Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE ...Embracing Sanyo Special Steel Co Ltd (5481 JP)'s complicated arbitrage; CFIUS dings Broadcom Limited (AVGO US) but questions remain as to how serious were their intentions; even more downside in Celltrion Inc (068270 KS) following the completion of the KOSPI 200 inclusion and ION's placement; iKang Healthcare Group (ADR) (KANG US) finally receives an official offer; nicely played as Wynn Resorts Ltd (WYNN US) settles long-standing litigations; an MSCI re-balance in Japan is likely offset by an ex-dividend big buy; and why large CCASS moves matter.EVENTSSanyo Special Steel Co Ltd (5481 JP) (Mkt Cap: $868mn; Liquidity: $4.5mn)Nippon Steel &amp; Sumitomo Metal Corp (5401 JP) announced late Thursday a desire to make its specialty steel business global by integrating more fully the business of Sanyo Special Steel Co Ltd (5481 JP) with its own internal businesses.  The proposed ownership level is "envisaged to be greater than 51%", up from 14.5% currently. Separately NSSMC said it would be acquiring Swedish engineering specialty steel maker Ovako (for "several tens of billions of yen" according to the Nikkei) by Sep 2018. SSS closed at ¥2744 on Friday, up 14.67%.Travis Lundy, in his detailed insight, believes it will come down to a Tender Offer above ¥3000, with a higher price - say 6.5x EBITDA - a reasonable expectation given the expected multiple for Ovako and the multiple paid for Nisshin in 2017.With bearing steel produced by the electric arc furnace method for both Ovako and Sanyo Steel, Mio Kato believes the sharing of know-how between the companies could provide strong synergies.  NSSMC's financial heft should also help realise more of both companies' potential.This is not a big deal - to get to 51% from 14.5% means a purchase of 12.2mm shares, which at ¥3,000/share would be ¥36.6bn.It will also take time. It is 5+ months until an announcement and ~10+ months until the tender commencement. However, the minimum pro-ration is high. The arithmetic minimum is 45%. The practical minimum is 65%.How To trade this?  A partial tender is a partial put option, and managing path dependency to the end is key. Embrace the complication for the arbitrage (read Travis' piece).links to:  Travis' insight: Nippon Steel Aiming at Partial Tender of Sanyo Special Steel? Mio's insight: Nippon Steel to Raise Stake in Sanyo Specialty to 51+% - Japan Steel Consolidation Kicking Off?Celltrion Inc (068270 KS)(Mkt Cap: $38bn; Liquidity: $702mn)Celltrion Holdings (96.99% held by Seo JungJin) announced a ₩200bn CB, divided into ₩94bn to be converted into common shares at ₩22,750,569; and ₩106bn to be converted into RCPSs with voting rights, at the same price of ₩22,750,569. That backs out a value of ₩6.825tn for Celltrion Holdings compared to its ₩8tn stake in Celltrion Inc. Furthermore, Celltrion Healthcare (091990 KS) shares have been pledged to these CBs. Clearly, the holder of the CBs is after Healthcare stock.Ultimately Seo needs to bump his holding in Celltrion Inc from the current (indirect) 20.09% stake. Of note, Celltrion's share price will be used in the re-fixing calculation for the conversion price. Basically, the lower Celltrion's share price becomes, the more Celltrion Holdings shares the investor takes. What to make of all this? Celltrion has been heavily shorted after the KOSPI 200 inclusion, yet according to Sanghyun Park’s stock borrow analysis, there’s more to come.(link to Sanghyun's insight: Celltrion Holdings' ₩200bil CB with Celltrion Healthcare as Pledged Article - Questions to Ask)Softbank Group (9984 JP)  (Mkt Cap: $89.6bn; Liquidity: $443mn)Softbank Group (9984 JP) announced it holds 5% of Charter Communication (CHTR US). Pelham Smithers views a bid for Charter is the obvious consequence of the failure to merge Sprint (S US) with T Mobile US (TMUS US).There are bundling synergies and benefits to be had here for Sprint’s mobile customers and Charter’s broadband patrons. It’s a smart way to eliminate landlines, for those who haven’t already, and opt for VoIP.The pushback is on pricing. Charter’s market cap is US$95bn and a US$173bn enterprise value, with EBIT and EBITDA of US$5bn and EBITDA is US$16bn. Liberty Media (LMCA US) is unlikely to sell its stake for less than a 50% premium - neither would chief executive Thomas Rutledge on account of his compensation package - or a very rich EV/EBITDA of 13.8x.(link to Pelham's insight: SoftBank (9984 JP) - Still Going After Charter (CHTR US)?)SK Discovery Co Ltd (006120 KS) (Mkt Cap: $436mn; Liquidity: $11.4mn)Sanghyun revisits the swap price determination period for SK Discovery, which will occur during Mar 19-21. The swap price for SK Chemicals Co Ltd/New (285130 KS) was finalized previously at ₩110,701 with a target offering of 3.5mn shares.Upcoming event schedule3-day swap price determination period for SK DiscoveryMar 19 - 21Tendering periodMar 26 - Apr 16Settlement (payment)Apr 18AllocationApr 27ListingApr 30 Source: KINDChey Chang-won, the major shareholder of both entities, ideally wants a stronger price for SK Chemicals and a weaker price for SK Discovery during the Mar 19-21 price determination period. And Discovery keeps heading south. Using SK Chemicals' finalized swap price of ₩110,701, and SK Discovery's current price ₩43,150 (as of Friday) gives a swap ratio of 2.56x, or a 12.8% increase from one month ago (2.27x on Feb 12).Buying Chemicals and shorting Discovery has worked out well. Is there more to go? Borrowed shares for SK Discovery exceeded 27% of outstanding issued shares earlier this week, up from 3.59% on Feb 22. Sanghyun estimates only a small portion of those borrowed shares have been used to short Discovery, indicating a pick-up in shorts before Discovery’s price determination.(link to Sanghyun's insight: SK Discovery &amp; SK Chemicals Tender Offer - Arb Yield Calculations &amp; Situation Update) BGF Co Ltd (027410 KS)(Mkt Cap: $429mn; Liquidity: $7.1mn)At the close of the swap results, 4,417,687 BGF Retail shares were tendered, resulting in 63,105,460 BGF shares offered, below the initial target of 74,080,686 shares, or a less than impressive tendering rate of 85.18%.Hong Seok-jo, BGF Retail’s largest shareholder, tendered 3,456,582 BGF Retail shares, or 78.24% of all shares tendered shares, but only 62.90% of his total 5.49mn BGF Retail shareholding. Hong Seok-jo now holds 62.53% in BGF, a 30.73% ppt increase from before the tender; and 11.8% in BGF Retail. BGF is the new major shareholder of BGF Retail with 25.56% stake.BGF’s shares popped after the completion of the swap, however for Hong Seok-jo to minimize the inheritance tax for his two sons, a low BGF price is optimal.Interestingly, BGF stock borrow balance continues to grow. Although BGF will be subject to a KOSPI (&amp; KOSPI 200) re-balance to reflect the share swap, Sanghyun believes the downward price pressure will outweigh re-balance buying by the local pension funds. (link to Sanghyun's insight: BGF Stock Swap Results &amp; Post Swap Market Movement Analysis)Lotte Himart Co Ltd (071840 KS)(Mkt Cap: $1.6bn; Liquidity: $4mn)Lotte announced a  ₩303.6bn exchangeable bond (EB) Issuance with Lotte Himart. Lotte Shopping Co (023530 KS) owns a 65.25% stake (15,403,274 shares) in Lotte Himart. These EBs account for 14.98% of the total shares and 22.96% of the shares owned by Lotte Shopping. The maximum number of Himart shares that can be borrowed is 7.49% of the total number of issued shares and 11.48% of the shares owned by Lotte Shopping, according to Sanghyun.The EB mirrors that of Lotte’s EB in Jan 2013. Back then, Himart reacted with a 4.78% immediate decline, but pretty much traded sideways despite strong short selling. Similarly, in Kakao’s EB issuance with Loen in 2016, Loen dropped 6.8% immediately but also moved sideways thereafter.Himart declined 4.32% on Thursday and 0.42% on Friday. Not too dissimilar to the 2013 EB. There may be further downside as borrow is taken down; however, precedents do not indicate a material downside from here.(link to Sanghyun's insight: Lotte Shopping ₩303.6bil EB Issuance with Lotte Himart Stock Lending Condition)Very, very briefly ...Television Broadcasts Ltd (511 HK)’s results are due out (aftermarket) on Wednesday. There is speculation of a special dividend following the collapse of its buyback. At the very least, the historical final dividend ($2/share) should be restored.M&amp;ABroadcom Limited (AVGO US) (Mkt Cap: $105bn; Liquidity: $917mn)On the recommendation of The Committee on Foreign Investment in the United States ("CFIUS"), President Trump blocked the  Broadcom Corp Cl A (BRCM US) / Qualcomm Inc (QCOM US) deal. “The proposed takeover of Qualcomm by the Purchaser is prohibited, and any substantially equivalent merger, acquisition, or takeover, whether affected directly or indirectly, is also prohibited”.ANTYA Investments Inc. is not surprised with the outcome, having cited in Broadcom Limited - Staring at Defeat that culturally the two companies were unlikely to be compatible given different histories and approach to business development, product design and delivery and access to intellectual property. Broadcom's violation of CFIUS’ Interim Order also placed a question mark over the seriousness of its offer.Arun George discussed a WSJ report that Intel Corp (INTC US) was weighing up a possible bid for Broadcom. He views the offer as unlikely on account of limited cost synergies, pricing (Broadcom currently trades at an FY18 EV/Sales multiple of 5.5x vs. 4x for Intel), and regulatory uncertainty.In addition, Paul Jacobs, the former executive chairman (whose title was stripped a week ago) and son of the founder of Qualcomm, has started looking around for investors to support an MBO/LBO.links to: Antya's insight: Broadcom Limited – Undone by Its Conduct  Arun's insight: Intel: Broadcom Rumoured Bid Is More Bark than BiteiKang Healthcare Group (ADR) (KANG US) (Mkt Cap: $1.3bn; Liquidity: $4.5mn)After a bidding war stretching back to August 2015, Yunfeng Capital (Jack Ma's PE firm) and Alibaba Group Holding Ltd (BABA US) have tabled a proposal to acquire iKang’s Class A shares, Class C shares, and ADSs in an all-cash transaction for US$20/ADS (or US$40/share). The announcement indicates a possible option for investors to roll over their stakes in iKang.The offer implies an 18x FY18 EBITDA multiple according to Pranav Rao, which is on the low side versus a key precedent, but that might be appropriate on account of the corporate governance issues highlighted by Kemp Dolliver, CFA in his numerous insights.This transaction is by no means done, but a confirmed proposal is positive. It is now in co-founder Zhang’s court as to the next move.(link to Pranav’s insight: iKang: The Limbo Ends)ING Life Insurance Korea Ltd. (079440 KS)  (Mkt Cap: $3.5bn; Liquidity: $8.2mn)Local media are reporting that ING Life Insurance Korea Ltd. (079440 KS) is up for sale and that Kb Financial Group Inc (105560 KS) and Shinhan Financial Group Ltd (055550 KS) are both conducting their final due diligence.Douglas Kim believes the acquisition of ING Life Insurance Korea would provide an accelerated expansion of the non-banking insurance business for both KB or Shinhan and enable greater economies of scale. ING Life, which is 59.7% owned by MBK partners, posted stellar results in 2017, with operating profit up 39.9% to ₩3tn. With a market cap of ₩4.1tn, a final price tag may be north of ₩5.1bn inclusive of a 25% control premium. Other insurance companies potentially for sale include KDB Life Insurance Korea, Hyundai Life Insurance, and MG General Insurance. This is partly driven by pressure to abide by the IFRS17 additional capital requirements, which go into effect on January 1st, 2021.  (link to Douglas’ insight: Korea M&amp;A Spotlight: ING Life Insurance Korea (KB or Shinhan?)INDEX REBALANCINGOn the 9th of March, MSCI announced that i) stakes of above 2% held by insurance companies in securities included in the MSCI Japan Equity Universe will be treated as non-free float. The threshold was previously set at 5%; and ii) stakes held by Sovereign Wealth Funds in securities classified in a domicile country of such fund will continue to be treated as non-free float. For shareholdings in securities classified in a non-domicile country, stakes of SWFs of above 7% will be treated as non-free float.The MSCI will implement the changes in the MSCI Global Investable Market Indexes in its May 2018 Semi-Annual Index Review or at end-May. Travis estimates the implementation will involve a large sell of ¥300-400bn, slightly smaller than the ¥500bn quoted in the media. For some of the sells, it could be 2-3 days of volume. That might be worth pre-preparing or running a basket.However, there is a net BUY of Japanese stocks of even larger size to be executed on the last Tuesday of this month,  to account for a very large chunk of Japan which goes ex-dividend. All told, Travis expects a US$8-10bn buy for pure passive funds on the close of March 27th.(link to Travis' insight: MSCI Rule Changes - ¥500bn Net Sell of Japan in May. Or Not..)STUBSHyosung Corporation (004800 KS) (Mkt Cap: $4.2bn; Liquidity: $23.8mn)Reportedly the Korea Exchange has approved Hyosung Group's plans for the split-off of Hyosung Corporation (004800 KS). This spin-off involves splitting Hyosung Corp into Holdco (Hyosung Corp) and four other operating companies. Douglas discussed the split in his earlier insight: Hyosung's Transformation into a Holdco + Four Subsidiaries (Part 1). The split-off of Hyosung Corporation is expected to be completed by June 1st and the shareholders' meeting to vote on this matter will be held on April 27th. The newly formed companies will start trading on July 13th.On the positive front, Chairman Cho Hyun-Joon has been buying up Hyosung Corporation (004800 KS) shares. On the negative side, Cho was indicted in January on charges of embezzlement and breach of trust.There is value to be unlocked in Hyosung through the split-off process, however, the company's corporate governance and potential accounting irregularities have push down the share price.(link to Douglas’ insight: Hyosung's Transformation into Holdco + Four Subsidiaries (Part 2): A Lot of Controversy)  Wynn Resorts Ltd (WYNN US) / Wynn Macau Ltd (1128 HK)The WYNN and Universal Entertainment Corp (6425 JP) announced/settlement obviates the expected April start to a trial which has been in the pipeline since 2012 when WYNN forced the redemption of Aruze's 24.5mm shares in WYNN at a 30% discount. The timing of the Universal/Aruze settlement is clear management simply wanted to put this (litigation) behind them -  it looks like Aruze settled for 60-70cts on the dollar.Kazuo Okada was ousted from WYNN's board in 2012 over a breach of fiduciary duty.  Okada was similarly ousted from Universal's board in June last year, shortly followed by his removal as a director of Okada Holdings Limited (a Hong Kong-based company), the largest shareholder (67.9%) in Universal.Okada holds 46.4% in Okada Holdings, and has submitted a filing to Hong Kong's High Court which could decide next month whether to re-instate Okada's control over Okada Holdings and in turn, potentially Universal. Okada has denied any wrongdoing leveled at him by WYNN and Universal. The dropping of all charges by WYNN earlier this week will lend support to his case. What to do? The momentum and newsflow is with the parent. Howard J Klein views the "shares slowly becoming more bullish and evident in direct relationship of the steady fading of bearish news about the mounting headwinds associated with Mr. Wynn".  The stock is off ~9% from its recent high in late Jan, a level slightly above the street consensus. (link to my insight: StubWorld - Wynn, Wheelock)  CCASSLarge moves in CCASS holdings (&gt;  10%) are often outside normal market transactions.  These may be indicative of share pledges. Unfortunately, such pledges are not required to be disclosed. So I looked at thousands of such moves over the last couple of years and the results are interesting.Around two-thirds of stocks demonstrating a large CCASS movement (&gt;10% of issued shares) underperformed the HSI on a 3, 6 &amp; 12-month time frame after the share transfer.The number of stocks underperforming marginally declines as the market capitalisation of the company increases. When combining the % CCASS change and market capitalisation, only stocks with a market capitalisation in excess of US$500mn at the time of the shares transferred displayed a reduced tendency to underperform.This analysis is not absolute and each large CCASS movement needs to be assessed on its own merit and in context with the company's history. Large moves can foreshadow a takeover offer, of which a number occur in my analysis. (link my insight: CCASS: Why Large Moves Matter. Read more) 

Last Week in Event SPACE - Sanyo Special, Celltrion, Broadcom, Wynn, MSCI, CCASS

Last week,  <a href="https://www.smartkarma.com/entities/4630" target="_blank" data-smartkarma-citation="entities:4630:1">Chipbond Technology Corp (6147 TT)</a> joins the great semi China cash out; the founding <a href="https://www.smartkarma.com/entities/109" target="_blank" data-smartkarma-citation="entities:109:1">Idemitsu Kosan Co Ltd (5019 JP)</a> family bumps its stake, but a negative minority control position is still a way off; <a href="https://www.smartkarma.com/entities/15002" target="_blank" data-smartkarma-citation="entities:15002:1">Kakao Corp (035720 KS)</a> is a short, but it's just a question of when; <a href="https://www.smartkarma.com/entities/1345" target="_blank" data-smartkarma-citation="entities:1345:1">Aconex Ltd (ACX AU)</a> is a clean arb, and <a href="https://www.smartkarma.com/entities/1065" target="_blank" data-smartkarma-citation="entities:1065:1">Oracle Corp (ORCL US)</a> will likely counter if a competitor comes over the top; and <a href="https://www.smartkarma.com/entities/8495" target="_blank" data-smartkarma-citation="entities:8495:1">Rowsley Ltd (ROWS SP)</a> embarks on a reverse medical makeover.<h2>Events</h2><a href="https://www.smartkarma.com/entities/4630" target="_blank">Chipbond Technology Corp (6147 TT)</a> (Mkt Cap: $1.3bn; Liquidity: $18.5mn)Late last week, <a href="https://www.smartkarma.com/entities/4630" target="_blank">Chipbond Technology Corp (6147 TT)</a> announced it would sell its majority stake in Chipmore Technology shares to <a href="https://www.smartkarma.com/entities/11323" target="_blank">Boe Technology Group Co. Ltd (200725 CH)/北京芯動能投資基金, </a>Hefei Municipal fund, and Beijing ESWIN for US$166mn. This follows several semiconductor OSAT houses like <a href="https://www.smartkarma.com/entities/720" target="_blank">Siliconware Precision Inds (2325 TT)</a> and <a href="https://www.smartkarma.com/entities/1864" target="_blank">Chipmos Technologies Inc (8150 TT)</a> also cashing out in China.<ul><li>Selling China affiliate's shares to partners in China should facilitate orders from investing partners, such as BOE. Alternatively, BOE et al may curtail their own in-house OSAT capacity expansion or transfer their orders from other OSAT vendors to their own invested OSAT companies in China.</li><li><a href="https://www.smartkarma.com/profiles/640" target="_blank" data-smartkarma-citation="accounts:640">Andrew Lu</a> expects more selling as China aims to achieve a 40% self-sufficiency rate in the semiconductor industry by 2020. In addition, the Taiwan government has prohibited China government-backed companies buying Taiwan semiconductor companies directly but is unperturbed when buying centers on Taiwan semis' affiliates in China. Expect more Taiwan semi companies to jump on the China cash out bandwagon.</li></ul>(link to Andrew's insight: <a href="https://www.smartkarma.com/insights/taiwan-semis-cash-out-in-china-in-exchange-for-more-orders-and-upgrades" target="_blank">Taiwan Semis - Cash Out in China in Exchange for More Orders and Upgrades</a>)<a href="https://www.smartkarma.com/entities/109" target="_blank" data-smartkarma-citation="entities:109:1">Idemitsu Kosan Co Ltd (5019 JP)</a>(Mkt Cap: $8.2bn; Liquidity: $44mn)The background of the Idemitsu family saga runs deep and I recommend a refresher course via <a href="https://www.smartkarma.com/profiles/25" target="_blank" data-smartkarma-citation="accounts:25">Travis Lundy</a>'s various insights on the <a href="https://www.smartkarma.com/entities/idemitsu-kosan-co-ltd/insights" target="_blank">company</a>. Plus, revisiting mangalores never gets old. <ul class=""><li>Idimetsu’s management launched a 48mn share global offering back in July, which perhaps not uncoincidentally, reduced the family stake from 33.92% - a stake that blocks corporate action - to 26.1%.</li><li>Earlier this week, the family company Nissho Kosan announced it had started buying Idemitsu shares in the market in early November and as of the close of the 18th Dec had accumulated 3,968,300 shares (1.91%), bringing the total family/foundation stake to 28.00%.</li><li>Will the family keep buying? There is evidence they will. To get to 33.34% the family would need to buy another 11.1mm shares (beyond their holding on December 18th). That would be about 11-12% of the current Real World Float™ of ~101mm shares and would take another 32 trading days at their current pace of 340k shares. </li><li>At this juncture, Travis would start thinking about being long Showa Shell vs Idemitsu again. It may not be quite the right level, but - on a dilution-adjusted basis - the Showa Shell / Idemitsu Ratio is not overly far from its lows in the spring of this year. Things look healthy for the refiners.  In the short-term though, Travis thinks it is worthwhile being long Idemitsu.</li><li>Travis’ biggest caveat is that managed money positioning in crude oil and gasoil futures on NYMEX and ICE is at a decade-plus high, and the 1mo-24mo forward spreads for both WTI and Brent are in contango at levels not seen since Q3 2014.</li></ul>(link to Travis' insight: <a href="https://www.smartkarma.com/insights/idemitsu-family-upping-stake-still-doesn-t-like-a-showa-shell-deal" target="_blank">Idemitsu Family Upping Stake (Still Doesn’t Like a Showa Shell Deal</a>)<a href="https://www.smartkarma.com/entities/15002" target="_blank" data-smartkarma-citation="entities:15002:1">Kakao Corp (035720 KS)</a> (Mkt Cap: $8.1bn; Liquidity: $117mn)Kakao will be the 5th GDR issued by a Korean-bourse listed company to list in Singapore in recent years. <a href="https://www.smartkarma.com/profiles/354" target="_blank" data-smartkarma-citation="accounts:354">Sanghyun Park</a> is asking – when to short the company?<ul class=""><li>The previous 4 GDRs - <a href="https://www.smartkarma.com/entities/20467" target="_blank">Youngone Corp (111770 KS)</a>, <a href="https://www.smartkarma.com/entities/5487" target="_blank">Kolao Holdings (900140 KS)</a> and <a href="https://www.smartkarma.com/entities/3982" target="_blank">Doosan Infracore Co Ltd (042670 KS)</a> in 2013 and <a href="https://www.smartkarma.com/entities/8656" target="_blank">Hanwha Chemical Corp (009830 KS)</a> in 2014 - all sparked a DR→underlying share conversion after their respective DR listing, such that there are virtually no remaining GDRs for either company.  That is, all of the GDRs have been converted into underlying shares listed on the Korean bourse. To arrive at this point, a very high volume of short selling was involved.</li><li>Sanghyun's findings are that a majority of arbitrage hunters shorted all of these 4 GDR issuing companies before the listing. This suggests the arbitragers actively engaged in the DR issuance price determination process in an effort to increase their arbitrage returns, rather than taking a safer/smoother path by shorting the underlying shares.</li><li>Company fundamentals play a critical role in determining the spread between the price on the board resolution day (the GDR issuance announcement day) and the DR issuing price.  Doosan Infracore and Hanwha Chemical, both of which had visibly weaker levels of business fundamentals than the other two, had higher yields. Kakao’s valuations appear even more fragile than those of Doosan and Hanwha. This could imply a very large number of aggressive arbitrage hunters before its GDR listing on the SGX.</li></ul><ul class=""><li>Shorts on Kakao were ~9% earlier this week, which is not unusual. Kakao is down ~20% from the recent 52W high of ₩168,000, but that still backs out a 55-70x PER range. So, Sanghyun's bet is Kakao will eventually deliver a 10-15% actual yield for arbitrage hunters, similar to Doosan and Hanwha.</li></ul>(link to Sanghyun's insight: <a href="https://www.smartkarma.com/insights/kakao-gdr-issuance-study-on-short-selling-based-arb-trade-potential-yield" target="_blank">Kakao GDR Issuance - Study on Short Selling Based Arb Trade Potential Yield</a>)<a href="https://www.smartkarma.com/entities/3022" target="_blank">Coway Co Ltd (021240 KS)</a>(Mkt Cap: $6.9bn; Liquidity: $14.3mn)It was reported in various Korean media this week that Yoon Seok-Keum, the Chairman of the Woongjin Group, is considering the acquisition of <a href="https://www.smartkarma.com/entities/3022" target="_blank">Coway Co Ltd (021240 KS)</a>, a company which he was forced to sell to MBK Partners a few years back due to financial difficulties.  <ul class=""><li><a href="https://www.smartkarma.com/profiles/342" target="_blank" data-smartkarma-citation="accounts:342">Douglas Kim</a> does not believe this is good news for Coway. Yoon is taking on significant leverage to proceed with this acquisition and this may lead to a major change in the company's dividend policies. Coway has spent ₩352bn in dividends this year, or ~5% yield. A change in its payout policies would face opposition from investors. </li></ul>(link to Douglas' insight: <a href="https://www.smartkarma.com/insights/korea-m-a-spotlight-chairman-of-woongjin-group-yoon-seok-keum-is-considering-on-acquiring-coway" target="_blank">Korea M&amp;A Spotlight: Chairman of Woongjin Group Yoon Seok-Keum Is Considering on Acquiring Coway</a>)<hr><h2>M&amp;A</h2><a href="https://www.smartkarma.com/entities/1345" target="_blank">Aconex Ltd (ACX AU)</a>(Mkt Cap: $1.2bn; Liquidity: $7.7mn)The previous Friday, <a href="https://www.smartkarma.com/entities/1065" target="_blank">Oracle Corp (ORCL US)</a> agreed to buy Aconex for A$1.56bn, or A$7.80 per share, a 47% premium to the last close. Aconex is a cloud-based subscription service to a platform helping construction companies manage complex projects. It's a drop in the bucket for Oracle, but it fits in with its stated goal of acquiring more internet-based services. <ul><li>Long-term growth rates at 20% often deserve high multiples and the deal is struck at EV/Sales multiple of 8.1x FY18 estimates. The only companies among Aconex's comps with similar or higher Price/Sales multiples are <a href="https://www.smartkarma.com/entities/22504" target="_blank">Temenos Group AG (TEMN SW)</a> and Oracle itself. </li><li>Conditions (FIRB) appear relatively straightforward. It’s a scheme vote (75%) and 13.53% is in the bag from co-founders Robert Philpott and Leigh Matthew Jasper, as well as shareholders Andrea Jasper and Simon Yencken. </li></ul><ul><li>The trade here, for an arb, would be to be a buyer of Aconex on any dip. Oracle has the money, and the will, and sees no impediment to paying a &gt; 8x sales. Currently trading at A$7.71/share.</li></ul>(link to Travis' insight: <a href="https://www.smartkarma.com/insights/aconex-acx-au-takeover-by-oracle" target="_blank">Aconex (ACX AU) Takeover by Oracle</a>)<a href="https://www.smartkarma.com/entities/8495" target="_blank">Rowsley Ltd (ROWS SP)</a>  (Mkt Cap: $454mn; Liquidity: $8.3mn)Back in July, Rowsley announced it would be buying Sasteria, the company that holds Thomson Medical, currently owned by Peter Lim, Rowsley's largest shareholder. On 18th December, Rowsley entered into an S&amp;P agreement.<ul><li>Rowsley's shares popped 20% to S$0.13/share after the S&amp;P announcement - a brief flurry in July saw shares touch $0.198 - and <a href="https://www.smartkarma.com/profiles/673" target="_blank" data-smartkarma-citation="accounts:673">Zhen Zhou</a> believes it looks pricey.</li><li>A quick calculation shows that Rowsley is trading at an implied EV/EBITDA of 38.5x. That’s an 83% premium to listed peers in South East Asia.</li><li>The details of the S&amp;P play out like a reverse takeover. To fund the purchase, Rowsley will issue 21.3bn new shares at S$0.075/share. After issuance, Mr Lim will hold 90.07% in Rowsley, up from 45.36%. The sale requires a simple majority vote. Lim will abstain.</li></ul>(link to Zhen Zhou's insight: <a href="https://www.smartkarma.com/insights/signs-of-irrational-exuberance-as-rowsley-transforms-into-thomson-medical" target="_blank">Signs of Irrational Exuberance as Rowsley Transforms into Thomson Medical</a>)Very very briefly in M&amp;A land …<a href="https://www.smartkarma.com/entities/7197" target="_blank" data-smartkarma-citation="entities:7197:1">Henry Group Holdings Ltd (859 HK)</a> (Mkt cap: US$306mn; liquidity: US$1.4mn)With Henry <a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2017/1220/LTN20171220077.PDF" target="_blank">suspended</a> pursuant to the Takeovers code, some points of note:<ul><li>It completed a $965mn disposal of property on the <a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2017/1213/LTN20171213766.pdf" target="_blank">13 Dec</a>. The sale was essentially done at book value.</li><li>The remaining assets mainly comprise a mish-mash of various IP in Hong Kong – some of which have not been leased in over a year (see page 3 of its <a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2017/1205/LTN20171205531.pdf" target="_blank">17/18 interim report</a>). It owns one residential property.</li><li>Currently trading at 1.18x P/B.</li><li>According to CCASS, almost the entire stake held by Ian Ng (Chairman) has been brought into CCASS. He holds 76.91% and 74.76% has been placed with Lego Securities in the <a href="https://webb-site.com/ccass/bigchangesissue.asp?i=2564" target="_blank">past month</a>.  You don’t need shares in CCASS to accept a general offer or an off-market transfer. Only if selling in the market or pledging to a bank/broker. Something is up – expect an offer to be made shortly.</li></ul><a href="https://www.smartkarma.com/entities/9573" target="_blank">AWE Ltd (AWE AU)</a>(Mkt cap: US$415mn; liquidity: US$2.5mn)AWE’s board has unanimously <a href="http://www.asx.com.au/asxpdf/20171221/pdf/43qc7f930tnlf3.pdf" target="_blank">recommended</a> <a href="https://www.smartkarma.com/entities/15103" target="_blank" data-smartkarma-citation="entities:15103:1">Mineral Resources Ltd (MIN AU)</a> implied offer of A$0.83/share, comprising A$0.415/share in cash + between 0.0198-0.0277 MinRes shares per AWE share.  This scrip range is to reflect the trading in MinRes shares 10 days prior to the Scheme vote. <ul><li>Shareholders can opt for all cash or all scrip, but actual allocation will be scaled back to ensure a 50% cash and 50% scrip allocation.</li><li>An Explanatory Booklet is expected to be dispatched in mid-Feb 2018 with AWE shareholders expected to vote on the Scheme in mid-April.</li><li>At A$0.86/share, AWE is trading slightly above the low-end of MinRes' scrip range.</li></ul><a href="https://www.smartkarma.com/entities/10672" target="_blank" data-smartkarma-citation="entities:10672:1">Cavium Inc (CAVM US)</a> (Mkt Cap: $5.9bn; Liquidity: $119mn)<a href="https://www.smartkarma.com/companies/93" target="_blank" data-smartkarma-citation="companies:93">CTFN</a> sources indicate Marvell Technology’s acquisition of Cavium is not expected to run into antitrust hurdles, but the US$6bn cash/scrip offer may encounter a lengthy review from US and Chinese trade regulators.<ul><li>The deal is viewed as being highly complementary, with significant synergistic cost savings. But a delay is likely to come from the two trade agencies fighting against each other in the approval process.</li></ul>(link to CTFN's insight: <a href="https://www.smartkarma.com/insights/cavium-marvell-could-see-extended-review-from-us-and-chinese-trade-regulators" target="_blank">Cavium/Marvell Could See Extended Review from US and Chinese Trade Regulators</a>)<hr><a href="https://www.smartkarma.com/entities/3022" target="_blank"></a>

Last week,  Chipbond Technology Corp (6147 TT) joins the great semi China cash out; the founding Idemitsu Kosan Co Ltd (5019 JP) family bumps its stake, but a negative minority control position is still a way off; Kakao Corp (035720 KS) is a short, but it's just a question of when; Aconex Ltd (ACX AU) is a clean arb, and Oracle Corp (ORCL US) will likely counter if a competitor comes over the top; and Rowsley Ltd (ROWS SP) embarks on a reverse medical makeover.EventsChipbond Technology Corp (6147 TT) (Mkt Cap: $1.3bn; Liquidity: $18.5mn)Late last week, Chipbond Technology Corp (6147 TT) announced it would sell its majority stake in Chipmore Technology shares to Boe Technology Group Co. Ltd (200725 CH)/北京芯動能投資基金, Hefei Municipal fund, and Beijing ESWIN for US$166mn. This follows several semiconductor OSAT houses like Siliconware Precision Inds (2325 TT) and Chipmos Technologies Inc (8150 TT) also cashing out in China.Selling China affiliate's shares to partners in China should facilitate orders from investing partners, such as BOE. Alternatively, BOE et al may curtail their own in-house OSAT capacity expansion or transfer their orders from other OSAT vendors to their own invested OSAT companies in China.Andrew Lu expects more selling as China aims to achieve a 40% self-sufficiency rate in the semiconductor industry by 2020. In addition, the Taiwan government has prohibited China government-backed companies buying Taiwan semiconductor companies directly but is unperturbed when buying centers on Taiwan semis' affiliates in China. Expect more Taiwan semi companies to jump on the China cash out bandwagon.(link to Andrew's insight: Taiwan Semis - Cash Out in China in Exchange for More Orders and Upgrades)Idemitsu Kosan Co Ltd (5019 JP)(Mkt Cap: $8.2bn; Liquidity: $44mn)The background of the Idemitsu family saga runs deep and I recommend a refresher course via Travis Lundy's various insights on the company. Plus, revisiting mangalores never gets old. Idimetsu’s management launched a 48mn share global offering back in July, which perhaps not uncoincidentally, reduced the family stake from 33.92% - a stake that blocks corporate action - to 26.1%.Earlier this week, the family company Nissho Kosan announced it had started buying Idemitsu shares in the market in early November and as of the close of the 18th Dec had accumulated 3,968,300 shares (1.91%), bringing the total family/foundation stake to 28.00%.Will the family keep buying? There is evidence they will. To get to 33.34% the family would need to buy another 11.1mm shares (beyond their holding on December 18th). That would be about 11-12% of the current Real World Float™ of ~101mm shares and would take another 32 trading days at their current pace of 340k shares. At this juncture, Travis would start thinking about being long Showa Shell vs Idemitsu again. It may not be quite the right level, but - on a dilution-adjusted basis - the Showa Shell / Idemitsu Ratio is not overly far from its lows in the spring of this year. Things look healthy for the refiners.  In the short-term though, Travis thinks it is worthwhile being long Idemitsu.Travis’ biggest caveat is that managed money positioning in crude oil and gasoil futures on NYMEX and ICE is at a decade-plus high, and the 1mo-24mo forward spreads for both WTI and Brent are in contango at levels not seen since Q3 2014.(link to Travis' insight: Idemitsu Family Upping Stake (Still Doesn’t Like a Showa Shell Deal)Kakao Corp (035720 KS) (Mkt Cap: $8.1bn; Liquidity: $117mn)Kakao will be the 5th GDR issued by a Korean-bourse listed company to list in Singapore in recent years. Sanghyun Park is asking – when to short the company?The previous 4 GDRs - Youngone Corp (111770 KS), Kolao Holdings (900140 KS) and Doosan Infracore Co Ltd (042670 KS) in 2013 and Hanwha Chemical Corp (009830 KS) in 2014 - all sparked a DR→underlying share conversion after their respective DR listing, such that there are virtually no remaining GDRs for either company.  That is, all of the GDRs have been converted into underlying shares listed on the Korean bourse. To arrive at this point, a very high volume of short selling was involved.Sanghyun's findings are that a majority of arbitrage hunters shorted all of these 4 GDR issuing companies before the listing. This suggests the arbitragers actively engaged in the DR issuance price determination process in an effort to increase their arbitrage returns, rather than taking a safer/smoother path by shorting the underlying shares.Company fundamentals play a critical role in determining the spread between the price on the board resolution day (the GDR issuance announcement day) and the DR issuing price.  Doosan Infracore and Hanwha Chemical, both of which had visibly weaker levels of business fundamentals than the other two, had higher yields. Kakao’s valuations appear even more fragile than those of Doosan and Hanwha. This could imply a very large number of aggressive arbitrage hunters before its GDR listing on the SGX.Shorts on Kakao were ~9% earlier this week, which is not unusual. Kakao is down ~20% from the recent 52W high of ₩168,000, but that still backs out a 55-70x PER range. So, Sanghyun's bet is Kakao will eventually deliver a 10-15% actual yield for arbitrage hunters, similar to Doosan and Hanwha.(link to Sanghyun's insight: Kakao GDR Issuance - Study on Short Selling Based Arb Trade Potential Yield)Coway Co Ltd (021240 KS)(Mkt Cap: $6.9bn; Liquidity: $14.3mn)It was reported in various Korean media this week that Yoon Seok-Keum, the Chairman of the Woongjin Group, is considering the acquisition of Coway Co Ltd (021240 KS), a company which he was forced to sell to MBK Partners a few years back due to financial difficulties.  Douglas Kim does not believe this is good news for Coway. Yoon is taking on significant leverage to proceed with this acquisition and this may lead to a major change in the company's dividend policies. Coway has spent ₩352bn in dividends this year, or ~5% yield. A change in its payout policies would face opposition from investors. (link to Douglas' insight: Korea M&amp;A Spotlight: Chairman of Woongjin Group Yoon Seok-Keum Is Considering on Acquiring Coway)M&amp;AAconex Ltd (ACX AU)(Mkt Cap: $1.2bn; Liquidity: $7.7mn)The previous Friday, Oracle Corp (ORCL US) agreed to buy Aconex for A$1.56bn, or A$7.80 per share, a 47% premium to the last close. Aconex is a cloud-based subscription service to a platform helping construction companies manage complex projects. It's a drop in the bucket for Oracle, but it fits in with its stated goal of acquiring more internet-based services. Long-term growth rates at 20% often deserve high multiples and the deal is struck at EV/Sales multiple of 8.1x FY18 estimates. The only companies among Aconex's comps with similar or higher Price/Sales multiples are Temenos Group AG (TEMN SW) and Oracle itself. Conditions (FIRB) appear relatively straightforward. It’s a scheme vote (75%) and 13.53% is in the bag from co-founders Robert Philpott and Leigh Matthew Jasper, as well as shareholders Andrea Jasper and Simon Yencken. The trade here, for an arb, would be to be a buyer of Aconex on any dip. Oracle has the money, and the will, and sees no impediment to paying a &gt; 8x sales. Currently trading at A$7.71/share.(link to Travis' insight: Aconex (ACX AU) Takeover by Oracle)Rowsley Ltd (ROWS SP)  (Mkt Cap: $454mn; Liquidity: $8.3mn)Back in July, Rowsley announced it would be buying Sasteria, the company that holds Thomson Medical, currently owned by Peter Lim, Rowsley's largest shareholder. On 18th December, Rowsley entered into an S&amp;P agreement.Rowsley's shares popped 20% to S$0.13/share after the S&amp;P announcement - a brief flurry in July saw shares touch $0.198 - and Zhen Zhou believes it looks pricey.A quick calculation shows that Rowsley is trading at an implied EV/EBITDA of 38.5x. That’s an 83% premium to listed peers in South East Asia.The details of the S&amp;P play out like a reverse takeover. To fund the purchase, Rowsley will issue 21.3bn new shares at S$0.075/share. After issuance, Mr Lim will hold 90.07% in Rowsley, up from 45.36%. The sale requires a simple majority vote. Lim will abstain.(link to Zhen Zhou's insight: Signs of Irrational Exuberance as Rowsley Transforms into Thomson Medical)Very very briefly in M&amp;A land …Henry Group Holdings Ltd (859 HK) (Mkt cap: US$306mn; liquidity: US$1.4mn)With Henry suspended pursuant to the Takeovers code, some points of note:It completed a $965mn disposal of property on the 13 Dec. The sale was essentially done at book value.The remaining assets mainly comprise a mish-mash of various IP in Hong Kong – some of which have not been leased in over a year (see page 3 of its 17/18 interim report). It owns one residential property.Currently trading at 1.18x P/B.According to CCASS, almost the entire stake held by Ian Ng (Chairman) has been brought into CCASS. He holds 76.91% and 74.76% has been placed with Lego Securities in the past month.  You don’t need shares in CCASS to accept a general offer or an off-market transfer. Only if selling in the market or pledging to a bank/broker. Something is up – expect an offer to be made shortly.AWE Ltd (AWE AU)(Mkt cap: US$415mn; liquidity: US$2.5mn)AWE’s board has unanimously recommended Mineral Resources Ltd (MIN AU) implied offer of A$0.83/share, comprising A$0.415/share in cash + between 0.0198-0.0277 MinRes shares per AWE share.  This scrip range is to reflect the trading in MinRes shares 10 days prior to the Scheme vote. Shareholders can opt for all cash or all scrip, but actual allocation will be scaled back to ensure a 50% cash and 50% scrip allocation.An Explanatory Booklet is expected to be dispatched in mid-Feb 2018 with AWE shareholders expected to vote on the Scheme in mid-April.At A$0.86/share, AWE is trading slightly above the low-end of MinRes' scrip range.Cavium Inc (CAVM US) (Mkt Cap: $5.9bn; Liquidity: $119mn)CTFN sources indicate Marvell Technology’s acquisition of Cavium is not expected to run into antitrust hurdles, but the US$6bn cash/scrip offer may encounter a lengthy review from US and Chinese trade regulators.The deal is viewed as being highly complementary, with significant synergistic cost savings. But a delay is likely to come from the two trade agencies fighting against each other in the approval process.(link to CTFN's insight: Cavium/Marvell Could See Extended Review from US and Chinese Trade Regulators)

Last Week in Event SPACE – Chipbond, Idemitsu, Kakao, Aconex, Rowsley

Hong Kong

Zhongchang International Holdings Group Limited operates real estate businesses. The Company provides property leasing, property agency services, property consultancy, and other services. Zhongchang International Holdings Group also operates computer motherboard manufacturing businesses.

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Henry Group Holdings (859 HK)

Last Week in Event SPACE - Sanyo Special, Celltrion, Broadcom, Wynn, MSCI, CCASS

Last Week in Event SPACE ...Embracing Sanyo Special Steel Co Ltd (5481 JP)'s complicated arbitrage; CFIUS dings Broadcom Limited (AVGO US) but...

David Blennerhassett

Last Week in Event SPACE – Chipbond, Idemitsu, Kakao, Aconex, Rowsley

Last week, Chipbond Technology Corp (6147 TT) joins the great semi China cash out; the founding Idemitsu Kosan Co Ltd (5019 JP) family bumps its...

David Blennerhassett

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