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Toyota to Buy Back Stock Worth $3.5 Billion

March 28, 2014

Toyota Motor Corp. recently agreed to pay $1.2 billion as criminal charge settlement related to the massive unintended acceleration recall a few years back. The amount is such a hefty penalty that it serves as a warning to General Motors Co., which is facing its own recall controversy at present. While the record fine is a big deal to most, it seems like loose change to the world’s largest automaker. The Japanese company is currently cash-rich, and will be buying back shares for the first time in half a decade.

CNNMoney reported that Toyota’s balance sheet reveals that the carmaker has cash and cash equivalents worth about 6 trillion yen or almost $60 billion. This makes the company richer than other auto manufacturers such as Volkswagen, General Motors and Ford.

According to a statement, Toyota will repurchase 60 million shares (equivalent to 1.89 percent) worth up to 360 billion yen or $3.5 billion. The company is expecting a 1.9 trillion yen profit for the financial year ending March 31st, and will be returning cash to shareholders. Its cash reserves peaked at 1.8 trillion yen at the end of December.

Half of those shares are going to be cancelled.

“We want to reward our shareholders through this buyback and cancellation,” Toyota spokesman Ryo Sakai confirmed.

Reuters reported that the other half of the shares, the remaining 30 million, will be sold to Japan Trustee Services Bank for a discounted price of 1 yen per stock. The dividends will be used to fund the Toyota Mobility Foundation, which was recently established by Toyota President Akio Toyoda.

The Toyota Mobility Foundation will support global efforts to improve transportation as well as environmental protection. The money from the stock will be used to fund the foundation’s future activities. According to the company, it plans to give the foundation 3 to 4.5 billion yen per year.

The stock buyback plan is pending approval from shareholders at the annual general meeting to be held in June. The shares will be repurchased after the meeting and no later than March 26, 2015.

Analysts disagree with Toyota’s move, saying that the company should have spent the cash on sales and production expansion. However, the Japanese automaker will not be building new facilities soon, at least not until 2015. Rather, it will work on improving efficiency at the production plants it currently has. Toyota has been hesitant to build new facilities after it suffered huge losses from its expansion before the 2008 financial crisis.

The buyback is the first for Toyota in five years and its largest in 11 years. The company’s biggest buyback was in 2003, when it repurchased about 390 billion yen in stocks.

Toyota’s cash reserves have helped the company through the recall crisis, as well as slow sales and production due to the 2011 earthquake and tsunami. The recall’s repair costs as well as lost sales amounted to $2 billion, and this amount does not even include payouts from the related legal settlements.

This year, the Toyota group is hoping to sell 10.32 million vehicles, 4 percent more than its 2013 sales.

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