Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<h2>MELCO Started Buying Back Shares Five Years Ago </h2>On the 17th of December 2015, <a href="https://www.smartkarma.com/entities/melco-holdings-inc" target="_blank" data-smartkarma-citation="entities:6597:1" rel="noopener">Melco Holdings (6676 JP)</a><a href="https://melco-hd.jp/news/201603/20151217jikokabu1.pdf" target="_blank" rel="noopener">announced</a> a buyback plan to buy back up to 3,000,000 shares for up to ¥6.3 billion. There were 22.2mm shares outstanding at the time. That buyback program was to last up to a year. The next day they had done half of it. About seven months later (20 July <a href="https://melco-hd.jp/news/201703/20160720jikokabu.pdf" target="_blank" rel="noopener">announcement</a>) the company had spent the ¥6.3 billion. About two-thirds of it was done through a pair of ToSTNeT-3 buybacks. About 1 million shares was bought back in the market. Less than a week later the company <a href="https://melco-hd.jp/news/201703/20160725jikokabu_jyoukyou.pdf" target="_blank" rel="noopener">reloaded</a>. This time, it was a buyback of up to 3,000,000 shares for up to ¥8.0 billion. There were 19.2mm shares outstanding at the time. <a href="https://melco-hd.jp/news/201803/20170726jikokabu.pdf" target="_blank" rel="noopener">A year later</a> they had bought back 1.2mm shares or about 6.3% of shares out. The same day they announced the end of that one, they <a href="https://melco-hd.jp/news/201803/20170726jikokabu_jyoukyou.pdf" target="_blank" rel="noopener">announced</a> another one lasting another year. You guessed it. Up to 3,000,000 shares for up to ¥10.5 billion. This time against 18.1mm shares out ex-Treasury shares. The company <a href="https://melco-hd.jp/news/201903/20180727jikokabu_jyoukyou.pdf" target="_blank" rel="noopener">bought back</a> 480k shares in the year to 26 July 2018.In the meantime, the company had issued new shares to Itochu and the family company and Maki family members to pay for the 77% of Shimadaya that it did not own (Itochu was 15%, Makis Corp and the family was 52%). Financially it was not a bad trade for Melco. That involved the net issuance of just above 3mm shares during the period of the buyback. But it was weird. Shimadaya makes noodles. This was seen as diversification for MELCO. I tend to think it was the family shuffling around assets and ownership between a left pocket and a right pocket.At the end of the buyback in July 2018, the company launched another<a href="https://melco-hd.jp/news/201903/20180726jikokabu_jyoukyou.pdf" target="_blank" rel="noopener">buyback</a>. This time for up to 3,000,000 shares again. This time for up to ¥12.5 billion. A year later (last week) the company <a href="https://melco-hd.jp/news/202003/20190729jikokabu_jyoukyou.pdf" target="_blank" rel="noopener">announced</a> it had only bought back ~5% of shares outstanding on the market over the course of the year so ex-Treasury, there should be about 19.7mm shares. In 2015 the buyback went well. In 2016-2017, 2017-2018, and 2018-2019 they went less well, buying back 40%, 15%, and 34% of the amounts proposed. <h2>The New News</h2>On 2 August, the company announced a new buyback. This time there is no messing around. The buyback is for up to 3,300,100 shares (16.75％ of shares outstanding) for up to ¥9,075,275,000 (i.e. ¥2750/share, a 10.0% discount to the 1-month VWAP as of the announcement).This time it is in the form of a Tender Offer. Makis, which is the personal asset management company of the founder's family, has asked to sell up to 3,000,000 shares out of the 11.308mm shares they own. The other 300,000 shares of the Tender Offer are reserved for others should they want to participate. This is yet another Tender Offer situation where it is not meant for you to participate. Unfortunately, the stock closed even below ¥2750/share the day of the announcement so the Tender Offer is at a small premium to the close of the announcement date.That's probably OK. The buyback is being done just below book value. And this is a company everyone knows. They are...<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/090/original/Buffalo%20Logo.jpg?1565191399" class="editor-image img-responsive" data-smartkarma-image-id="95090"></figure>Yep. Memory. Memory sticks. Hard drives. Wifi routers. A wide array of peripherals (they also now have a food business).The brand isn't going anywhere.More on the situation below the fold. <hr>For more information on Japanese Tender Offers and M&amp;A, please refer to the <a href="https://www.smartkarma.com/insights/quiddity-japan-m-a-guide-2019" target="_blank" rel="noopener">Quiddity Japan M&amp;A Guide</a> which is meant as a guide to the rules and practices of M&amp;A and Tender Offers in Japan, including minority and dissenter rights.

MELCO Started Buying Back Shares Five Years Ago On the 17th of December 2015, Melco Holdings (6676 JP)announced a buyback plan to buy back up to 3,000,000 shares for up to ¥6.3 billion. There were 22.2mm shares outstanding at the time. That buyback program was to last up to a year. The next day they had done half of it. About seven months later (20 July announcement) the company had spent the ¥6.3 billion. About two-thirds of it was done through a pair of ToSTNeT-3 buybacks. About 1 million shares was bought back in the market. Less than a week later the company reloaded. This time, it was a buyback of up to 3,000,000 shares for up to ¥8.0 billion. There were 19.2mm shares outstanding at the time. A year later they had bought back 1.2mm shares or about 6.3% of shares out. The same day they announced the end of that one, they announced another one lasting another year. You guessed it. Up to 3,000,000 shares for up to ¥10.5 billion. This time against 18.1mm shares out ex-Treasury shares. The company bought back 480k shares in the year to 26 July 2018.In the meantime, the company had issued new shares to Itochu and the family company and Maki family members to pay for the 77% of Shimadaya that it did not own (Itochu was 15%, Makis Corp and the family was 52%). Financially it was not a bad trade for Melco. That involved the net issuance of just above 3mm shares during the period of the buyback. But it was weird. Shimadaya makes noodles. This was seen as diversification for MELCO. I tend to think it was the family shuffling around assets and ownership between a left pocket and a right pocket.At the end of the buyback in July 2018, the company launched anotherbuyback. This time for up to 3,000,000 shares again. This time for up to ¥12.5 billion. A year later (last week) the company announced it had only bought back ~5% of shares outstanding on the market over the course of the year so ex-Treasury, there should be about 19.7mm shares. In 2015 the buyback went well. In 2016-2017, 2017-2018, and 2018-2019 they went less well, buying back 40%, 15%, and 34% of the amounts proposed. The New NewsOn 2 August, the company announced a new buyback. This time there is no messing around. The buyback is for up to 3,300,100 shares (16.75％ of shares outstanding) for up to ¥9,075,275,000 (i.e. ¥2750/share, a 10.0% discount to the 1-month VWAP as of the announcement).This time it is in the form of a Tender Offer. Makis, which is the personal asset management company of the founder's family, has asked to sell up to 3,000,000 shares out of the 11.308mm shares they own. The other 300,000 shares of the Tender Offer are reserved for others should they want to participate. This is yet another Tender Offer situation where it is not meant for you to participate. Unfortunately, the stock closed even below ¥2750/share the day of the announcement so the Tender Offer is at a small premium to the close of the announcement date.That's probably OK. The buyback is being done just below book value. And this is a company everyone knows. They are...Yep. Memory. Memory sticks. Hard drives. Wifi routers. A wide array of peripherals (they also now have a food business).The brand isn't going anywhere.More on the situation below the fold. For more information on Japanese Tender Offers and M&amp;A, please refer to the Quiddity Japan M&amp;A Guide which is meant as a guide to the rules and practices of M&amp;A and Tender Offers in Japan, including minority and dissenter rights.

Melco - No Not That One - Launches A Big Buyback And It's Cheap

Japan TMT Analyst

Pelham Smithers

Market Intel on Asian Tech with a Japan focus

Pelham Smithers Associates

Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods. 

Research is provided by the following:
Pelham Smithers: Macro, consumer electronics, telecoms & pharma
Joel Scheiman: Electronics materials / components
Julie Boote: Autos
Will Nestuk: Capital goods, machinery & transportation equipment parts
Thao Nguyen: eCommerce, internet content, marketing & advertising

Equity Bottom-Up

Whether or not <a href="https://www.smartkarma.com/entities/6597" target="_blank" data-smartkarma-citation="entities:6597:1">Melco Holdings (6676 JP)</a> is going to prove to be a pioneer of the massive share buyback, what is clear is that it is working for the company's stock and its investors, with the result that following a somewhat lackluster 1Q FY17 performance (OP up 7% on sales down 2%), the company has once again concluded that the best thing it can do with its cash pile is return it to shareholders. The company will buy back up to 15.6% of shares for ¥10.5bil.Investors, though, are beginning to…

Whether or not Melco Holdings (6676 JP) is going to prove to be a pioneer of the massive share buyback, what is clear is that it is working for the company's stock and its investors, with the result that following a somewhat lackluster 1Q FY17 performance (OP up 7% on sales down 2%), the company has once again concluded that the best thing it can do with its cash pile is return it to shareholders. The company will buy back up to 15.6% of shares for ¥10.5bil.Investors, though, are beginning to…

Melco Holdings (6676) - Another Year, Another Huge BuyBack

Japan

MELCO HOLDINGS INC. is a holding company which manages computer peripheral equipment manufacturing subsidiaries.  The Company's subsidiaries develop and produce memory and storage devices and network equipment.

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Melco Holdings (6676 JP)

Melco - No Not That One - Launches A Big Buyback And It's Cheap

MELCO Started Buying Back Shares Five Years Ago On the 17th of December 2015, Melco Holdings (6676 JP)announced a buyback plan to buy back up to...

Travis Lundy

Melco Holdings (6676) - Another Year, Another Huge BuyBack

Whether or not Melco Holdings (6676 JP) is going to prove to be a pioneer of the massive share buyback, what is clear is that it is working for the...

Pelham Smithers Associates

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