Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Event-Driven

The premise of the <a href="../flow-front-anatomy-of-a-multi-billion-dollar-pre-deal-flowback" target="_blank">original FLOWFRONT&nbsp;piece</a>&nbsp;is/was that the merger between Tokyo Electron (8035 JP, hereafter "TEL") and Applied Materials (AMAT US, hereafter "AMAT") creates a massive supply of TEL shares (which can be deemed to be AMAT shares by proxy because of a fixed merger ratio). &nbsp;This fork provides additional information and commentary regarding the&nbsp;original information presented, namely:<ol><li>Why, if NewCo stays in the US indices, does it come out of the Japan Indices?&nbsp;</li><li>How do we know that AMAT will fall if TEL does?</li><li>How do&nbsp;we know the right timing?</li><li>How do we know the&nbsp;numbers are right on index holdings?</li><li>If you start now, is there a hedge?</li><li>One last tidbit to consider</li></ol>&nbsp;The Conclusion, after delving into the details, continues to be... there will likely be a massive selloff of TEL shares once the conditions precedent to the Business Combination Agreement are satisfied (waiting for regulatory approvals). &nbsp;The numbers are big. Really big. And this piece has a pretty graph but you have to go to the end to see it.

The premise of the original FLOWFRONT&nbsp;piece&nbsp;is/was that the merger between Tokyo Electron (8035 JP, hereafter "TEL") and Applied Materials (AMAT US, hereafter "AMAT") creates a massive supply of TEL shares (which can be deemed to be AMAT shares by proxy because of a fixed merger ratio). &nbsp;This fork provides additional information and commentary regarding the&nbsp;original information presented, namely:Why, if NewCo stays in the US indices, does it come out of the Japan Indices?&nbsp;How do we know that AMAT will fall if TEL does?How do&nbsp;we know the right timing?How do we know the&nbsp;numbers are right on index holdings?If you start now, is there a hedge?One last tidbit to consider&nbsp;The Conclusion, after delving into the details, continues to be... there will likely be a massive selloff of TEL shares once the conditions precedent to the Business Combination Agreement are satisfied (waiting for regulatory approvals). &nbsp;The numbers are big. Really big. And this piece has a pretty graph but you have to go to the end to see it.

FLOW FRONT?  Anatomy of a multi-billion dollar flowback - Part Deux

The merger between Tokyo Electron (8035 JP) and Applied Materials (AMAT US) (hereafter "TEL" and "AMAT"),&nbsp;<a href="http://www.tel.com/news/document/20130926-e.pdf" target="_blank">announced</a>&nbsp;in September 2013 and currently scheduled to complete in late March 2015, has been one of the large Asia-related scrip deals out there in the past few&nbsp;years. The all-scrip Business Combination creates what is now a $45 billion company. The shares in both companies&nbsp;have risen 50+%&nbsp;since the announcement, partly based on improving fundamentals,&nbsp;and partly based on expected synergies ($500mm p.a. 3 years out) and promised post-deal capital management ($3bn repurchase program in the first 12 months).&nbsp;Shareholders and some&nbsp;regulators have agreed on the deal. We await final regulatory approvals (principally MOFCOM) to satisfy conditions precedent&nbsp;(reports in December in the press suggested remediation was being negotiated).&nbsp;This deal event offers potentially dramatic trading opportunities based on the flows particular to the structure of the deal, and the mandates of the existing holders. While the deal has been much discussed, one aspect has not seen that much press - the aspect of <a href="http://www.investopedia.com/terms/f/flowback.asp" target="_blank">Flowback</a>.&nbsp;In this case, it is not so much Flowback as "FlowFront"; the numbers are significant, and the supply is concentrated in a very short timeframe before the merger event, with some interesting technical aspects to consider.As of Friday's close, AMAT is&nbsp;trading 8+% rich to TEL. There is a wall of supply in TEL to come. If you are confident the deal gets done,&nbsp;AMAT looks like a good&nbsp;tactical short based on the sheer size of the supply. &nbsp;IF the remaining approvals are announced and the deal spread tightens on the news, TEL is likely the right short. Either&nbsp;would be a short-term trade. The best way to cover the short is into the massive TEL selling to come prior to TEL being delisted 4 business days before the merger is Effective.As a side note,&nbsp;if there is $8bn of TEL to sell in Japan-related index-trackers (both hard passive and closet trackers) and domestic-only stock portfolios, there is nearly&nbsp;$8bn of reallocation demand into the other index and portfolio components around the same time.&nbsp;This Insight&nbsp;is related to TEL (8035 JP), its unsponsored ADR (TOELY US), and AMAT (AMAT US).

The merger between Tokyo Electron (8035 JP) and Applied Materials (AMAT US) (hereafter "TEL" and "AMAT"),&nbsp;announced&nbsp;in September 2013 and currently scheduled to complete in late March 2015, has been one of the large Asia-related scrip deals out there in the past few&nbsp;years. The all-scrip Business Combination creates what is now a $45 billion company. The shares in both companies&nbsp;have risen 50+%&nbsp;since the announcement, partly based on improving fundamentals,&nbsp;and partly based on expected synergies ($500mm p.a. 3 years out) and promised post-deal capital management ($3bn repurchase program in the first 12 months).&nbsp;Shareholders and some&nbsp;regulators have agreed on the deal. We await final regulatory approvals (principally MOFCOM) to satisfy conditions precedent&nbsp;(reports in December in the press suggested remediation was being negotiated).&nbsp;This deal event offers potentially dramatic trading opportunities based on the flows particular to the structure of the deal, and the mandates of the existing holders. While the deal has been much discussed, one aspect has not seen that much press - the aspect of Flowback.&nbsp;In this case, it is not so much Flowback as "FlowFront"; the numbers are significant, and the supply is concentrated in a very short timeframe before the merger event, with some interesting technical aspects to consider.As of Friday's close, AMAT is&nbsp;trading 8+% rich to TEL. There is a wall of supply in TEL to come. If you are confident the deal gets done,&nbsp;AMAT looks like a good&nbsp;tactical short based on the sheer size of the supply. &nbsp;IF the remaining approvals are announced and the deal spread tightens on the news, TEL is likely the right short. Either&nbsp;would be a short-term trade. The best way to cover the short is into the massive TEL selling to come prior to TEL being delisted 4 business days before the merger is Effective.As a side note,&nbsp;if there is $8bn of TEL to sell in Japan-related index-trackers (both hard passive and closet trackers) and domestic-only stock portfolios, there is nearly&nbsp;$8bn of reallocation demand into the other index and portfolio components around the same time.&nbsp;This Insight&nbsp;is related to TEL (8035 JP), its unsponsored ADR (TOELY US), and AMAT (AMAT US).

FLOW FRONT? :  Anatomy of a multi-billion dollar pre-deal flowback

Japan

Tokyo Electron Limited manufactures and sells industrial electronics products, such as semiconductor manufacturing machines, computer system, and electronic components.  The Company products are sold in US, Taiwan, and others as well as in Japan.

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Tokyo Electron Ltd Unsp Adr (TOELY US)

FLOW FRONT? Anatomy of a multi-billion dollar flowback - Part Deux

The premise of the original FLOWFRONT piece is/was that the merger between Tokyo Electron (8035 JP, hereafter "TEL") and Applied Materials (AMAT...

Travis Lundy

FLOW FRONT? : Anatomy of a multi-billion dollar pre-deal flowback

The merger between Tokyo Electron (8035 JP) and Applied Materials (AMAT US) (hereafter "TEL" and "AMAT"), announced in September 2013 and currently...

Travis Lundy

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