Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last November, after <a href="https://www.smartkarma.com/entities/japan-asia-group-ltd" target="_blank" data-smartkarma-citation="entities:12428:1" rel="noopener">Japan Asia (3751 JP)</a> had been trading in a ¥280-350/share range for many months, chairman Yamashita announced a convoluted bid to take the company private at ¥600/share. <a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a> addressed this deal in <a href="https://www.smartkarma.com/insights/japan-asia-3751-jp-management-buyout-should-there-be-a-bump" target="_blank" data-smartkarma-citation="insights:44928" rel="noopener">Japan Asia (3751 JP) Management Buyout: Should There Be a BUMP?</a> where the answer to the title question was YES. Noted Japanese activist Yoshiaki Murakami thought so too and one of his associated companies bought a large stake near the TOB price, then started buying more. And the stock quickly climbed 30% through terms. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/202/910/original/Screenshot+2021-04-27+at+12.17.18+PM.png?1619497251" class="editor-image img-responsive" data-smartkarma-image-id="202910"></figure></section>After accumulating 20% of the stock, they proposed a Tender Offer at 40% through terms at ¥840/share. There was a good reason for this. The original structure effectively allowed the chairman to put up a derisory sum buy the company with Carlyle's help, then sell some hard assets to Carlyle for well more than the entire market cap of the company, and that left him with the stub businesses, which lose money, and an enormous pile of cash PLUS a residual stake in the asset businesses just sold. It was entirely the wrong price. When Murakami-san brought this up, he was rebuffed. Management and Yamashita-san thought so little of his proposal at 40% through that they did not let him do due diligence, then before his bidding entity could obtain approvals, Yamashita-san and Carlyle DOUBLED their bid to ¥1200/share through a little jiggering of how much Yamashita-san put in, and how much of the Sale Assets (notably the PV farm assets) would be held by the stub/residual business. Murakami-san again asked for due diligence, didn't get it, so launched a Tender Offer at ¥1210/share. The Carlyle "MBO" ended up unsuccessful and to block the Murakami bid, on March 1st, the company decided to pay out a special dividend of ¥300/share AND to launch a poison pill rights issuance which would allow Murakami-san to be diluted. This would require a shareholder vote. The record date for both the dividend and the EGM was 18 March, which was just before the end of the Tender Offer on 22 March, which meant Murakami-san would be paying ¥300/share extra. So he withdrew the Tender Offer, then launched an injunction against the rights. He got the injunction, the company appealed, and won the conservation appeal, which was later dismissed. In the meantime, Murakami-san bought more shares on the dip and said that he would launch a new Tender Offer ¥300/share lower than the last one when the matter of the rights was settled.<h3>The NEW News</h3>Yesterday morning before the open, <a href="https://www.smartkarma.com/entities/japan-asia-group-ltd" target="_blank" data-smartkarma-citation="entities:12428:1" rel="noopener">Japan Asia (3751 JP)</a>  <a href="https://www.japanasiagroup.jp/wordpress/wp-content/uploads/2021-4-26.pdf" target="_blank" rel="noopener">announced</a> it was cancelling its planned rights issue.Yesterday during the day the stock rose to ¥946 which was ~4% through the bid Murakami-san had planned. Last night, City Index Eleventh <a href="https://www.businesswire.com/news/home/20210426005380/ja/" target="_blank" rel="noopener">announced</a> that it would launch its planned Tender Offer at ¥910/share (accompanying document link <a href="https://www.japanasiagroup.jp/wordpress/wp-content/uploads/2021-4-26_2.pdf" target="_blank" rel="noopener">here</a>).So here we are again. Japan Asia Group, for its part, announced it would "consider the Tender Offer and respond with its Opinion Statement in a timely manner."Here we go again.

Last November, after Japan Asia (3751 JP) had been trading in a ¥280-350/share range for many months, chairman Yamashita announced a convoluted bid to take the company private at ¥600/share. Janaghan Jeyakumar, CFA addressed this deal in Japan Asia (3751 JP) Management Buyout: Should There Be a BUMP? where the answer to the title question was YES. Noted Japanese activist Yoshiaki Murakami thought so too and one of his associated companies bought a large stake near the TOB price, then started buying more. And the stock quickly climbed 30% through terms. After accumulating 20% of the stock, they proposed a Tender Offer at 40% through terms at ¥840/share. There was a good reason for this. The original structure effectively allowed the chairman to put up a derisory sum buy the company with Carlyle's help, then sell some hard assets to Carlyle for well more than the entire market cap of the company, and that left him with the stub businesses, which lose money, and an enormous pile of cash PLUS a residual stake in the asset businesses just sold. It was entirely the wrong price. When Murakami-san brought this up, he was rebuffed. Management and Yamashita-san thought so little of his proposal at 40% through that they did not let him do due diligence, then before his bidding entity could obtain approvals, Yamashita-san and Carlyle DOUBLED their bid to ¥1200/share through a little jiggering of how much Yamashita-san put in, and how much of the Sale Assets (notably the PV farm assets) would be held by the stub/residual business. Murakami-san again asked for due diligence, didn't get it, so launched a Tender Offer at ¥1210/share. The Carlyle "MBO" ended up unsuccessful and to block the Murakami bid, on March 1st, the company decided to pay out a special dividend of ¥300/share AND to launch a poison pill rights issuance which would allow Murakami-san to be diluted. This would require a shareholder vote. The record date for both the dividend and the EGM was 18 March, which was just before the end of the Tender Offer on 22 March, which meant Murakami-san would be paying ¥300/share extra. So he withdrew the Tender Offer, then launched an injunction against the rights. He got the injunction, the company appealed, and won the conservation appeal, which was later dismissed. In the meantime, Murakami-san bought more shares on the dip and said that he would launch a new Tender Offer ¥300/share lower than the last one when the matter of the rights was settled.The NEW NewsYesterday morning before the open, Japan Asia (3751 JP)  announced it was cancelling its planned rights issue.Yesterday during the day the stock rose to ¥946 which was ~4% through the bid Murakami-san had planned. Last night, City Index Eleventh announced that it would launch its planned Tender Offer at ¥910/share (accompanying document link here).So here we are again. Japan Asia Group, for its part, announced it would "consider the Tender Offer and respond with its Opinion Statement in a timely manner."Here we go again. 

City Index Eleventh OFFICIALLY Launches Next Japan Asia Group (3751) Hostile Tender Offer

The now four-month long and more-than-sordid affair which is the Japan Asia Group MBO, <ul>
<li>
<a href="https://www.smartkarma.com/entities/japan-asia-group-ltd" target="_blank" data-smartkarma-citation="entities:12428:1" rel="noopener">Japan Asia (3751 JP)</a> chairman Yamashita in November announced an "MBO" at ¥600/share (against the ¥300+/share where it had been trading) for the hodgepodge of businesses which is Japan Asia Group, but did so with Carlyle stripping out the two high-dollar prized assets, executing some elaborate corporate restructuring, leaving the CEO - was contributing US$600,000 to the enterprise - owning some residual stakes in those assets, more than $100mm of cash, plus the residual businesses. </li>
<li>The board agreed that was reasonable and recommended the offer. </li>
<li>Activist Yoshiaki Murakami, operating through his unit City Index Eleventh Inc. decided it was not, bought 10% in quick order, then kept on buying and that lifted the price well through terms. He ended up with 20% and suggested instead to the Board he buy the company at ¥840/share. </li>
<li>To avoid that, the bidding party re-arranged their finances and came up with a new price of ¥1200/share. The Board agreed this too was reasonable and recommended the offer.</li>
<li>Murakami-san asked for due diligence so he could put forth a plan to be considered by the Board, and a chance to talk to the employees. JAG refused.</li>
<li>City Index Eleventh launched a Tender Offer at ¥1210. The JAG Board rejected it, saying City Index Eleventh was somehow disrespecting shareholders, and did not have a plan, accusing it of plans to strip out the assets that Yamashita-san was going to strip out, and accusing City Index Eleventh of not caring for employees. </li>
<li>JAG decided on a new business plan which involved stripping out the same two assets, paying a special dividend to shareholders of ¥300/share, and then pursuing restructuring. </li>
<li>Murakami-san dropped his Tender Offer to avoid paying ¥300/share more.</li>
</ul>That was two weeks ago. <h3>The NEW News</h3><ul>
<li>Japan Asia Group on 9 March <a href="https://www.japanasiagroup.jp/wordpress/wp-content/uploads/2021-3-9_2.pdf" target="_blank" rel="noopener">announced</a> it would propose a poison pill measure to the June AGM.</li>
<li>Unbeknownst to everyone at the time, CIE had been buying more - 2.29% from 4 March through 9 March. That was announced on the 12th and 15th.</li>
<li>Yesterday the stock went ex-dividend, awaiting an EGM for shareholders to approve. </li>
<li>On the 17th of March, City Index Eleventh <a href="https://www.japanasiagroup.jp/wordpress/wp-content/uploads/2021-3-18_2.pdf" target="_blank" rel="noopener">announced</a> they would re-launch another Tender Offer at ¥910/share this time - the old Tender Offer Price of ¥1,210 less the ¥300/share special dividend which just went ex-.</li>
<li>On the 18th, JAG announced CIE's plans, and got upset that CIE had not responded to the JAG "question" posed in the threat to introduce a poison pill. </li>
</ul>More below the fold.

The now four-month long and more-than-sordid affair which is the Japan Asia Group MBO, 

Japan Asia (3751 JP) chairman Yamashita in November announced an "MBO" at ¥600/share (against the ¥300+/share where it had been trading) for the hodgepodge of businesses which is Japan Asia Group, but did so with Carlyle stripping out the two high-dollar prized assets, executing some elaborate corporate restructuring, leaving the CEO - was contributing US$600,000 to the enterprise - owning some residual stakes in those assets, more than $100mm of cash, plus the residual businesses. 
The board agreed that was reasonable and recommended the offer. 
Activist Yoshiaki Murakami, operating through his unit City Index Eleventh Inc. decided it was not, bought 10% in quick order, then kept on buying and that lifted the price well through terms. He ended up with 20% and suggested instead to the Board he buy the company at ¥840/share. 
To avoid that, the bidding party re-arranged their finances and came up with a new price of ¥1200/share. The Board agreed this too was reasonable and recommended the offer.
Murakami-san asked for due diligence so he could put forth a plan to be considered by the Board, and a chance to talk to the employees. JAG refused.
City Index Eleventh launched a Tender Offer at ¥1210. The JAG Board rejected it, saying City Index Eleventh was somehow disrespecting shareholders, and did not have a plan, accusing it of plans to strip out the assets that Yamashita-san was going to strip out, and accusing City Index Eleventh of not caring for employees. 
JAG decided on a new business plan which involved stripping out the same two assets, paying a special dividend to shareholders of ¥300/share, and then pursuing restructuring. 
Murakami-san dropped his Tender Offer to avoid paying ¥300/share more.
That was two weeks ago. The NEW News
Japan Asia Group on 9 March announced it would propose a poison pill measure to the June AGM.
Unbeknownst to everyone at the time, CIE had been buying more - 2.29% from 4 March through 9 March. That was announced on the 12th and 15th.
Yesterday the stock went ex-dividend, awaiting an EGM for shareholders to approve. 
On the 17th of March, City Index Eleventh announced they would re-launch another Tender Offer at ¥910/share this time - the old Tender Offer Price of ¥1,210 less the ¥300/share special dividend which just went ex-.
On the 18th, JAG announced CIE's plans, and got upset that CIE had not responded to the JAG "question" posed in the threat to introduce a poison pill. 
More below the fold. 

Murakami-San Launches New JAG (3751) Tender Offer

David Blennerhassett

Last Week in Event SPACE: China Youzan, Mcdonald's, Beijing Jingneng, Ricoh, Melco Resorts, LG Corp

<a href="https://www.smartkarma.com/entities/shoko-co-ltd" target="_blank" data-smartkarma-citation="entities:1167:1" rel="noopener">Shoko Co Ltd (8090 JP)</a> is a trading company which deals in fertilizers and chemicals and is the consolidated subsidiary of <a href="https://www.smartkarma.com/entities/showa-denko-k-k" target="_blank" data-smartkarma-citation="entities:1496:1" rel="noopener">Showa Denko K.K. (4004 JP)</a>. Shoko is undergoing a transformation/restructuring as part of its Swing-by Mid-Term Management Plan (is any Japanese company ever NOT going through some kind of transformative effort?).
This is an LBO of sorts, done with the agreement of Showa Denko, which after its purchase of the Hitachi Chemicals business almost a year ago has better things to do.
It is being taken over by a PE project fund, and Showa Denko is keeping 15% and involving itself with a shareholder agreement and involvement on choosing directors going forward. 
The deal requires only 51.8% of shares out, of which Showa Denko provides 29%. It needs 22% of the other 56% outstanding. It basically all has to come from domestic passive, some small measure of crossholders, and retail. Foreigners own almost nothing. 
But this, like many other deals, is being done at the wrong price. The TOB price is at a tiny premium, and the effective Adjusted EV/EBITDA multiple (EV adjusted for securities holdings and net receivables) is too low.
More below the fold.

Shoko Co Ltd (8090 JP) is a trading company which deals in fertilizers and chemicals and is the consolidated subsidiary of Showa Denko K.K. (4004 JP). Shoko is undergoing a transformation/restructuring as part of its Swing-by Mid-Term Management Plan (is any Japanese company ever NOT going through some kind of transformative effort?).
This is an LBO of sorts, done with the agreement of Showa Denko, which after its purchase of the Hitachi Chemicals business almost a year ago has better things to do.
It is being taken over by a PE project fund, and Showa Denko is keeping 15% and involving itself with a shareholder agreement and involvement on choosing directors going forward. 
The deal requires only 51.8% of shares out, of which Showa Denko provides 29%. It needs 22% of the other 56% outstanding. It basically all has to come from domestic passive, some small measure of crossholders, and retail. Foreigners own almost nothing. 
But this, like many other deals, is being done at the wrong price. The TOB price is at a tiny premium, and the effective Adjusted EV/EBITDA multiple (EV adjusted for securities holdings and net receivables) is too low.
More below the fold. 

Shoko (8090 JP) Tender Offer - Showa Denko Sells Too Cheap. Looks Bumpity.

Equity Bottom-Up

In early November, <a href="https://www.smartkarma.com/entities/japan-asia-group-ltd" target="_blank" data-smartkarma-citation="entities:12428:1" rel="noopener">Japan Asia (3751 JP)</a> was trading at roughly ¥340-350/share. The Chairman, who has a history of failed takeovers, decided an MBO of the company was appropriate. He tied up with Carlyle to execute an odd deal whereby Carlyle would be the buyer, but the company would sell 70-80% of its two trophy assets for cash to Carlyle, and would exit, leaving the chairman long the remaining money-losing SurviveCo asset, stakes in the sold assets, and a big pile of cash.  He managed to convince the directors that a value of ¥600/share was reasonable, and recommendable to investors. Discussed in <a href="https://www.smartkarma.com/insights/japan-asia-3751-jp-management-buyout-should-there-be-a-bump" target="_blank" data-smartkarma-citation="insights:44928" rel="noopener">Japan Asia (3751 JP) Management Buyout: Should There Be a BUMP?</a> Well-known Japanese activist Yoshiaki Murakami took issue with this, bought 20% of the shares outstanding, then proposed his own takeover at ¥840/share. Discussed in <a href="https://www.smartkarma.com/insights/murakami-fund-s-tender-for-jag-3751-may-be-rangebound-near-term" target="_blank" data-smartkarma-citation="insights:47158" rel="noopener">Murakami Fund's Tender for JAG (3751):  May Be Rangebound Near-Term</a>. The company did not engage and Carlyle did not respond, until he was on the verge of launching, and then the chairman and Carlyle rejigged their deal to offer ¥1200/share. Funnily enough, this too was recommended by JAG directors. Discussed in <a href="https://www.smartkarma.com/insights/japan-asia-group-3751-murakami-wins-the-mother-of-all-bumps-100" target="_blank" data-smartkarma-citation="insights:47437" rel="noopener">Japan Asia Group (3751): Murakami Wins the Mother Of All Bumps +100%</a>. Murakami-san objected and requested due diligence to be able to fully formulate the plan to raise Medium-Long-Term Corporate Value and the chance to meet with employees. The Company rejected the due diligence request saying that he did not have a plan to raise Medium-Long-Term Corporate Value and rejected the meeting with employees. Murakami-san responded by launching a Tender Offer at ¥1210/share, ending 22 March 2021. The shares have traded higher since. The MBO conducted by the Chairman and Carlyle failed. Discussed in <a href="https://www.smartkarma.com/insights/overbid-jag-special-committee-plays-stupid-so-murakami-plays-hardball" target="_blank" data-smartkarma-citation="insights:47802" rel="noopener">Overbid: JAG Special Committee Plays Stupid so Murakami Plays Hardball</a>. Somehow, the directors figured out that the Chairman's plan at ¥1200/share was great and recommendable but Murakami-san's plan at ¥1210/share was awful and destined to bring the company to ruin. They opposed his TOB. Discussed in <a href="https://www.smartkarma.com/insights/japan-asia-group-mbo-fails-now-jag-against-murakami-s-higher-bid" target="_blank" data-smartkarma-citation="insights:48360" rel="noopener">Japan Asia Group MBO Fails, Now JAG Against Murakami's Higher Bid</a>. <section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/191/605/original/Screenshot+2021-03-01+at+5.26.07+PM.png?1614598916" class="editor-image img-responsive" data-smartkarma-image-id="191605"></figure></section></section>The Company has now decided that it wants to improve value for all shareholders. Today, it released a Notice Regarding Measures for Improving Corporate Value and Returning Shareholders (<a href="https://www.japanasiagroup.jp/wordpress/wp-content/uploads/2021-3-1_1.pdf" target="_blank" rel="noopener">Japanese only</a>) and in it, the Board proposes to...<ol>
<li>Have a Management Plan for moving forward, including the concept of a "Second Founding" of the company.</li>
<li>Pay a Special Dividend of ¥300/share</li>
<li>Sell large portions of the Two Major Sellable Assets to a "New Partner"</li>
<li>Have a policy regarding implementation of significant returns to shareholders. </li>
</ol><div class="content-highlight">
This plan is effectively quite similar to what JAG's Board accused Murakami-san of planning to do.
It is designed to obstruct the Murakami Tender Offer, and it will likely succeed in doing so.
I could not exclude the possibility of a Bull Dog Sauce situation here.
</div>Much more below the fold.

In early November, Japan Asia (3751 JP) was trading at roughly ¥340-350/share. The Chairman, who has a history of failed takeovers, decided an MBO of the company was appropriate. He tied up with Carlyle to execute an odd deal whereby Carlyle would be the buyer, but the company would sell 70-80% of its two trophy assets for cash to Carlyle, and would exit, leaving the chairman long the remaining money-losing SurviveCo asset, stakes in the sold assets, and a big pile of cash.  He managed to convince the directors that a value of ¥600/share was reasonable, and recommendable to investors. Discussed in Japan Asia (3751 JP) Management Buyout: Should There Be a BUMP? Well-known Japanese activist Yoshiaki Murakami took issue with this, bought 20% of the shares outstanding, then proposed his own takeover at ¥840/share. Discussed in Murakami Fund's Tender for JAG (3751):  May Be Rangebound Near-Term. The company did not engage and Carlyle did not respond, until he was on the verge of launching, and then the chairman and Carlyle rejigged their deal to offer ¥1200/share. Funnily enough, this too was recommended by JAG directors. Discussed in Japan Asia Group (3751): Murakami Wins the Mother Of All Bumps +100%. Murakami-san objected and requested due diligence to be able to fully formulate the plan to raise Medium-Long-Term Corporate Value and the chance to meet with employees. The Company rejected the due diligence request saying that he did not have a plan to raise Medium-Long-Term Corporate Value and rejected the meeting with employees. Murakami-san responded by launching a Tender Offer at ¥1210/share, ending 22 March 2021. The shares have traded higher since. The MBO conducted by the Chairman and Carlyle failed. Discussed in Overbid: JAG Special Committee Plays Stupid so Murakami Plays Hardball. Somehow, the directors figured out that the Chairman's plan at ¥1200/share was great and recommendable but Murakami-san's plan at ¥1210/share was awful and destined to bring the company to ruin. They opposed his TOB. Discussed in Japan Asia Group MBO Fails, Now JAG Against Murakami's Higher Bid. The Company has now decided that it wants to improve value for all shareholders. Today, it released a Notice Regarding Measures for Improving Corporate Value and Returning Shareholders (Japanese only) and in it, the Board proposes to...
Have a Management Plan for moving forward, including the concept of a "Second Founding" of the company.
Pay a Special Dividend of ¥300/share
Sell large portions of the Two Major Sellable Assets to a "New Partner"
Have a policy regarding implementation of significant returns to shareholders. 

This plan is effectively quite similar to what JAG's Board accused Murakami-san of planning to do.
It is designed to obstruct the Murakami Tender Offer, and it will likely succeed in doing so.
I could not exclude the possibility of a Bull Dog Sauce situation here.
Much more below the fold.

Japan Asia Group (3751) : Defense Against Hostile TOB Is Bad News

Japan

Japan Asia Group Limited provides consulting services to both the private and public sectors relating to social infrastructure development. The Company also develops green communities as well as renewable energy plants. Japan Asia Group aditionally provides various financial services such as security brokerage.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Japan Asia (3751 JP)

City Index Eleventh OFFICIALLY Launches Next Japan Asia Group (3751) Hostile Tender Offer

Murakami-san today launched his next Hostile Tender Offer against Japan Asia Group (3751) at ¥910/share. The shares haven't traded that low since...

Travis Lundy

Murakami-San Launches New JAG (3751) Tender Offer

JAG busts Murakami's deal, then decides to launch a poison pill. Murakami-san responds by announcing a new tender offer. It's fun, but there are...

Travis Lundy

Last Week in Event SPACE: China Youzan, Mcdonald's, Beijing Jingneng, Ricoh, Melco Resorts, LG Corp

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Shoko (8090 JP) Tender Offer - Showa Denko Sells Too Cheap. Looks Bumpity.

Showa Denko is selling its fertiliser/trading co subsidiary Shoko (8090) to a PE fund. The fund is buying it cheap. REALLY cheap. And a small...

Travis Lundy

Japan Asia Group (3751) : Defense Against Hostile TOB Is Bad News

JAG (3751) announces a Special Dividend designed to get Murakami-san to withdraw his tender offer. He likely will. That's bad news for shareholders.

Travis Lundy

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)