• Bloomberg


Toyota Motor Corp. has won approval to sell a new class of stock to long-term shareholders, a proposal that divided proxy advisers and drew criticism from foreign investors.

The proposal passed on Tuesday with about 75 percent of shareholders voting in favor, Kayo Doi, a company spokeswoman, said after the carmaker’s annual meeting at its headquarters in Toyota, Aichi Prefecture, the same day. Model AA shares, named after Toyota’s first car, will be restricted from trading for five years. In exchange, the company pays a fixed dividend and will offer to buy back at the issue price.

Toyota has said its motivation for creating the stock is to attract shareholders who will support the costly investments it makes to develop cars that take years to pay off. The proposal drew criticism from proxy adviser Institutional Shareholder Services Inc. and investors including the California State Teachers’ Retirement System for being sold only in Japan and lacking any benefit for common stockholders.

The plan required approval from more than two-thirds of shareholders to pass. It’s unusual for Toyota’s company resolutions to receive less than 90 percent support, Doi said. She said the official vote tally would be announced on Wednesday.

Japan’s largest company can now move forward with its plan to issue the first series of as many as 50 million Model AA shares, which will come with voting rights. Toyota has said it may sell up to 100 million more in subsequent offerings, limiting AA shares to less than 5 percent of total issued stock.

Toyota fell 0.17 percent to ¥8,395 in Tuesday’s trading on the Tokyo Stock Exchange, while Japan’s benchmark Topix index declined 0.6 percent. The carmaker’s shares have gained 11 percent this year.

The unlisted Model AA shares will be sold for at least a 20 percent premium over common equity. Owners will be paid an annual dividend that starts at 0.5 percent and increases by 0.5 percentage point each year to a maximum of 2.5 percent. After five years, they can keep the shares, convert them into common equity, or sell them back to Toyota.

Toyota’s proposal followed a study backed by Japan’s government last year that recommended creating an environment for growing longer-term household assets through investment in “sustainably growing companies.” The study also stressed the importance of attracting long-term oriented investors who “understand the company well and support it.”

Calstrs, the Canada Pension Plan Investment Board and the Florida State Board of Administration said they were voting against the proposal, as was recommended by ISS.

“Your standard shareholder doesn’t want to give up liquidity for five years,” said Nicholas Benes, representative director at the Board Director Training Institute of Japan. “Toyota has encountered enough resistance here that you’d have to think twice about trying to do something like this again.”

The stock may shield Toyota from Japan’s corporate governance code, which puts pressure on companies that own other firms’ stock in arrangements known as cross-shareholdings, said Hiroki Sampei, director of research at Fidelity Worldwide Investment in Tokyo. The company said its cross-shareholding arrangements will be unaffected by Japan’s corporate governance code, which took effect June 1.