According to the Smart Finance App, Toyota Motor (TM.US), the Japanese automotive giant, has recently stepped up and intensified its share buyback activities, which may further exacerbate the negative impact of the automaker's cooperation with the Japanese government in lifting the ban on cross-shareholdings: that is, the company's reserve of "outstanding shares" is growing, which is increasingly causing dissatisfaction among some major shareholders and institutional investors.

According to the latest statistics compiled by institutions, as of the end of June, this Japanese automaker had as much as 15% of its own shares. Earlier this week, Toyota Motor announced a public tender offer to buy back some shares held by major Japanese banks and insurance companies worth as much as JPY807 billion (approximately USD5.2 billion).

Japan's government measures to improve corporate governance rules are pushing for more unwinding of cross-shareholdings between companies. Some businesses opt to buy back their own shares from strategic partners. Share buybacks also help to increase the value of existing shareholders when stocks are completely cancelled and withdrawn from circulation. However, some activist investors criticize Japanese companies for not taking steps to cancel stockpiled stocks and holding too many shares in reserve.

Japan's government is pushing for corporate governance reform and requiring companies to unwind cross-shareholdings. Cross-shareholdings refer to companies holding each other's shares, often as part of stronger business relations or strategic cooperation. Toyota's stock buyback this time comes from several major Japanese banks and insurance companies. By repurchasing these shares, Toyota Motor can greatly reduce the proportion of cross-shareholdings, simplify its equity structure, and enhance transparency and governance efficiency, which is in line with Japan's government policies to promote corporate governance reform.

The definition of inventory shares here refers to the fact that a shareholding company has the right to repurchase some of the shares issued by itself or donated by shareholders on the market with its own capital or statutory surplus funds. This also refers to those shares that have been repurchased by the company but have not yet been cancelled.

As for where these shares went, they generally do not circulate in the market, nor do they have voting rights or dividend rights. After the company repurchases its own shares, these shares can be retained on the company's books for future use, such as for employee stock incentive plans or future M&A transactions, or they can be cancelled to reduce the total number of outstanding shares, thereby enhancing EPS and shareholder value.

Naoki Fujiwara, Senior Fund Manager of Shinkin Asset Management Co., Japan said: "They should cancel these shares." He added that Toyota may keep these shares for potential acquisition matters. "But the market would be more appreciative if they were cancelled."

Toyota may use these inventory shares for future M&A transactions, which allows the company to act quickly when needed without issuing new shares or buying shares from the market. Inventory shares can also be used for employee stock incentive plans to help the company attract and retain talent.

It is understood that Toyota still has about 3.5 billion shares of inventory on its books, a relatively high proportion, higher than Honda Motor (HMC.US.) and other major competitors in the auto industry.

Some investors and analysts believe that Toyota should cancel some of its inventory shares to improve capital efficiency and enhance shareholder value. For a long time, Hong Kong-based hedge fund Oasis Management Co. has called on elevator manufacturer Fujitec Co. to cancel all of its inventory shares held.

On Tuesday local time, Toyota announced plans to buy back its shares at a tender offer price of JPY2,781 per share, buying back its shares from Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, Tokio Marine Holdings, and MS&AD Insurance Group Holdings. This is part of the automotive giant's previously announced JPY1 trillion cross-shareholding buyback plan in May.

According to Kenki Kiyohara, a financial lawyer at CMA Partners in Tokyo, the share buyback process can be more orderly and limit any potential stock price fluctuations by adopting a bid-based tender offer based on detailed discussion with major stakeholders. Kiyohara said, 'This is more efficient than conducting cross-shareholder stock buybacks alone and can also protect shareholder returns.'

Although share buybacks through bid-based tender offers may be effective, they can also be criticized, as they are often purchased at a discount, which may make many retail investors reluctant to support share buybacks.

Ryugen Nishi, chief Japan stock strategist at JPMorgan Securities Japan Co., said that Tokyo Stock Exchange's efforts to improve capital efficiency are indeed urgently related to companies accumulating large amounts of stocks and canceling inventory stocks. 'The need to remove stockpiled stock size is increasing,' the strategist said in an interview.