Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>When the bid was announced, in <a href="https://www.smartkarma.com/insights/eneos-to-steamroll-nippo-1881-jp-minorities" target="_blank" data-smartkarma-citation="insights:57299" rel="noopener">ENEOS To Steamroll Nippo (1881 JP) Minorities</a> I wrote about how in parent <a href="https://www.smartkarma.com/entities/eneos-holdings-inc" target="_blank" data-smartkarma-citation="entities:638:1" rel="noopener">ENEOS Holdings (5020 JP)</a> bid to buy out the minority holders of <a href="https://www.smartkarma.com/entities/nippo-corp" target="_blank" data-smartkarma-citation="entities:2583:1" rel="noopener">Nippo Corp (1881 JP)</a> despite being an all-time high price, the bid was still egregiously low. </p><p>NIPPO's independent panel and board, of course, agreed with its parent company that the convoluted construct where ENEOS would participate in a 3rd party buyout, then sell its ownership back to the company (taking the cash out) while still controlling the company (then eventually try to re-list the company after taking the money out) was all good for shareholders and the company itself. </p><p>Investors should not be under any illusion that NIPPO's Board will, when presented with numbers which suggest they are selling the company too cheaply for the benefit of ENEOS will suddenly say "aha, you are right, we didn't count the securities and real estate correctly."</p><p>If NIPPO's Board officially reviews the numbers and comes to the conclusion that they made a mistake, that upsets the entire ecosystem - the acquiror, the lawyers on both sides, the accountants and fair value assessors, and all the advisors who told them that this was fair and appropriate. Every single member of the ecosystem would be wrong.</p><p>And that can't happen, so it won't. </p><p>The only one who changes the outcome here is the buyer - who can raise the price - or the investor base - who can raise the price on the buyer, challenging them to pay more. </p><p>A short while ago, the CEO of Monex Oki Matsumoto in his role as CIO of the small activist-ish <em>Monex Activist Mother Fund</em> said that the ¥4,000/share TOB price was too cheap, and NIPPO should consider a special dividend to shareholders. This was discussed in <a href="https://www.smartkarma.com/insights/nippo-1881-jp-gets-some-cowbell-it-probably-needs-more" target="_blank" data-smartkarma-citation="insights:58103" rel="noopener">NIPPO (1881 JP) Gets Some Cowbell - It Probably Needs More</a> a bit over a week ago.  Three days later (27 Sep), Silchester International Investors - which says it is not an activist and generally does not make public comment - apparently said that generally agreed with what Matsumoto-san had to say. </p><p>What investors may not have realised if they did not read the fine print of the original announcement is that the Board of NIPPO has already agreed to support a huge distribution of the company's cash to shareholders. It is at the bottom of <a href="https://www.nippo-c.co.jp/english/images/aboutnippo/irinfo/2021_0910_5.pdf" target="_blank" rel="noopener">p5</a> and it says that NIPPO will distribute 194.098bn yen of the company's cash to shareholders.</p><p>Actually, it will only give that cash to one shareholder - ENEOS - but the principle is the same. This cash is not needed for its operations. Therefore, in the process of "raising corporate value through the transaction" it will give that cash to shareholders. </p><p>Investors have it in front of them. </p><p>This morning Asia time, activist investor Oasis Management Company issued a <a href="https://www.businesswire.com/news/home/20211004005747/en/Oasis-Statement-on-NIPPO-Corporation" target="_blank" rel="noopener">press release</a> calling on NIPPO to conduct an active market check to achieve a higher price, and says it believes NIPPO shares are worth "over JPY5,600" apiece. </p><p>I do not disagree. In my first insight, I said the ¥4,000/share TOB price was ¥1,500-2,000/share light. </p><p>For investors...</p><ol>
<li>The <a href="https://www.businesswire.com/news/home/20211004005747/en/Oasis-Statement-on-NIPPO-Corporation" target="_blank" rel="noopener">press release</a> is definitely worth reading. </li>
<li>The <a href="https://www.nippo-c.co.jp/english/images/aboutnippo/irinfo/2021_0910_5.pdf" target="_blank" rel="noopener">original announcement</a> is definitely worth re-reading</li>
<li>It is worth digging through the structure and process to figure out how ENEOS (and NIPPO and GS?) are taking advantage of minorities. The statements and the actions do not necessarily agree with each other and the fiduciary duties of ENEOS and NIPPO.</li>
<li>And as is usually the case in these situations, it is worth getting out your <a href="https://www.smartkarma.com/insights/japan-needs-more-cowbell" target="_blank" rel="noopener">cowbell</a>.</li>
</ol><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/233/564/original/will-ferrell-cowbell.gif?1633414041" class="editor-image img-responsive" data-smartkarma-image-id="233564"></figure></section><p></p><p>So below, I try to do #3.</p><hr><p><em>Separately, investors should have questions about the Sentaku article which came out discussing the coincidence that GS has just perhaps agreed to sell an asset to ENEOS at a price below other bidders, and is now being accorded the opportunity to participate in a separate transaction with ENEOS where they bring neither value nor net capital. </em></p>

When the bid was announced, in ENEOS To Steamroll Nippo (1881 JP) Minorities I wrote about how in parent ENEOS Holdings (5020 JP) bid to buy out the minority holders of Nippo Corp (1881 JP) despite being an all-time high price, the bid was still egregiously low. NIPPO's independent panel and board, of course, agreed with its parent company that the convoluted construct where ENEOS would participate in a 3rd party buyout, then sell its ownership back to the company (taking the cash out) while still controlling the company (then eventually try to re-list the company after taking the money out) was all good for shareholders and the company itself. Investors should not be under any illusion that NIPPO's Board will, when presented with numbers which suggest they are selling the company too cheaply for the benefit of ENEOS will suddenly say "aha, you are right, we didn't count the securities and real estate correctly."If NIPPO's Board officially reviews the numbers and comes to the conclusion that they made a mistake, that upsets the entire ecosystem - the acquiror, the lawyers on both sides, the accountants and fair value assessors, and all the advisors who told them that this was fair and appropriate. Every single member of the ecosystem would be wrong.And that can't happen, so it won't. The only one who changes the outcome here is the buyer - who can raise the price - or the investor base - who can raise the price on the buyer, challenging them to pay more. A short while ago, the CEO of Monex Oki Matsumoto in his role as CIO of the small activist-ish Monex Activist Mother Fund said that the ¥4,000/share TOB price was too cheap, and NIPPO should consider a special dividend to shareholders. This was discussed in NIPPO (1881 JP) Gets Some Cowbell - It Probably Needs More a bit over a week ago.  Three days later (27 Sep), Silchester International Investors - which says it is not an activist and generally does not make public comment - apparently said that generally agreed with what Matsumoto-san had to say. What investors may not have realised if they did not read the fine print of the original announcement is that the Board of NIPPO has already agreed to support a huge distribution of the company's cash to shareholders. It is at the bottom of p5 and it says that NIPPO will distribute 194.098bn yen of the company's cash to shareholders.Actually, it will only give that cash to one shareholder - ENEOS - but the principle is the same. This cash is not needed for its operations. Therefore, in the process of "raising corporate value through the transaction" it will give that cash to shareholders. Investors have it in front of them. This morning Asia time, activist investor Oasis Management Company issued a press release calling on NIPPO to conduct an active market check to achieve a higher price, and says it believes NIPPO shares are worth "over JPY5,600" apiece. I do not disagree. In my first insight, I said the ¥4,000/share TOB price was ¥1,500-2,000/share light. For investors...
The press release is definitely worth reading. 
The original announcement is definitely worth re-reading
It is worth digging through the structure and process to figure out how ENEOS (and NIPPO and GS?) are taking advantage of minorities. The statements and the actions do not necessarily agree with each other and the fiduciary duties of ENEOS and NIPPO.
And as is usually the case in these situations, it is worth getting out your cowbell.
So below, I try to do #3.Separately, investors should have questions about the Sentaku article which came out discussing the coincidence that GS has just perhaps agreed to sell an asset to ENEOS at a price below other bidders, and is now being accorded the opportunity to participate in a separate transaction with ENEOS where they bring neither value nor net capital. 

NIPPO (1881 JP) Gets MORE Cowbell as Oasis Objects

<p>Just under three weeks ago, <a href="https://www.smartkarma.com/entities/nippo-corp" target="_blank" data-smartkarma-citation="entities:2583:1" rel="noopener">Nippo Corp (1881 JP)</a> parent company <a href="https://www.smartkarma.com/entities/eneos-holdings-inc" target="_blank" data-smartkarma-citation="entities:638:1" rel="noopener">ENEOS Holdings (5020 JP)</a> announced a slightly convoluted takeover of Nippo which was announced at a decidedly low price of ¥4,000/share. </p><p>I wrote about this in <a href="https://www.smartkarma.com/insights/eneos-to-steamroll-nippo-1881-jp-minorities" target="_blank" data-smartkarma-citation="insights:57299" rel="noopener">ENEOS To Steamroll Nippo (1881 JP) Minorities</a>, calling the bid "egregiously low." I thought the "right price" was ¥1,500-2,000/share higher. </p><p>I also thought that because of ENEOS' starting point, anyone who wanted to block it needed to go big and public with their opposition. I have long thought the issue of parent-sub takeovers and MBOs required more active (and passive) investor stewardship, and have published <a href="https://www.smartkarma.com/insights/japan-needs-more-cowbell" target="_blank" data-smartkarma-citation="insights:41191" rel="noopener">Japan Needs More Cowbell</a> about active investors and a kind of open letter to the former GPIF CIO Hiro Mizuno in the Financial Times, about <a href="https://www.ft.com/content/dd680521-a9cc-4b1c-922d-4787d2a314f6" target="_blank" rel="noopener">The GPIF and the Complexity of Stewardship</a>.</p><p>On Friday we got a <em>little</em> noise as a small fund called the Monex Activist Mother Fund, managed by a fund management firm called Japan Catalyst, where the CIO is Oki Matsumoto, the current CEO of <a href="https://www.smartkarma.com/entities/monex-group-inc" target="_blank" data-smartkarma-citation="entities:14211:1" rel="noopener">Monex Group Inc (8698 JP)</a>, put out a <a href="https://www.jiji.com/jc/article?k=000000005.000075293&amp;g=prt" target="_blank" rel="noopener">press release</a>.  </p><p>More discussion of the opportunity and its parameters to date below.</p>

Just under three weeks ago, Nippo Corp (1881 JP) parent company ENEOS Holdings (5020 JP) announced a slightly convoluted takeover of Nippo which was announced at a decidedly low price of ¥4,000/share. I wrote about this in ENEOS To Steamroll Nippo (1881 JP) Minorities, calling the bid "egregiously low." I thought the "right price" was ¥1,500-2,000/share higher. I also thought that because of ENEOS' starting point, anyone who wanted to block it needed to go big and public with their opposition. I have long thought the issue of parent-sub takeovers and MBOs required more active (and passive) investor stewardship, and have published Japan Needs More Cowbell about active investors and a kind of open letter to the former GPIF CIO Hiro Mizuno in the Financial Times, about The GPIF and the Complexity of Stewardship.On Friday we got a little noise as a small fund called the Monex Activist Mother Fund, managed by a fund management firm called Japan Catalyst, where the CIO is Oki Matsumoto, the current CEO of Monex Group Inc (8698 JP), put out a press release.  More discussion of the opportunity and its parameters to date below.

NIPPO (1881 JP) Gets Some Cowbell - It Probably Needs More

David Blennerhassett

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<p>This insight provides a quick summary of gross/annualised (where possible) spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and how those spreads have changed over the last week; plus the next hard events over the coming weeks.</p>
</div>
<div>
<p>I number 37, mostly firm, deals around the region.</p>
</div>
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<p>More below the fold.</p>
</div>


This insight provides a quick summary of gross/annualised (where possible) spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and how those spreads have changed over the last week; plus the next hard events over the coming weeks.


I number 37, mostly firm, deals around the region.


More below the fold.


Asia-Pac Weekly Risk Arb Summary: Shinsei Bank, Soho China, Nippo Corp, Rhipe, Oil Search/Santos

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div><p>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</p></div><div><p>Hong Kong saw shorts rise on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/li-ning-co-ltd" target="_blank" data-smartkarma-citation="entities:6047:1" rel="noopener">Li Ning (2331 HK)</a>, <a href="https://www.smartkarma.com/entities/china-merchants-bank-co-ltd-3388a037-4214-4997-b45d-520518cfdb57" target="_blank" data-smartkarma-citation="entities:10987:1" rel="noopener">China Merchants Bank H (3968 HK)</a>, <a href="https://www.smartkarma.com/entities/dongyue-group-ltd" target="_blank" data-smartkarma-citation="entities:20429:1" rel="noopener">Dongyue Group (189 HK)</a> and <a href="https://www.smartkarma.com/entities/beijing-kuaishou-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:29725:1" rel="noopener">Kuaishou Technology (1024 HK)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a>, <a href="https://www.smartkarma.com/entities/sunny-optical-tech" target="_blank" data-smartkarma-citation="entities:13363:1" rel="noopener">Sunny Optical (2382 HK)</a>, <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a> and <a href="https://www.smartkarma.com/entities/jd-health-international-inc" target="_blank" data-smartkarma-citation="entities:29677:1" rel="noopener">JD Health (6618 HK)</a>. Shorts increased in the Communication Services and Materials sectors while decreasing in the Financials, Information Technology and Health Care sectors.</p></div><div><p>In Japan, stocks increased on <a href="https://www.smartkarma.com/entities/pan-pacific-international-holdings-corporation" target="_blank" data-smartkarma-citation="entities:13475:1" rel="noopener">Pan Pacific International Holdings (7532 JP)</a>, <a href="https://www.smartkarma.com/entities/sekisui-house-ltd" target="_blank" data-smartkarma-citation="entities:4508:1" rel="noopener">Sekisui House (1928 JP)</a>, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a>, <a href="https://www.smartkarma.com/entities/toyo-seikan-group-holdings-l" target="_blank" data-smartkarma-citation="entities:11858:1" rel="noopener">Toyo Seikan Group Holdings L (5901 JP)</a> and <a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" data-smartkarma-citation="entities:1:1" rel="noopener">Canon Inc (7751 JP)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/money-forward-inc" target="_blank" data-smartkarma-citation="entities:25919:1" rel="noopener">Money Forward (3994 JP)</a>, <a href="https://www.smartkarma.com/entities/eneos-holdings-inc" target="_blank" data-smartkarma-citation="entities:638:1" rel="noopener">ENEOS Holdings (5020 JP)</a>, <a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">SBI Holdings (8473 JP)</a>, <a href="https://www.smartkarma.com/entities/yamaha-corp" target="_blank" data-smartkarma-citation="entities:17841:1" rel="noopener">Yamaha Corp (7951 JP)</a> and <a href="https://www.smartkarma.com/entities/lasalle-logiport-reit" target="_blank" data-smartkarma-citation="entities:22658:1" rel="noopener">Lasalle Logiport REIT (3466 JP)</a>. Shorts increased in most sectors led by the Consumer Discretionary, Industrials, Real Estate, Information Technology and Materials stocks.</p></div><div><p>In Korea, shorts increased on <a href="https://www.smartkarma.com/entities/amorepacific-corp" target="_blank" data-smartkarma-citation="entities:20854:1" rel="noopener">Amorepacific Corp (090430 KS)</a>, <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a>, <a href="https://www.smartkarma.com/entities/hmm-co-ltd" target="_blank" data-smartkarma-citation="entities:13494:1" rel="noopener">HMM Co., Ltd. (011200 KS)</a>, <a href="https://www.smartkarma.com/entities/lg-electronics-inc" target="_blank" data-smartkarma-citation="entities:8814:1" rel="noopener">LG Electronics (066570 KS)</a> and <a href="https://www.smartkarma.com/entities/shinpoong-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:7296:1" rel="noopener">Shinpoong Pharmaceutical (019170 KS)</a>   while shorts were covered on <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a>, <a href="https://www.smartkarma.com/entities/hanwha-solutions" target="_blank" data-smartkarma-citation="entities:8656:1" rel="noopener">Hanwha Solutions (009830 KS)</a>, <a href="https://www.smartkarma.com/entities/kt-corp" target="_blank" data-smartkarma-citation="entities:1112:1" rel="noopener">KT Corp (030200 KS)</a>, <a href="https://www.smartkarma.com/entities/lg-chem-ltd" target="_blank" data-smartkarma-citation="entities:3583:1" rel="noopener">LG Chem Ltd (051910 KS)</a> and <a href="https://www.smartkarma.com/entities/ncsoft-corp" target="_blank" data-smartkarma-citation="entities:5169:1" rel="noopener">NCSOFT Corp (036570 KS)</a>.</p></div><div><p>In Taiwan, shorts increased on <a href="https://www.smartkarma.com/entities/wan-hai-lines-ltd" target="_blank" data-smartkarma-citation="entities:14262:1" rel="noopener">Wan Hai Lines (2615 TT)</a>, <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>, <a href="https://www.smartkarma.com/entities/fubon-financial-holding-co" target="_blank" data-smartkarma-citation="entities:11869:1" rel="noopener">Fubon Financial Holding Co (2881 TT)</a>, <a href="https://www.smartkarma.com/entities/mediatek-inc" target="_blank" data-smartkarma-citation="entities:772:1" rel="noopener">Mediatek Inc (2454 TT)</a> and <a href="https://www.smartkarma.com/entities/novatek-microelectronics-corp" target="_blank" data-smartkarma-citation="entities:10904:1" rel="noopener">Novatek Microelectronics Corp (3034 TT)</a>     while shorts covered on <a href="https://www.smartkarma.com/entities/united-microelectronics-corp" target="_blank" data-smartkarma-citation="entities:6450:1" rel="noopener">United Microelectronics Corp (2303 TT)</a>, <a href="https://www.smartkarma.com/entities/catcher-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:4957:1" rel="noopener">Catcher Technology (2474 TT)</a>, <a href="https://www.smartkarma.com/entities/focaltech-systems-co-ltd" target="_blank" data-smartkarma-citation="entities:11240:1" rel="noopener">Focaltech Systems (3545 TT)</a>, <a href="https://www.smartkarma.com/entities/nuvoton-technology-corp" target="_blank" data-smartkarma-citation="entities:15913:1" rel="noopener">Nuvoton Technology (4919 TT)</a> and <a href="https://www.smartkarma.com/entities/chailease-holding-co-ltd" target="_blank" data-smartkarma-citation="entities:6579:1" rel="noopener">Chailease Holding (5871 TT)</a>.</p></div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.Hong Kong saw shorts rise on Meituan (3690 HK), Li Ning (2331 HK), China Merchants Bank H (3968 HK), Dongyue Group (189 HK) and Kuaishou Technology (1024 HK) while there was short covering on Alibaba Group (9988 HK), Ping An Insurance (H) (2318 HK), Sunny Optical (2382 HK), Xiaomi Corp (1810 HK) and JD Health (6618 HK). Shorts increased in the Communication Services and Materials sectors while decreasing in the Financials, Information Technology and Health Care sectors.In Japan, stocks increased on Pan Pacific International Holdings (7532 JP), Sekisui House (1928 JP), Toshiba Corp (6502 JP), Toyo Seikan Group Holdings L (5901 JP) and Canon Inc (7751 JP) while there was short covering on Money Forward (3994 JP), ENEOS Holdings (5020 JP), SBI Holdings (8473 JP), Yamaha Corp (7951 JP) and Lasalle Logiport REIT (3466 JP). Shorts increased in most sectors led by the Consumer Discretionary, Industrials, Real Estate, Information Technology and Materials stocks.In Korea, shorts increased on Amorepacific Corp (090430 KS), Kakao Corp (035720 KS), HMM Co., Ltd. (011200 KS), LG Electronics (066570 KS) and Shinpoong Pharmaceutical (019170 KS)   while shorts were covered on Samsung Electronics (005930 KS), Hanwha Solutions (009830 KS), KT Corp (030200 KS), LG Chem Ltd (051910 KS) and NCSOFT Corp (036570 KS).In Taiwan, shorts increased on Wan Hai Lines (2615 TT), TSMC (2330 TT), Fubon Financial Holding Co (2881 TT), Mediatek Inc (2454 TT) and Novatek Microelectronics Corp (3034 TT)     while shorts covered on United Microelectronics Corp (2303 TT), Catcher Technology (2474 TT), Focaltech Systems (3545 TT), Nuvoton Technology (4919 TT) and Chailease Holding (5871 TT).

Asia Shorts: Meituan, CMB, Li Ning, Sekisui, Toyo Seikan, Toshiba, Kakao, HMM, LGE, Wan Hai, TSMC

<p>An <a href="https://diamond.jp/articles/-/281267" target="_blank" rel="noopener">article</a> in Diamond Online late Monday after the close suggested that <a href="https://www.smartkarma.com/entities/eneos-holdings-inc" target="_blank" data-smartkarma-citation="entities:638:1" rel="noopener">ENEOS Holdings (5020 JP)</a>, which is a 57%+ owner of road works and contractor <a href="https://www.smartkarma.com/entities/nippo-corp" target="_blank" data-smartkarma-citation="entities:2583:1" rel="noopener">Nippo Corp (1881 JP)</a> would set up a Special Purpose Corporation, perhaps with the help of Goldman Sachs, and would bid for the rest of its subsidiary. It would then sell its current stake in the company back to the company. </p><p>Late last night the two companies said that they were not the source of the article and that their boards would meet on 7 September to discuss. The stock traded limit up at ¥4215 today. I thought that would have been a great place to be long for a takeout. </p><p>But after the close, ENEOS and Nippo <a href="https://www.nippo-c.co.jp/ir/kessan_pdf/2021_0907_3.pdf" target="_blank" rel="noopener">announced</a> a transaction where a slightly convoluted org chart of entities will do just that - try to buy out minorities of Nippo - but at ¥4,000/share. </p><p>The Tender Offer is likely to start between mid-October and mid-November, but in the meantime, Nippo has come out to support the Tender Offer and we have all the supporting documentation. </p><p>Other than today's limit up price, ¥4,000/share is a lifetime high as far as I know. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/228/336/original/Screenshot+2021-09-07+at+5.02.37+PM.png?1631005799" class="editor-image img-responsive" data-smartkarma-image-id="228336"></figure></section><div class="content-highlight">
<p><strong>Given the capital construct, I could imagine some shareholders could get upset at this valuation.</strong> It looks underpriced to me. You can think of it the following way:</p>
<ul>
<li>ENEOS currently owns 57% of Nippo. </li>
<li>Some combination of ENEOS and Goldman Sachs are going to spend ¥200bn and small change to buy out minorities (the 43% ENEOS doesn't own). It will be financed by non-recourse loans. ENEOS will have control. </li>
<li>Then ENEOS will sell its currently-owned 57% back to the company.</li>
</ul>
<p>To recap... if we imagine ENEOS was the sole buyer, this transaction allows ENEOS to gain 100% of the shares, take out a net $600mm in cash, and own the equity free and clear at 8x ex-cash and securities PER. </p>
<p><em><strong>Just phrasing it that way tells you it is probably being done too cheaply. </strong></em></p>
</div><p>The company has seen its share of scandals over the years which has left both it and <em>all</em> the road building companies (which have also shared these scandals) at low valuations. They were so low that the parents of Obayashi Road and Maeda Road saw fit to buy out the minorities of their subsidiaries (Obayashi in 2017, discussed in <a href="https://www.smartkarma.com/insights/obayashi-road-another-in-a-string-of-underpriced-takeovers-by-a-japanese-parent" target="_blank" data-smartkarma-citation="insights:10608" rel="noopener">Obayashi Road: Another in a String of Underpriced Takeovers by a Japanese Parent</a> and <a href="https://www.smartkarma.com/entities/maeda-road-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:2168:1" rel="noopener">Maeda Road Construction Co (1883 JP)</a> last year in a whole series of insights around the hostile takeover of the majority then the second squeezeout merger, so historical trading price is logically of less import when determining "fair value".</p><div class="content-remarks">
<p>I'd note that the usual construct that companies use to "prove" that their bid is adequate, or prove that their bidder's bid is "not detrimental to minority interests" is to use a mixture of recent stock price, recent peers' stock prices and multiples, and a DCF, which is often dodgily mashed together to create a number which the two parties have otherwise agreed upon behind the scenes. There is rarely any common sense involved. Non-operating rental real estate portfolios, cash, equity, and bond portfolios are sometimes valued to a discount rate of 10%, and sharp changes in forecasts and cash holdings are ignored. </p>
<p>In addition, despite the METI Fair M&amp;A Guidelines introduced in June 2019 which suggest in situations where there is a parent or founder family taking over a company that there should be a majority of minority condition, a full independent committee, a fairness opinion, and abundant care taken to treat minority investors appropriately given the inherent information asymmetry and conflict of interest, we rarely get those, and the extent to which a "control premium" is assessed is whether or not it ends up being a premium to recent traded price, which could be low precisely because investors have come to expect suspect governance from the company due to its status as a listed "child" company beholden to its parent.</p>
</div><p>However while the largest non-ENEOS holder <em>appears</em> to be sometimes-activist Silchester International, because they reported a 7+% position on 25 September 2020 and have not reported a subsequent position (which they would have had to do had they changed their position by more than 1% of shares outstanding), it is to note that their <a href="https://disclosure.edinet-fsa.go.jp/E01EW/download?uji.verb=W0EZA104CXP001003Action&amp;uji.bean=ee.bean.parent.EECommonSearchBean&amp;PID=W1E63011&amp;SESSIONKEY=1630999744307&amp;lgKbn=2&amp;pkbn=0&amp;skbn=1&amp;dskb=&amp;askb=&amp;dflg=0&amp;iflg=&amp;preId=1&amp;mul=1881&amp;lpr=on&amp;cal=1&amp;era=R&amp;yer=&amp;mon=&amp;pfs=4&amp;row=100&amp;idx=0&amp;str=&amp;kbn=1&amp;flg=&amp;syoruiKanriNo=&amp;s=S100JR3W" target="_blank" rel="noopener">last report last year</a> was to <em>sell</em> 1% of the company at prices between mid ¥2700s and high ¥2900s from July to September. </p><p>There is some time between now and the start of the Tender Offer, which means there will be time for people to decide what they think. </p><p>To help with the process, I offer some details and brief valuation notes below.</p>

An article in Diamond Online late Monday after the close suggested that ENEOS Holdings (5020 JP), which is a 57%+ owner of road works and contractor Nippo Corp (1881 JP) would set up a Special Purpose Corporation, perhaps with the help of Goldman Sachs, and would bid for the rest of its subsidiary. It would then sell its current stake in the company back to the company. Late last night the two companies said that they were not the source of the article and that their boards would meet on 7 September to discuss. The stock traded limit up at ¥4215 today. I thought that would have been a great place to be long for a takeout. But after the close, ENEOS and Nippo announced a transaction where a slightly convoluted org chart of entities will do just that - try to buy out minorities of Nippo - but at ¥4,000/share. The Tender Offer is likely to start between mid-October and mid-November, but in the meantime, Nippo has come out to support the Tender Offer and we have all the supporting documentation. Other than today's limit up price, ¥4,000/share is a lifetime high as far as I know. 
Given the capital construct, I could imagine some shareholders could get upset at this valuation. It looks underpriced to me. You can think of it the following way:

ENEOS currently owns 57% of Nippo. 
Some combination of ENEOS and Goldman Sachs are going to spend ¥200bn and small change to buy out minorities (the 43% ENEOS doesn't own). It will be financed by non-recourse loans. ENEOS will have control. 
Then ENEOS will sell its currently-owned 57% back to the company.

To recap... if we imagine ENEOS was the sole buyer, this transaction allows ENEOS to gain 100% of the shares, take out a net $600mm in cash, and own the equity free and clear at 8x ex-cash and securities PER. 
Just phrasing it that way tells you it is probably being done too cheaply. 
The company has seen its share of scandals over the years which has left both it and all the road building companies (which have also shared these scandals) at low valuations. They were so low that the parents of Obayashi Road and Maeda Road saw fit to buy out the minorities of their subsidiaries (Obayashi in 2017, discussed in Obayashi Road: Another in a String of Underpriced Takeovers by a Japanese Parent and Maeda Road Construction Co (1883 JP) last year in a whole series of insights around the hostile takeover of the majority then the second squeezeout merger, so historical trading price is logically of less import when determining "fair value".
I'd note that the usual construct that companies use to "prove" that their bid is adequate, or prove that their bidder's bid is "not detrimental to minority interests" is to use a mixture of recent stock price, recent peers' stock prices and multiples, and a DCF, which is often dodgily mashed together to create a number which the two parties have otherwise agreed upon behind the scenes. There is rarely any common sense involved. Non-operating rental real estate portfolios, cash, equity, and bond portfolios are sometimes valued to a discount rate of 10%, and sharp changes in forecasts and cash holdings are ignored. 
In addition, despite the METI Fair M&amp;A Guidelines introduced in June 2019 which suggest in situations where there is a parent or founder family taking over a company that there should be a majority of minority condition, a full independent committee, a fairness opinion, and abundant care taken to treat minority investors appropriately given the inherent information asymmetry and conflict of interest, we rarely get those, and the extent to which a "control premium" is assessed is whether or not it ends up being a premium to recent traded price, which could be low precisely because investors have come to expect suspect governance from the company due to its status as a listed "child" company beholden to its parent.
However while the largest non-ENEOS holder appears to be sometimes-activist Silchester International, because they reported a 7+% position on 25 September 2020 and have not reported a subsequent position (which they would have had to do had they changed their position by more than 1% of shares outstanding), it is to note that their last report last year was to sell 1% of the company at prices between mid ¥2700s and high ¥2900s from July to September. There is some time between now and the start of the Tender Offer, which means there will be time for people to decide what they think. To help with the process, I offer some details and brief valuation notes below.

ENEOS To Steamroll Nippo (1881 JP) Minorities

Japan

ENEOS Holdings, Inc. operates refining and marketing businesses. The Company refines and distributes petroleum and petroleum chemical products. ENEOS Holdings also provides non ferrous metals, electronic materials, and other products.

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ENEOS Holdings (5020 JP)

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ENEOS To Steamroll Nippo (1881 JP) Minorities

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