Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Australian Pharmaceutical Industries / Event-Driven

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<p>On the 12 July, wholesale and retail pharmacy health/beauty and lifestyle products operator <a href="https://www.smartkarma.com/entities/19399" target="_blank" data-smartkarma-citation="entities:19399:1" rel="noopener">Australian Pharmaceutical Industries (API AU)</a> (API) <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02394187-3A570533?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> an indicative, non-binding Offer from <a href="https://www.smartkarma.com/entities/wesfarmers-ltd" target="_blank" data-smartkarma-citation="entities:1104:1" rel="noopener">Wesfarmers Ltd (WES AU)</a> by way of a Scheme at $1.38/share,  a 20.5% premium to last close.  Separately, Wesfarmers has entered into an agreement with API's largest shareholder <a href="https://www.smartkarma.com/entities/washington-h-soul-pattinson-and-co-ltd" target="_blank" data-smartkarma-citation="entities:6054:1" rel="noopener">Washington H. Soul Pattinson and Co. Ltd (SOL AU)</a> (WHSP), such that WHSP will vote its 19.3% interest in favour of Wesfarmers' proposal, in the absence of a superior Offer.</p>
<p>There was a whiff of opportunism present, and the API board agreed and concluded in an announcement on the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02400478-3A571605?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">29 July</a> that the proposal undervalued API, was not compelling, and was not in the best interest of shareholders. </p>
<h3>The New News</h3>
<p>After bumping the Offer by 12.3% to A$1.55/share, Wesfarmers and API entered into a <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02422163-3A575967?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">process deed</a> yesterday. A fully franked dividend of A$0.05/share is permitted, which if paid will reduce the cash consideration.</p>
<p>WHSP remains supportive and will vote its 19.3% in favour of the revised proposal.</p>
<p>API has granted Wesfarmers exclusive due diligence until the 16 October. The deal is also subject to ACCC clearance.</p>
<p>This remains a non-binding Offer, and we have seen two Aussie deals break in the past fortnight, reinforcing the country's moniker as the non-binding graveyard.</p>
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<p>More below the fold.</p>
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On the 12 July, wholesale and retail pharmacy health/beauty and lifestyle products operator Australian Pharmaceutical Industries (API AU) (API) announced an indicative, non-binding Offer from Wesfarmers Ltd (WES AU) by way of a Scheme at $1.38/share,  a 20.5% premium to last close.  Separately, Wesfarmers has entered into an agreement with API's largest shareholder Washington H. Soul Pattinson and Co. Ltd (SOL AU) (WHSP), such that WHSP will vote its 19.3% interest in favour of Wesfarmers' proposal, in the absence of a superior Offer.
There was a whiff of opportunism present, and the API board agreed and concluded in an announcement on the 29 July that the proposal undervalued API, was not compelling, and was not in the best interest of shareholders. 
The New News
After bumping the Offer by 12.3% to A$1.55/share, Wesfarmers and API entered into a process deed yesterday. A fully franked dividend of A$0.05/share is permitted, which if paid will reduce the cash consideration.
WHSP remains supportive and will vote its 19.3% in favour of the revised proposal.
API has granted Wesfarmers exclusive due diligence until the 16 October. The deal is also subject to ACCC clearance.
This remains a non-binding Offer, and we have seen two Aussie deals break in the past fortnight, reinforcing the country's moniker as the non-binding graveyard.


More below the fold.


Aussie Pharma (API AU): Wesfarmer's Sweetened (Yet Indicative) Offer

Travis Lundy

<p>In mid-late June, the two largest Listed Investment Corporations in Australia - <a href="https://www.smartkarma.com/entities/milton-corp-ltd" target="_blank" data-smartkarma-citation="entities:29090:1" rel="noopener">Milton Corp Ltd (MLT AU)</a> and <a href="https://www.smartkarma.com/entities/washington-h-soul-pattinson-and-co-ltd" target="_blank" data-smartkarma-citation="entities:6054:1" rel="noopener">Washington H. Soul Pattinson and Co. Ltd (SOL AU)</a> - announced plans to merge, with SOL (a.k.a. "WHSP") becoming the surviving entity. </p>
<p>This was discussed by <a href="https://www.smartkarma.com/profiles/david-blennerhassett" target="_blank" data-smartkarma-citation="accounts:840" rel="noopener">David Blennerhassett</a> in <a href="https://www.smartkarma.com/insights/whsp-s-proposed-merger-with-milton-corp" target="_blank" data-smartkarma-citation="insights:53422" rel="noopener">WHSP's Proposed Merger With Milton Corp</a> and by myself in <a href="https://www.smartkarma.com/insights/milton-merger-is-a-most-marvelous-arb" target="_blank" data-smartkarma-citation="insights:53464" rel="noopener">Milton Merger Is A Most Marvelous Arb</a> and <a href="https://www.smartkarma.com/insights/milton-whsp-merger-index-implications-and-the-marvelous-arb" target="_blank" data-smartkarma-citation="insights:53551" rel="noopener">Milton-WHSP Merger Index Implications and the Marvelous Arb</a>. </p>
<p>It is a complicated deal. </p>
<p>Milton had been trading at a discount to NAV, where NAV was 97% or so listed stocks. WHSP had been trading at a premium to NAV. WHSP agreed to pay a premium to NAV for MLT shares, but the construct provided for some really interesting other optionality (some positive, a little negative) for MLT shareholders. </p>
<p>In early July, Milton announced its NAV at A$5.50/share and assuming it is exactly A$5.5000/share, the Quiddity Milton Model was off by 0.16%. When it released its top 20 stock and weights list which showed about A$50-60mm of adjustments to positions since 31 Dec 2020 within the top 20 names, that lowered the NAV miss to about 0.07% and that is probably a matter of timing and stray dividend income or a mark on its private assets.</p>
<p>Interestingly, as WHSP rose 10% then came back a bit, and Milton rose with it, but the Milton NAV did not rise much, the "spread to terms" has stayed reasonably stable except for some near-market-close shenanigans at times. </p>
<p>But it still feels like people don't get it. </p>
<p>There's some really interesting convexity here. Still.</p>
<p>And the supply/demand tilt is remarkable.</p>

In mid-late June, the two largest Listed Investment Corporations in Australia - Milton Corp Ltd (MLT AU) and Washington H. Soul Pattinson and Co. Ltd (SOL AU) - announced plans to merge, with SOL (a.k.a. "WHSP") becoming the surviving entity. 
This was discussed by David Blennerhassett in WHSP's Proposed Merger With Milton Corp and by myself in Milton Merger Is A Most Marvelous Arb and Milton-WHSP Merger Index Implications and the Marvelous Arb. 
It is a complicated deal. 
Milton had been trading at a discount to NAV, where NAV was 97% or so listed stocks. WHSP had been trading at a premium to NAV. WHSP agreed to pay a premium to NAV for MLT shares, but the construct provided for some really interesting other optionality (some positive, a little negative) for MLT shareholders. 
In early July, Milton announced its NAV at A$5.50/share and assuming it is exactly A$5.5000/share, the Quiddity Milton Model was off by 0.16%. When it released its top 20 stock and weights list which showed about A$50-60mm of adjustments to positions since 31 Dec 2020 within the top 20 names, that lowered the NAV miss to about 0.07% and that is probably a matter of timing and stray dividend income or a mark on its private assets.
Interestingly, as WHSP rose 10% then came back a bit, and Milton rose with it, but the Milton NAV did not rise much, the "spread to terms" has stayed reasonably stable except for some near-market-close shenanigans at times. 
But it still feels like people don't get it. 
There's some really interesting convexity here. Still.
And the supply/demand tilt is remarkable.

Milton's Marvelous Arb Meanders Along... Marvelously

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<div>
<p>Back on the 14 December 2018, wholesale and retail pharmacy health/beauty and lifestyle products operator <a href="https://www.smartkarma.com/entities/19399" target="_blank" data-smartkarma-citation="entities:19399:1" rel="noopener"><strong>Australian Pharmaceutical Industries (API AU)</strong></a> (API) <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2995-02059816-3A507826?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> that it had become a substantial shareholder in key competitor <a href="https://www.smartkarma.com/entities/15966" target="_blank" data-smartkarma-citation="entities:15966:1" rel="noopener">Sigma Healthcare Ltd (SIG AU)</a> by purchasing 137.26mm shares, or 12.95%.</p>
<p>On the same day, it was <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2995-02059834-3A507836?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">made public</a> that API had made an indicative non-binding proposal to Sigma through a Scheme of Arrangement whereby Sigma shareholders would receive 0.31 shares of API and A$0.23 in cash for each share of Sigma held. The proposal was first tabled to the board back on 11 October 2018.</p>
<p><a href="https://www.smartkarma.com/profiles/travis-lundy" target="_blank" data-smartkarma-citation="accounts:25" rel="noopener">Travis Lundy</a> discussed the Offer in <em><a href="https://skr.ma/araq7" target="_blank" rel="noopener">API Tilts at Sigma Healthcare: Expect More</a></em> and <em><a href="https://skr.ma/szfi2" target="_blank" rel="noopener">Sigma Healthcare Market Update: Strategic Review Expects More</a>, </em>concluding the Offer was light. </p>
<p>Sigma thought so too and summarily <a href="https://www.asx.com.au/asxpdf/20190313/pdf/443fhtv2whrv40.pdf" target="_blank" rel="noopener">rejected</a> the Offer on the 13 March 2019 and terminated discussions. Sigma believed its future potential is on a standalone basis. Sigma also cited API's share price decline of &gt;15% since the 11 October announcement, implying a 12% decline in value for its shareholders; and also flagged the potential execution risk in regards to ACCC consent. $60mn in synergies from merging was, however, not disputed by Sigma.</p>
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<p>API said it had <a href="https://www.asx.com.au/asxpdf/20190313/pdf/443ftrffbvj16w.pdf" target="_blank" rel="noopener">closed its data room </a>and was reviewing its shareholding in Sigma.</p>
<p>API subsequently sold its stake in Sigma on the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02185851-3A531484?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">16 December 2019</a>. </p>
<h3>The New News</h3>
</div>
<p>API has now <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02394187-3A570533?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> an indicative, non-binding Offer from <a href="https://www.smartkarma.com/entities/wesfarmers-ltd" target="_blank" data-smartkarma-citation="entities:1104:1" rel="noopener">Wesfarmers Ltd (WES AU)</a> by way of a Scheme at $1.38/share,  a 20.5% premium to last close.  </p>
<p>Separately, Wesfarmers has entered into an agreement with API's largest shareholder <a href="https://www.smartkarma.com/entities/washington-h-soul-pattinson-and-co-ltd" target="_blank" data-smartkarma-citation="entities:6054:1" rel="noopener">Washington H. Soul Pattinson and Co. Ltd (SOL AU)</a> (WHSP), such that WHSP will vote its 19.3% interest in favour of Wesfarmers' proposal, in the absence of a superior Offer.</p>
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<p>This looks done, and is trading accordingly. </p>
</div>
<div>
<p>More below the fold.</p>
</div>



Back on the 14 December 2018, wholesale and retail pharmacy health/beauty and lifestyle products operator Australian Pharmaceutical Industries (API AU) (API) announced that it had become a substantial shareholder in key competitor Sigma Healthcare Ltd (SIG AU) by purchasing 137.26mm shares, or 12.95%.
On the same day, it was made public that API had made an indicative non-binding proposal to Sigma through a Scheme of Arrangement whereby Sigma shareholders would receive 0.31 shares of API and A$0.23 in cash for each share of Sigma held. The proposal was first tabled to the board back on 11 October 2018.
Travis Lundy discussed the Offer in API Tilts at Sigma Healthcare: Expect More and Sigma Healthcare Market Update: Strategic Review Expects More, concluding the Offer was light. 
Sigma thought so too and summarily rejected the Offer on the 13 March 2019 and terminated discussions. Sigma believed its future potential is on a standalone basis. Sigma also cited API's share price decline of &gt;15% since the 11 October announcement, implying a 12% decline in value for its shareholders; and also flagged the potential execution risk in regards to ACCC consent. $60mn in synergies from merging was, however, not disputed by Sigma.

API said it had closed its data room and was reviewing its shareholding in Sigma.
API subsequently sold its stake in Sigma on the 16 December 2019. 
The New News

API has now announced an indicative, non-binding Offer from Wesfarmers Ltd (WES AU) by way of a Scheme at $1.38/share,  a 20.5% premium to last close.  
Separately, Wesfarmers has entered into an agreement with API's largest shareholder Washington H. Soul Pattinson and Co. Ltd (SOL AU) (WHSP), such that WHSP will vote its 19.3% interest in favour of Wesfarmers' proposal, in the absence of a superior Offer.

This looks done, and is trading accordingly. 


More below the fold.


API AU: The Hunter Turns The Hunted As Wesfarmers Makes A Move

<p>Back on the <a href="https://www.woolworthsgroup.com.au/content/Document/2019-11-01%20Restructure%20Booklet.pdf" target="_blank" rel="noopener">3 July 2019</a>, supermarket and grocery chain giant <a href="https://www.smartkarma.com/entities/woolworths-ltd" target="_blank" data-smartkarma-citation="entities:500:1" rel="noopener">Woolworths Ltd (WOW AU)</a> announced plans to spin off its retail drinks and hospitality business via <a href="https://www.smartkarma.com/entities/endeavour-group-ltd-australia" target="_blank" data-smartkarma-citation="entities:33512:1" rel="noopener">Endeavour Group (EDV AU)</a>.</p>
<p>The demerger was expected to simplify the organisational structure, unlock long-term shareholder value for the company, and provide Endeavour greater access to capital. Shareholders agreed and approved the demerger at the EGM on the <a href="https://www.woolworthsgroup.com.au/content/Document/2019%20AGM%20%26%20EGM%20results.pdf" target="_blank" rel="noopener">16 December 2019</a>.</p>
<p>The internal structure was completed on the <a href="https://www.woolworthsgroup.com.au/content/Document/Completion%20of%20Internal%20Restructure%20and%20ALH%20Merger.pdf" target="_blank" rel="noopener">4 February 2020</a>, such that Woolies held 85.4% in Endeavour. The Bruce Mathieson Group held the remaining 14.6%. </p>
<p>The timing of the demerger was subsequently <a href="https://www.woolworthsgroup.com.au/content/Document/Woolworths%20Group%20update%20on%20impact%20of%20coronavirus%20(COVID-19).pdf" target="_blank" rel="noopener">delayed</a> on account of Covid-19. </p>
<p>A new meeting was held on the 18 June to re-consider the demerger, which was also <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02385935-2A1304198?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">duly passed</a>. </p>
<p>Via an in-specie distribution to existing shareholders, Woolies' shareholders received one Endeavour share for every Woolies' share, in addition to maintaining their one share in Woolies. </p>
<p>Woolies commenced trading on the ASX, ex-entitlement, on the 24 June, the same day Endeavour commenced trading. </p>
<p>Woolies is now a cleaner supermarket play, whereas Endeavour may find itself on the wrong side of ESG investors. </p>
<p>More below the fold.</p>

Back on the 3 July 2019, supermarket and grocery chain giant Woolworths Ltd (WOW AU) announced plans to spin off its retail drinks and hospitality business via Endeavour Group (EDV AU).
The demerger was expected to simplify the organisational structure, unlock long-term shareholder value for the company, and provide Endeavour greater access to capital. Shareholders agreed and approved the demerger at the EGM on the 16 December 2019.
The internal structure was completed on the 4 February 2020, such that Woolies held 85.4% in Endeavour. The Bruce Mathieson Group held the remaining 14.6%. 
The timing of the demerger was subsequently delayed on account of Covid-19. 
A new meeting was held on the 18 June to re-consider the demerger, which was also duly passed. 
Via an in-specie distribution to existing shareholders, Woolies' shareholders received one Endeavour share for every Woolies' share, in addition to maintaining their one share in Woolies. 
Woolies commenced trading on the ASX, ex-entitlement, on the 24 June, the same day Endeavour commenced trading. 
Woolies is now a cleaner supermarket play, whereas Endeavour may find itself on the wrong side of ESG investors. 
More below the fold.

Woolworths/Endeavour: Taking A Bet On Alcohol & Gaming

APAC IPOs & Placements

Zhen Zhou, Toh

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

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<p><a href="https://www.smartkarma.com/entities/wesfarmers-ltd" target="_blank" data-smartkarma-citation="entities:1104:1" rel="noopener">Wesfarmers Ltd (WES AU)</a> is back on the market looking to sell 69.4m shares in <a href="https://www.smartkarma.com/entities/coles-group-ltd" target="_blank" data-smartkarma-citation="entities:27799:1" rel="noopener">Coles Group Ltd (COL AU)</a>. This came a little over a month after its February selldown which we have covered in:</p>
<ul><li>
<a href="https://www.smartkarma.com/insights/coles-placement-selldown-from-wesfarmers-expected-but-discount-is-narrow-at-the-top" target="_blank" data-smartkarma-citation="insights:36725" rel="noopener">Coles Placement - Selldown from Wesfarmers Expected but Discount Is Narrow at the Top</a> </li></ul>
<p>Post selldown, Wesfarmers will still have about 4.9% stake in Cole and will be locked up for 60 days. The deal still scores well on our framework owing to good short-term momentum, relatively better leverage than peers. </p>
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Wesfarmers Ltd (WES AU) is back on the market looking to sell 69.4m shares in Coles Group Ltd (COL AU). This came a little over a month after its February selldown which we have covered in:

Coles Placement - Selldown from Wesfarmers Expected but Discount Is Narrow at the Top 
Post selldown, Wesfarmers will still have about 4.9% stake in Cole and will be locked up for 60 days. The deal still scores well on our framework owing to good short-term momentum, relatively better leverage than peers. 


Coles Placement - Wider Discount to Account for Overhang

Australia

Coles Group Limited owns and operates a chain of supermarkets and department stores. The Company offers apparels, liquor, office supplies, groceries, and household products. Coles Group serves customers throughout Australia and New Zealand.

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Coles Group (COL AU)

Aussie Pharma (API AU): Wesfarmer's Sweetened (Yet Indicative) Offer

Trading at a 5.8%/15.8% gross/annualised spread, assuming mid-Feb completion. But it's not a super liquid arb situation. Plus this remains a non...

David Blennerhassett

Milton's Marvelous Arb Meanders Along... Marvelously

The Marvelous Milton Merger Arb is still trading slightly wide on a "straight arb" basis. On a "true arb" basis including optionality, it is...

Travis Lundy

API AU: The Hunter Turns The Hunted As Wesfarmers Makes A Move

With SOL's backing, you realistically have a $1.38/share floor, with the possibility of another bidder emerging. You could position yourself around...

David Blennerhassett

Woolworths/Endeavour: Taking A Bet On Alcohol & Gaming

I side with ESG-focused super investors' concerns on Endeavour, given its exposure to gaming & alcohol. Woolies is now a pure-play on grocery and...

David Blennerhassett

Coles Placement - Wider Discount to Account for Overhang

Wesfarmers Ltd (WES AU) is back on the market looking to sell 69.4m shares in Coles Group Ltd (COL AU). This came a little over a month after its...

Zhen Zhou, Toh

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