Director | Exposing Creative Accounting, Bucephalus Research Partnership

Robert Medd

Director | Exposing Creative Accounting

Exposing Creative Accounting

Bucephalus Research Partnership

Bucephalus Research Partnership Limited. Exposing Creative Accounting.

At the Bucephalus Research Partnership (BRP) we analyse financial statements using our accountant's practical experience and our own quantitative algorithms for corporate governance, accounting risk and peer performance.

Our thematic research refines our unique algorithms while our single stock research focuses on examples where we discover a significant gap between published accounts and business reality.

​Bucephalus Research Partnership:
- Is an independent fee-based research service
- Does not take proprietary positions, long or short
- Does not solicit business or fees from the corporates we review

Forensic Accounting

Anta Sports Products / Forensic Accounting

We think the proposed <a href="https://www.smartkarma.com/entities/10261" target="_blank" data-smartkarma-citation="entities:10261:1">Anta Sports Products (2020 HK)</a> acquisition of <a href="https://www.smartkarma.com/entities/21751" target="_blank" data-smartkarma-citation="entities:21751:1">Amer Sports Oyj (AMEAS FH)</a> makes a lot of strategic sense.Funding should not be a problem. We believe Anta can fund the US$5.3bn acquisition using their offshore cash balance combined with an equity contribution from FountainVest (a deal partner).A formal offer has yet to be made but, subject to due diligence and necessary approvals, we expect an announcement within 6 weeks.A successful bid will disprove the allegations of fraud, help build brand strength, broaden product range and be value accretive.

We think the proposed Anta Sports Products (2020 HK) acquisition of Amer Sports Oyj (AMEAS FH) makes a lot of strategic sense.Funding should not be a problem. We believe Anta can fund the US$5.3bn acquisition using their offshore cash balance combined with an equity contribution from FountainVest (a deal partner).A formal offer has yet to be made but, subject to due diligence and necessary approvals, we expect an announcement within 6 weeks.A successful bid will disprove the allegations of fraud, help build brand strength, broaden product range and be value accretive.

Anta's Proposed Bid for Amer Makes Strategic Sense

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Most of the way through the HK trading day on the 11th (but after the European open) a headline flashed across traders' screens which said "China's Anta said to Mull Bid for $4B Finnish Rival Amer Sports". Finland-listed sports brand amalgamator (Wilson, Salomon, Atomic (skis), Mavic (bicycle rims), Precor (gym equipment), Arc'teryx (outdoor wear/accessories), Suunto (fitness sensors/watches), Louisville Slugger (baseball bats) and other) Amer Sports management <a href="https://www.amersports.com/2018/09/amer-sports-confirms-receipt-of-an-indication-of-interest-from-a-consortium-including-anta-sports-products/" target="_blank">confirmed</a> that it had received a non-binding preliminary indication of interest from a consortium including <a href="https://www.smartkarma.com/entities/10261" target="_blank" data-smartkarma-citation="entities:10261:1">ANTA Sports Products (2020 HK)</a> and Asian private equity firm FountainVest Partners and also <a href="https://www.amersports.com/2018/09/amer-sports-confirms-price-indication-included-in-the-indication-of-interest/" target="_blank">confirmed</a> a price indication of a bid at €40/share to take Amer private.  The bid would be "subject to a number of conditions, including conducting a due diligence investigation, approval of the Board of Directors of ANTA and the Investment Committee of FountainVest, availability of financing from identified financing sources and receipt of a recommendation from the Board of Directors of Amer Sports. Completion of any such cash tender offer would in turn be subject to further conditions, including approval by shareholders holding at least 90% of the shares of Amer Sports and receipt of all necessary regulatory approvals."<a href="https://www.smartkarma.com/entities/10261" target="_blank" data-smartkarma-citation="entities:10261:1">ANTA Sports Products (2020 HK)</a><a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2018/0912/LTN20180912023.pdf" target="_blank">confirmed</a> the morning of the 12th to the HKEx that it had submitted the proposal in question with FountainVest but that there was as yet no deal.<a href="https://www.smartkarma.com/entities/21751" target="_blank" data-smartkarma-citation="entities:21751:1">Amer Sports Oyj (AMEAS FH)</a> shares had been trading around €32/share, were suspended quickly and then reopened 14% higher at ~€36.50 popped briefly then settled down into a long session of profit-taking which saw trading close at €34.20. Some 2.5% of float traded, which was 6-8x normal. Amer had said on the 11th that it had not engaged in negotiations.<h2>Where We Stand</h2><ul>
<li>ANTA shares were down 8 days in a row through the day after the announcement, falling a little in the afternoon after the news came out in Europe, then fell 9+% the following day. Despite rebounding 7+% the last two days, ANTA Sports shares are still down 17.5% in the first two weeks of the month. The shares are now at 20x 2019e PER.</li>
<li>Amer announced on September 5th a <a href="https://www.amersports.com/2018/09/amer-sports-updates-its-strategy/" target="_blank">Strategy Update</a>. Amer Sports President and CEO Heikki Takala said “We prioritize acceleration in soft goods, B2C, China, United States, and digitalization,” and the review was said to include an "integration" of PeakPerformance brand and a strategic review of the Mavic brand. In the presentation he also mentioned the Enve (bicycles) brand, noting that the entire bicycle business was not producing the growth they wanted, and offering the idea that the assets might be better held by someone else.</li>
<li>At a 26x PER multiple and probably ~15x EV/EBITDA, Amer is "expensive" but not outrageously so. At a prospective EV/revenue multiple of 1.5x, it is in the range of stocks like <a href="https://www.smartkarma.com/entities/10699" target="_blank" data-smartkarma-citation="entities:10699:1">Fila Korea Ltd (081660 KS)</a> and <a href="https://www.smartkarma.com/entities/23708" target="_blank" data-smartkarma-citation="entities:23708:1">Acushnet Holdings (GOLF US)</a> while lower than <a href="https://www.smartkarma.com/entities/3777" target="_blank" data-smartkarma-citation="entities:3777:1">Shimano Inc (7309 JP)</a> and <a href="https://www.smartkarma.com/entities/22505" target="_blank" data-smartkarma-citation="entities:22505:1">Thule Group Ab (THULE SS)</a>. </li>
</ul>

Most of the way through the HK trading day on the 11th (but after the European open) a headline flashed across traders' screens which said "China's Anta said to Mull Bid for $4B Finnish Rival Amer Sports". Finland-listed sports brand amalgamator (Wilson, Salomon, Atomic (skis), Mavic (bicycle rims), Precor (gym equipment), Arc'teryx (outdoor wear/accessories), Suunto (fitness sensors/watches), Louisville Slugger (baseball bats) and other) Amer Sports management confirmed that it had received a non-binding preliminary indication of interest from a consortium including ANTA Sports Products (2020 HK) and Asian private equity firm FountainVest Partners and also confirmed a price indication of a bid at €40/share to take Amer private.  The bid would be "subject to a number of conditions, including conducting a due diligence investigation, approval of the Board of Directors of ANTA and the Investment Committee of FountainVest, availability of financing from identified financing sources and receipt of a recommendation from the Board of Directors of Amer Sports. Completion of any such cash tender offer would in turn be subject to further conditions, including approval by shareholders holding at least 90% of the shares of Amer Sports and receipt of all necessary regulatory approvals."ANTA Sports Products (2020 HK)confirmed the morning of the 12th to the HKEx that it had submitted the proposal in question with FountainVest but that there was as yet no deal.Amer Sports Oyj (AMEAS FH) shares had been trading around €32/share, were suspended quickly and then reopened 14% higher at ~€36.50 popped briefly then settled down into a long session of profit-taking which saw trading close at €34.20. Some 2.5% of float traded, which was 6-8x normal. Amer had said on the 11th that it had not engaged in negotiations.Where We Stand
ANTA shares were down 8 days in a row through the day after the announcement, falling a little in the afternoon after the news came out in Europe, then fell 9+% the following day. Despite rebounding 7+% the last two days, ANTA Sports shares are still down 17.5% in the first two weeks of the month. The shares are now at 20x 2019e PER.
Amer announced on September 5th a Strategy Update. Amer Sports President and CEO Heikki Takala said “We prioritize acceleration in soft goods, B2C, China, United States, and digitalization,” and the review was said to include an "integration" of PeakPerformance brand and a strategic review of the Mavic brand. In the presentation he also mentioned the Enve (bicycles) brand, noting that the entire bicycle business was not producing the growth they wanted, and offering the idea that the assets might be better held by someone else.
At a 26x PER multiple and probably ~15x EV/EBITDA, Amer is "expensive" but not outrageously so. At a prospective EV/revenue multiple of 1.5x, it is in the range of stocks like Fila Korea Ltd (081660 KS) and Acushnet Holdings (GOLF US) while lower than Shimano Inc (7309 JP) and Thule Group Ab (THULE SS). 


ANTA (2020 HK) Lobs Possible €40/Share Bid for Amer

United States

Amer Sports, Inc. manufactures sports apparel and fitness equipment. The Company offers apparel, footwear, equipment, protective gear, and related accessories. Amer Sports serves customers worldwide.

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Amer Sports (AS US)

Anta's Proposed Bid for Amer Makes Strategic Sense

We think the proposed Anta Sports Products (2020 HK) acquisition of Amer Sports Oyj (AMEAS FH) makes a lot of strategic sense.Funding should not be...

Bucephalus Research Partnership

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Anta's Proposed Bid for Amer Makes Strategic Sense

We think the proposed Anta Sports Products (2020 HK) acquisition of Amer Sports Oyj (AMEAS FH) makes a lot of strategic sense.Funding should not be...

Bucephalus Research Partnership

ANTA (2020 HK) Lobs Possible €40/Share Bid for Amer

Most of the way through the HK trading day on the 11th (but after the European open) a headline flashed across traders' screens which said "China's...

Travis Lundy