IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/nippon-active-value-fund-plc" target="_blank" data-smartkarma-citation="entities:31492:1" rel="noopener">Nippon Active Value Fund PLC (NAVF LN)</a>’s jointly-held shareholding in <a href="https://www.smartkarma.com/entities/intage-holdings-inc" target="_blank" data-smartkarma-citation="entities:3151:1" rel="noopener">Intage Holdings (4326 JP)</a> has declined from 11.28% to 9.52% of outstanding shares (disclosed on 20 September).</li>
<li>NAVF wants to take as much money off the table as possible as <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a>’s partial offer price represents an all-time high.</li>
<li>Our revised minimum proration is 53.31%. NAVF’s action suggests that the minimum acceptance condition, which requires a 20% minority acceptance rate, should be satisfied.</li>
</ul>



Nippon Active Value Fund PLC (NAVF LN)’s jointly-held shareholding in Intage Holdings (4326 JP) has declined from 11.28% to 9.52% of outstanding shares (disclosed on 20 September).
NAVF wants to take as much money off the table as possible as NTT (Nippon Telegraph &amp; Telephone) (9432 JP)’s partial offer price represents an all-time high.
Our revised minimum proration is 53.31%. NAVF’s action suggests that the minimum acceptance condition, which requires a 20% minority acceptance rate, should be satisfied.


Intage Holdings (4326 JP): NAVF Selldown and Proration for NTT’s Partial Offer

<ul>
<li>
<a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a> has announced a partial tender offer for <a href="https://www.smartkarma.com/entities/intage-holdings-inc" target="_blank" data-smartkarma-citation="entities:3151:1" rel="noopener">Intage Holdings (4326 JP)</a> to make it a consolidated subsidiary. </li>
<li>The offer is for a minimum of 15.4m shares (40.00% ownership ratio) and a maximum of 19.6m shares (51.00%) at JPY2,400 per share, a 26.4% premium to the undisturbed price.</li>
<li>Irrevocables represent a 19.90% ownership ratio. The minimum acceptance condition requires a 20% minority acceptance rate. The offer is attractive and represents an all-time high.</li>
</ul>



NTT (Nippon Telegraph &amp; Telephone) (9432 JP) has announced a partial tender offer for Intage Holdings (4326 JP) to make it a consolidated subsidiary. 
The offer is for a minimum of 15.4m shares (40.00% ownership ratio) and a maximum of 19.6m shares (51.00%) at JPY2,400 per share, a 26.4% premium to the undisturbed price.
Irrevocables represent a 19.90% ownership ratio. The minimum acceptance condition requires a 20% minority acceptance rate. The offer is attractive and represents an all-time high.


Intage Holdings (4326 JP): NTT’s Partial Tender Offer

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Today during trading hours, smallcap textile manufacturer <a href="https://www.smartkarma.com/entities/sakai-ovex-co-ltd" target="_blank" data-smartkarma-citation="entities:20002:1" rel="noopener">Sakai Ovex (3408 JP)</a> announced its Q3 earnings and also announced an MBO by its president, Matsuki-san. 
The stock was briefly suspended then went limit up, closing at ¥2683.
The Tender Offer to take the company private is at ¥2,850/share, an all-time high.
The Number 3 Shareholder Nippon Active Value Fund PLC ("NAVF") has agreed to tender their 389,900 shares counting for 6.30%. In return for this, the NAVF will be allocated "B Shares" (non-voting preference shares, where terms are not yet decided) in the acquirer. The NAVF is a small (£112mm) LSE-listed closed end fund which was launched in February 2020. It is managed by investment adviser Rising Sun Management. 
This is not a fund named "Nippon Active Value Fund" getting out. This is a listed closed end fund agreeing to own a private "B Share" of an unlisted company at an all-time high price. 
If you know who is behind Rising Sun Management, you should take a closer look. 
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While ¥2850/share is an all-time high share price, it is still well short of Book Value Per Share (now just above ¥3,700/share). 
And Book Value is probably well short of Real Value as it includes some investments in affiliates which are earning VERY well - far above the average ROE of the average suffering affiliate. And because they are investments in affiliates, they are not marked to market. And conveniently, they don't seem to show up in the "free cash flow" valuation by the 3rd party valuation agent on this deal. 
That book value also includes fixed assets which have been depreciated down 90%. 
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This company, which management would tell you desperately needs to be restructured, and so needs to be taken private to spare shareholders of the indignity of negative and volatile earnings over the next couple of years, is supposed to earn a net return on EV (less listed securities) of something like 15-20% over the next few years, all while supporting short-term net assets equivalent to half of EV.
The issue here is that the headline figures do not tell you the valuation of the company, and once again, the "financial advisors" to the acquirer never seem to do the right thing in valuing companies which get taken over. Sakai Ovex directors seem happy to recommend a takeover at an all-time high and a 31.7% premium to last, but once again, the issue is that headline figures do not tell you the real value of the company, and once again, the "financial advisors" never seem to get it quite right. 
Why is it that MBOs always seem to be done at below book value?
Oh... those securities worth 3x EBITDA?   Don't mind those...
The fixed assets earning an OPCF Less Capex return of 20+%?   Hmmm.... 
Key for investors in these situations is to understand that IF a bank is going to lend the entire purchase price to the MBO buyers who themselves are well-known value/activist shareholders, the MBO is probably going to be done at the wrong price. 
</div>
There is, as always, lots more below the fold.

Today during trading hours, smallcap textile manufacturer Sakai Ovex (3408 JP) announced its Q3 earnings and also announced an MBO by its president, Matsuki-san. 
The stock was briefly suspended then went limit up, closing at ¥2683.
The Tender Offer to take the company private is at ¥2,850/share, an all-time high.
The Number 3 Shareholder Nippon Active Value Fund PLC ("NAVF") has agreed to tender their 389,900 shares counting for 6.30%. In return for this, the NAVF will be allocated "B Shares" (non-voting preference shares, where terms are not yet decided) in the acquirer. The NAVF is a small (£112mm) LSE-listed closed end fund which was launched in February 2020. It is managed by investment adviser Rising Sun Management. 
This is not a fund named "Nippon Active Value Fund" getting out. This is a listed closed end fund agreeing to own a private "B Share" of an unlisted company at an all-time high price. 
If you know who is behind Rising Sun Management, you should take a closer look. 




While ¥2850/share is an all-time high share price, it is still well short of Book Value Per Share (now just above ¥3,700/share). 
And Book Value is probably well short of Real Value as it includes some investments in affiliates which are earning VERY well - far above the average ROE of the average suffering affiliate. And because they are investments in affiliates, they are not marked to market. And conveniently, they don't seem to show up in the "free cash flow" valuation by the 3rd party valuation agent on this deal. 
That book value also includes fixed assets which have been depreciated down 90%. 

This company, which management would tell you desperately needs to be restructured, and so needs to be taken private to spare shareholders of the indignity of negative and volatile earnings over the next couple of years, is supposed to earn a net return on EV (less listed securities) of something like 15-20% over the next few years, all while supporting short-term net assets equivalent to half of EV.
The issue here is that the headline figures do not tell you the valuation of the company, and once again, the "financial advisors" to the acquirer never seem to do the right thing in valuing companies which get taken over. Sakai Ovex directors seem happy to recommend a takeover at an all-time high and a 31.7% premium to last, but once again, the issue is that headline figures do not tell you the real value of the company, and once again, the "financial advisors" never seem to get it quite right. 
Why is it that MBOs always seem to be done at below book value?
Oh... those securities worth 3x EBITDA?   Don't mind those...
The fixed assets earning an OPCF Less Capex return of 20+%?   Hmmm.... 
Key for investors in these situations is to understand that IF a bank is going to lend the entire purchase price to the MBO buyers who themselves are well-known value/activist shareholders, the MBO is probably going to be done at the wrong price. 

There is, as always, lots more below the fold. 

Sakai Ovex MBO - Wrong Price (And the Bidder Knows It)

United Kingdom

Nippon Active Value Fund PLC is an Investment Trust incorporated in the United Kingdom. The Fund is targeting attractive levels of capital growth for shareholders from the active management of a focused portfolio of quoted small cap Japanese equity investments

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Nippon Active Value Fund PLC (NAVF LN)

Intage Holdings (4326 JP): NAVF Selldown and Proration for NTT’s Partial Offer

Our revised minimum proration is 53.31%. NAVF’s action suggests that the minimum acceptance condition, which requires a 20% minority acceptance...

Arun George

Intage Holdings (4326 JP): NTT’s Partial Tender Offer

Irrevocables represent a 19.90% ownership ratio. The minimum acceptance condition requires a 20% minority acceptance rate. The offer is attractive...

Arun George

Sakai Ovex MBO - Wrong Price (And the Bidder Knows It)

The Sakai Ovex MBO is effectively sponsored by one of the large, well-known value investors in Japan. It comes at an OK premium but the WRONG...

Travis Lundy

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