Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>In the annals of foreign buyers of Japanese tourism-related real estate assets, there have been a few good examples, and several disasters. Yesterday, we got a new suitor for assets. </li>
<li>Fortress SPV Ontario GK will attempt to buy out Fukushima-based <a href="https://www.smartkarma.com/entities/joban-kosan-co-ltd" target="_blank" data-smartkarma-citation="entities:2826:1" rel="noopener">Joban Kosan (9675 JP)</a> through a double Tender Offer. </li>
<li>There is a history here of a bump on an MBO on an associated company. That may have caused it to trade at a premium on Day 1. It's unrelated.</li>
</ul>


In the annals of foreign buyers of Japanese tourism-related real estate assets, there have been a few good examples, and several disasters. Yesterday, we got a new suitor for assets. 
Fortress SPV Ontario GK will attempt to buy out Fukushima-based Joban Kosan (9675 JP) through a double Tender Offer. 
There is a history here of a bump on an MBO on an associated company. That may have caused it to trade at a premium on Day 1. It's unrelated.


Joban Kosan (9675) - Fortress Buys Out a Fukushima Tourism Asset

<ul>
<li>UK-Based Japanese share activist AVI said publicly yesterday that the price Mitsui OSK announced to take out minorities in <a href="https://www.smartkarma.com/entities/daibiru-corp" target="_blank" data-smartkarma-citation="entities:19065:1" rel="noopener">Daibiru Corp (8806 JP)</a> should be ¥3,000/share not ¥2,200/share.</li>
<li>Today AVI launched a website at <a href="https://www.assetvalueinvestors.com/stopexploitingdaibiru/" target="_blank" rel="noopener">https://www.assetvalueinvestors.com/stopexploitingdaibiru/</a> in which they make their <a href="https://www.assetvalueinvestors.com/content/uploads/2021/12/Daibiru-Public-Presentation_202112_ENG_vF.pdf" target="_blank" rel="noopener">case</a>. </li>
<li>They've got a point. And it is definitely a good point. But the shareholder structure means this is a short-gamma situation for bumpitrageurs.</li>
</ul>


UK-Based Japanese share activist AVI said publicly yesterday that the price Mitsui OSK announced to take out minorities in Daibiru Corp (8806 JP) should be ¥3,000/share not ¥2,200/share.
Today AVI launched a website at https://www.assetvalueinvestors.com/stopexploitingdaibiru/ in which they make their case. 
They've got a point. And it is definitely a good point. But the shareholder structure means this is a short-gamma situation for bumpitrageurs.


Mitsui OSK TOB for Daibiru (8806) Gets Loose from Its Mooring

<h3>The Idemitsu bid for Toa Oil looks bumpity. It is a weird situation though.</h3><p>In mid-December, <a href="https://www.smartkarma.com/entities/idemitsu-kosan-co-ltd" target="_blank" data-smartkarma-citation="entities:109:1" rel="noopener">Idemitsu Kosan (5019 JP)</a> - one of the two large refinery groups in Japan, formed from the merger of Idemitsu Kosan and Showa Shell Oil KK (the other large one being <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> formed from JX and Tonen General) - announced a Tender Offer for the minority portion of <a href="https://www.smartkarma.com/entities/toa-oil-co-ltd" target="_blank" data-smartkarma-citation="entities:11021:1" rel="noopener">Toa Oil Co Ltd (5008 JP)</a>.</p><p>Idemitsu had "inherited" the majority portion in the acquisition of Showa Shell a couple years ago, and had not wrapped it up yet. </p><p>Toa Oil has for years been considered a jewel of an asset because of its extraordinarily high Nelson Complexity Index among refineries in Japan. This allows the company to get more, and more interesting products, out of every barrel of oil put in, and it allows the use of very heavy oil which is less expensive. </p><p>Because the company gets 90% of its revenue acting as an outsourced refinery for Idemitsu's raw materials and output, it carries little inventory and earns a tolling spread, which normally would be negotiated on an arms' length basis. Given the replacement value of the asset, and the market value of the use of the asset, it would appear that the current agreement with the current level of income it affords Toa is not quite arms' length. That would be a good reason to object to the pricing of the deal. If the refinery asset were sold on the open market in an auction, it would likely fetch a higher price for shareholders, including Idemitsu. </p><p>The original deal and all its parameters was discussed in <a href="https://www.smartkarma.com/insights/idemitsu-launches-lowball-tender-offer-for-subsidiary-toa-oil-5008" target="_blank" data-smartkarma-citation="insights:46384" rel="noopener">Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008)</a> and was updated in <a href="https://www.smartkarma.com/insights/toa-oil-5008-tender-offer-update-looks-bumpity" target="_blank" data-smartkarma-citation="insights:46996" rel="noopener">Toa Oil (5008) Tender Offer Update - Looks Bumpity.</a> </p><h2>The NEW News</h2><ul>
<li>On 20 January, Toa Oil announced the record date for the EGM to be 10 February.</li>
<li>Since I last wrote, the largest shareholder has gotten larger, adding 2% to its position as of 21 January (and reported 28 January) and they now hold 22.98%. </li>
<li>On Friday 29 January, Toa Oil reported its <a href="https://www.toaoil.co.jp/investor/pdf/settlement_report_202103_3.pdf" target="_blank" rel="noopener">Q3 earnings</a>.</li>
<li>Toa Oil also announced a revision to its <a href="https://www.toaoil.co.jp/investor/pdf/20210129_gyousekiyosou_shusei.pdf" target="_blank" rel="noopener">full-year forecasts</a>.  The revenue forecast was revised by +7.7%. OP was revised by +509.8%. Net Profit was revised by +418.9%. Those are very big numbers. </li>
<li>Based on that revision, Toa Oil had to revise its <a href="https://www.toaoil.co.jp/investor/pdf/20210129_ikenhyoumei_henkou_english.pdf" target="_blank" rel="noopener">Target Opinion Statement</a>.</li>
<li>And because Toa Oil revised its Target Opinion Statement, pursuant to Article 27-8 Para 8 of the Financial Instruments and Exchange Act, Idemitsu had to <a href="https://ssl4.eir-parts.net/doc/5019/ir_material9/153752/00.pdf" target="_blank" rel="noopener">extend the Tender Offer</a> so there were 10 business days between the announcement and the tender close. The old close was 2 February. The new close is 15 February. </li>
<li>I expect that means Toa Oil will amend the record date for the EGM because Toa and Idemitsu would not want the EGM record date to be before Idemitsu had secured the extra shares.</li>
</ul><p>The quantum of the net change in the revision in earnings forecast should merit a little complaint by shareholders. The <em>change</em> in net income this year alone vs forecast is 5.1% of the Tender Offer Price Market Cap. Even if there is no change to future earnings EVER, that is 5.1% more. </p><p>Given that the Tender Offer Price was the wrong price in the first place, I imagine shareholders who have seen the price trade above the Tender Offer Price every day since the shares were free to trade (on the first day after the announcement, the shares closed limit up but below the tender offer price), will be even less inclined to accept a low-ball price. </p><p>More discussion below.</p>

The Idemitsu bid for Toa Oil looks bumpity. It is a weird situation though.In mid-December, Idemitsu Kosan (5019 JP) - one of the two large refinery groups in Japan, formed from the merger of Idemitsu Kosan and Showa Shell Oil KK (the other large one being ENEOS Holdings (5020 JP) formed from JX and Tonen General) - announced a Tender Offer for the minority portion of Toa Oil Co Ltd (5008 JP).Idemitsu had "inherited" the majority portion in the acquisition of Showa Shell a couple years ago, and had not wrapped it up yet. Toa Oil has for years been considered a jewel of an asset because of its extraordinarily high Nelson Complexity Index among refineries in Japan. This allows the company to get more, and more interesting products, out of every barrel of oil put in, and it allows the use of very heavy oil which is less expensive. Because the company gets 90% of its revenue acting as an outsourced refinery for Idemitsu's raw materials and output, it carries little inventory and earns a tolling spread, which normally would be negotiated on an arms' length basis. Given the replacement value of the asset, and the market value of the use of the asset, it would appear that the current agreement with the current level of income it affords Toa is not quite arms' length. That would be a good reason to object to the pricing of the deal. If the refinery asset were sold on the open market in an auction, it would likely fetch a higher price for shareholders, including Idemitsu. The original deal and all its parameters was discussed in Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008) and was updated in Toa Oil (5008) Tender Offer Update - Looks Bumpity. The NEW News
On 20 January, Toa Oil announced the record date for the EGM to be 10 February.
Since I last wrote, the largest shareholder has gotten larger, adding 2% to its position as of 21 January (and reported 28 January) and they now hold 22.98%. 
On Friday 29 January, Toa Oil reported its Q3 earnings.
Toa Oil also announced a revision to its full-year forecasts.  The revenue forecast was revised by +7.7%. OP was revised by +509.8%. Net Profit was revised by +418.9%. Those are very big numbers. 
Based on that revision, Toa Oil had to revise its Target Opinion Statement.
And because Toa Oil revised its Target Opinion Statement, pursuant to Article 27-8 Para 8 of the Financial Instruments and Exchange Act, Idemitsu had to extend the Tender Offer so there were 10 business days between the announcement and the tender close. The old close was 2 February. The new close is 15 February. 
I expect that means Toa Oil will amend the record date for the EGM because Toa and Idemitsu would not want the EGM record date to be before Idemitsu had secured the extra shares.
The quantum of the net change in the revision in earnings forecast should merit a little complaint by shareholders. The change in net income this year alone vs forecast is 5.1% of the Tender Offer Price Market Cap. Even if there is no change to future earnings EVER, that is 5.1% more. Given that the Tender Offer Price was the wrong price in the first place, I imagine shareholders who have seen the price trade above the Tender Offer Price every day since the shares were free to trade (on the first day after the announcement, the shares closed limit up but below the tender offer price), will be even less inclined to accept a low-ball price. More discussion below.

Toa Oil (5008) Tender Offer Updated Update - STILL Looks Bumpity

David Blennerhassett

Last Week in Event SPACE:  Bingo Ind., Tokyo Rope, Pressance, Engineers India, Kuaishou Tech, SPACs

<p>In late November 2020, the Chairman and a senior executive of <a href="https://www.smartkarma.com/entities/joban-kaihatsu-co-ltd" target="_blank" data-smartkarma-citation="entities:14588:1" rel="noopener">Joban Kaihatsu (1782 JP)</a>  - a smallcap regional construction company with lots of government contracts - announced a Tender Offer to buy out the company. This happens all the time. </p><p>While it happens less often - though still with disturbing regularity - the more disturbing part of this is that he essentially tried to do it for free. </p><p>As discussed in <a href="https://www.smartkarma.com/insights/smallcap-joban-kaihatsu-founder-tries-a-free-mbo" target="_blank" data-smartkarma-citation="insights:45515" rel="noopener">SmallCap Joban Kaihatsu Founder Tries a Free MBO</a>, the Tender Offer Price of ¥7,800/share was less than the value of the net cash + securities positions as of end-September 2020 (the most recent accounting period pre-Tender Offer). The value of net cash + securities was ¥8,933/share. Tangible Book Value per share was ¥12,233/share. </p><p>The "management forecast" on which the "fair value" DCF was built was for higher revenues in the years ahead compared to years past, but also a reduction in profitability of 70%, which would continue for seven years. Even then, the average EBITDA (very little actual depreciation or amortization) for the next seven years was about US$8mm a year (so much lower FCF effectively hides future expensing of capital goods) and so.. obviously... the DCF of that EBITDA was worth... less than zero. </p><p>Shareholders weren't having it. Shares started trading above terms, and haven't traded lower than terms since they started trading in the auction market (after two days of limit up (and the second day was above terms too)).</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/184/185/original/Screenshot+2021-01-23+at+11.45.31+AM.png?1611373555" class="editor-image img-responsive" data-smartkarma-image-id="184185"></figure></section><p>Now we have new news. </p><p>Just before the close yesterday, the bidder raised its bid to ¥9,000/share, and extended the Tender Offer another 11 days to 9 February (they extended it in December from 28 Dec to 25 Jan). </p><p>I think the answer here is still going to be... we'll see.</p><div class="content-remarks"><p><em>[yes, the title is a semi-oblique reference to a large owner of the shares who has purchased its stake since the Tender Offer was launched, but I have no understanding of their intentions.]</em></p></div>

In late November 2020, the Chairman and a senior executive of Joban Kaihatsu (1782 JP)  - a smallcap regional construction company with lots of government contracts - announced a Tender Offer to buy out the company. This happens all the time. While it happens less often - though still with disturbing regularity - the more disturbing part of this is that he essentially tried to do it for free. As discussed in SmallCap Joban Kaihatsu Founder Tries a Free MBO, the Tender Offer Price of ¥7,800/share was less than the value of the net cash + securities positions as of end-September 2020 (the most recent accounting period pre-Tender Offer). The value of net cash + securities was ¥8,933/share. Tangible Book Value per share was ¥12,233/share. The "management forecast" on which the "fair value" DCF was built was for higher revenues in the years ahead compared to years past, but also a reduction in profitability of 70%, which would continue for seven years. Even then, the average EBITDA (very little actual depreciation or amortization) for the next seven years was about US$8mm a year (so much lower FCF effectively hides future expensing of capital goods) and so.. obviously... the DCF of that EBITDA was worth... less than zero. Shareholders weren't having it. Shares started trading above terms, and haven't traded lower than terms since they started trading in the auction market (after two days of limit up (and the second day was above terms too)).Now we have new news. Just before the close yesterday, the bidder raised its bid to ¥9,000/share, and extended the Tender Offer another 11 days to 9 February (they extended it in December from 28 Dec to 25 Jan). I think the answer here is still going to be... we'll see.[yes, the title is a semi-oblique reference to a large owner of the shares who has purchased its stake since the Tender Offer was launched, but I have no understanding of their intentions.]

Joban Kaihatsu MBO Price Bumped, Tender Extended: Still Not Rolling In Clover

Japan

Joban Kaihatsu Co., Ltd. is a general contractor based in Fukushima Prefecture. The Company constructs commercial, industrial, and institutional buildings. Joban, a member of Joban Kosan Group, also performs civil engineering works. Additionally, the Company operates real estate management, environmental pollution analysis, and waste management businesses.

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Joban Kaihatsu (1782 JP)

Joban Kosan (9675) - Fortress Buys Out a Fukushima Tourism Asset

Fortress is buying out a hotel/tourism asset with a bunch of odds and ends attached, at probably too-low a price. Book is overly depreciated....

Travis Lundy

Mitsui OSK TOB for Daibiru (8806) Gets Loose from Its Mooring

Mitsui OSK's Tender Offer for Daibiru was low but supported by a substantial cross-held position - likely enough to get this past 2/3 IF the shares...

Travis Lundy

Toa Oil (5008) Tender Offer Updated Update - STILL Looks Bumpity

Toa Oil reported Q3 results, and a HUGE jump in FY forecasts. OP+500%. Net Profit +400%. Oil demand is better, and the recent spike in electricity...

Travis Lundy

Last Week in Event SPACE: Bingo Ind., Tokyo Rope, Pressance, Engineers India, Kuaishou Tech, SPACs

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

Joban Kaihatsu MBO Price Bumped, Tender Extended: Still Not Rolling In Clover

The Joban Kaihatsu Chairman raises the TOB price but below where the stock has traded every day for eight weeks. It is now at basically an...

Travis Lundy

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