tight spot. Toyota Motor Corp (ADR) (NYSE:TM)’s biggest shareholders are insiders, making it extremely hard to carry out any form of shareholder activism. Since inception in 1937 no single management proposal has been turned down.

Toyota Cars Recall Menace

Separately Toyota Motor Corp (ADR) (NYSE:TM) is recalling an additional 1.4 million cars trucks and SUVs that were reportedly fitted with faulty air bags that could explode when too much force is applied. Honda has also confirmed that it will recall another 1.39 million cars that were fitted with the Takata air bags.

The recall brings to 2.9 million the number of cars that Toyota Motor Corp (ADR) (NYSE:TM) has recalled since the National Highway Transportation Safety Authority raised concerns over the malfunction. The massive recall that cuts across 11 automakers covers both driver and passenger air bags.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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