GAC Group plans to acquire 50% equity in FAW Toyota; FAW exits! North and South Toyota merged

GAC Group released a major asset restructuring plan late on September 28 to acquire the 50% stake in FAW Toyota Motor held by FAW through a share issue, while also raising matching funds by issuing shares to no more than 35 qualified specific investors at an issue price of 5.75 yuan (about $0.86) per share, with trading in its shares resuming on September 29.

Under the plan, after the deal closes GAC Group will hold 50% of FAW Toyota, which becomes a major jointly controlled entity of GAC, while Toyota Motor keeps its other 50% and FAW ceases to hold any stake in the venture, though FAW Toyota's financials will not be consolidated into GAC Group's statements. FAW will also become GAC Group's second-largest shareholder with strategic influence.

The transaction is expected to constitute a major asset restructuring and a related-party deal, but not a backdoor listing, and it will not change GAC Group's actual controller, which remains the Guangzhou state-owned assets authority. The audit and valuation of the target assets are not yet complete, and the final price has not been set.

On its first day back, GAC's A-shares hit the daily limit up with more than 650 million yuan in buy orders, a market vote of confidence in what Chinese media are calling the merger of north and south Toyota, since FAW Toyota is the northern venture and GAC Toyota the southern one.

From FAW's exit to GAC's takeover, the change of hands in FAW Toyota's 50% stake is more than a reshuffle of equity, since it opens the door to pooling resources across Toyota's two Chinese joint ventures, and for the joint-venture landscape in the world's largest auto market, this may only be the beginning.