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Toyota Motor Corp. has confirmed it is exploring a possible investment in what could become a $42 billion buyout of Toyota Industries Corp., one of its main suppliers.

The automaker shared the news in a filing with the Tokyo Stock Exchange on Saturday, saying it is "considering various possibilities, including partial investment."

The possible buyout was first reported by Bloomberg News, which said Toyota Chairman Akio Toyoda and his founding family may be behind the proposal.

The report said the plan could involve creating a special-purpose company to take Toyota Industries private in a deal worth up to 6 trillion yen ($42 billion).

Toyota Industries, however, responded by stating it has received ideas about going private, but denied getting any direct offer from either Toyoda or the Toyota Group. Both companies also made it clear that nothing has been finalized.

Two people familiar with the situation said Toyota Industries may seek financial help from Toyota, its group firms, and major banks in Japan to fund the buyout.

They added that the proposal did not come from Akio Toyoda or the Toyota Group. If the buyout succeeds, it could allow Toyota Industries to stop focusing so heavily on short-term shareholder returns and instead plan for long-term growth.

Toyota Industries Faces Pressure to Simplify Financial Ties

Toyota Industries has come under pressure to simplify its financial structure. As of September, Toyota owned 24% of Toyota Industries, which also held nearly 9.1% of Toyota and 5.4% of parts maker Denso, Reuters said. Some of these cross-holdings have already been sold, including shares in supplier Aisin.

The buyout could improve governance within the Toyota Group by reducing these cross-shareholdings, a practice common in Japan but increasingly criticized by investors and regulators. "It's unclear whether this will become a trigger for further unwinding... or, to the contrary, a trigger for maintaining them," said Masayuki Murata of Sumitomo Life Insurance.

Despite the uncertainty, investors reacted positively. Toyota Industries' shares jumped by 23%, and Toyota's stock rose over 5%.

Kelvin Leung, a portfolio manager at Robeco Hong Kong, believes the move could benefit both companies. "It's a mutually positive outcome for both Toyota and Toyota Industries," he said.

The proposal comes after Toyota has made efforts to rebuild trust following regulatory issues at some of its subsidiaries. The company has also increased its stock buybacks and sold off some of its cross-held shares.

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Toyota, Buyout