Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

After the close on the 27th of November, <a href="https://www.smartkarma.com/entities/ntt-docomo-inc" target="_blank" data-smartkarma-citation="entities:1089:1" rel="noopener">NTT Docomo Inc (9437 JP)</a> announced that parent <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> had submitted a Demand for a Share Cash-Out on teh same day and the Board of Directors of NTT Docomo had gone through the motions to approve. There is a <a href="https://www.nttdocomo.co.jp/english/corporate/ir/binary/pdf/stock/procedure/release_201127_04.pdf" target="_blank" rel="noopener">press release</a>, an <a href="https://www.nttdocomo.co.jp/english/corporate/ir/binary/pdf/stock/procedure/release_201127_01.pdf" target="_blank" rel="noopener">Extraordinary Report</a>, the reference document of <a href="https://www.nttdocomo.co.jp/english/corporate/ir/binary/pdf/stock/procedure/release_201127_03.pdf" target="_blank" rel="noopener">Prior Disclosure</a>, and the <a href="https://www.nttdocomo.co.jp/english/corporate/ir/binary/pdf/stock/procedure/release_201127_02.pdf" target="_blank" rel="noopener">Public Notice of Approval</a>.  As noted in <a href="https://www.smartkarma.com/insights/ntt-docomo-delisting-nikkei-225-replacement-is-sharp-6753-with-a-surprise" target="_blank" data-smartkarma-citation="insights:45464" rel="noopener">NTT Docomo Delisting; Nikkei 225 Replacement Is SHARP (6753) - With a Surprise</a> and <a href="https://www.smartkarma.com/insights/the-great-docomo-topix-reallocation-trade" target="_blank" data-smartkarma-citation="insights:45531" rel="noopener">The Great Docomo/TOPIX Reallocation Trade</a>, this triggers a TSE Designation of Security to be Delisted. The last day of trading will be 24 December. The Delisting Date 25 December. The Acquisition Date 29 December, and consideration will be paid later (explained as follows):<blockquote>The Consideration will be delivered within a reasonable time after the Acquisition Date to each Selling Shareholder’s address entered or recorded in the Company’s latest shareholder registry on the day preceding the Acquisition Date, or to the place the Selling Shareholder notifies to the Company, and in accordance with the method used by the Company to deliver dividend assets.  </blockquote>The March dividend takes ~11 weeks between record date and delivery date. The Sep dividend took 57 days this year (just over 8 weeks). This of course, triggers the rest of the TOPIX deletion which did not happen with the down-weight on 27 November, similar to what was discussed in <a href="https://www.smartkarma.com/insights/the-end-november-japan-rebalances-how-much-is-priced-in" target="_blank" data-smartkarma-citation="insights:45583" rel="noopener">The End-November Japan Rebalances - How Much Is Priced In?</a> More below the fold.

After the close on the 27th of November, NTT Docomo Inc (9437 JP) announced that parent NTT (Nippon Telegraph &amp; Telephone) (9432 JP) had submitted a Demand for a Share Cash-Out on teh same day and the Board of Directors of NTT Docomo had gone through the motions to approve. There is a press release, an Extraordinary Report, the reference document of Prior Disclosure, and the Public Notice of Approval.  As noted in NTT Docomo Delisting; Nikkei 225 Replacement Is SHARP (6753) - With a Surprise and The Great Docomo/TOPIX Reallocation Trade, this triggers a TSE Designation of Security to be Delisted. The last day of trading will be 24 December. The Delisting Date 25 December. The Acquisition Date 29 December, and consideration will be paid later (explained as follows):The Consideration will be delivered within a reasonable time after the Acquisition Date to each Selling Shareholder’s address entered or recorded in the Company’s latest shareholder registry on the day preceding the Acquisition Date, or to the place the Selling Shareholder notifies to the Company, and in accordance with the method used by the Company to deliver dividend assets.  The March dividend takes ~11 weeks between record date and delivery date. The Sep dividend took 57 days this year (just over 8 weeks). This of course, triggers the rest of the TOPIX deletion which did not happen with the down-weight on 27 November, similar to what was discussed in The End-November Japan Rebalances - How Much Is Priced In? More below the fold. 

David Blennerhassett

Haier Electronics Group Co / Event-Driven

Last Week in Event SPACE: Haier, NTT Doco, Tesla, Beijing Jingneng, China Biologics, HK IPO Lock-Ups

Quantitative Analysis

When NTT announced its proposed cash takeover of NTT Docomo, it meant two things. <ol>
<li>The biggest cash takeover ever seen in Japan.</li>
<li>The biggest equity reallocation trade ever seen in Japan off a single event.</li>
</ol>This was discussed to some extent in <a href="https://www.smartkarma.com/insights/ntt-docomo-the-three-arbs-and-the-great-re-allocation-trade" target="_blank" data-smartkarma-citation="insights:44115" rel="noopener">NTT Docomo: The Three Arbs and the Great Re-Allocation Trade</a>but details remained to be ironed out. That's happening now. <hr>Yesterday, the TSE let its TOPIX Index customers know that it would lower the Free Float Weight of <a href="https://www.smartkarma.com/entities/ntt-docomo-inc" target="_blank" data-smartkarma-citation="entities:1089:1" rel="noopener">NTT Docomo Inc (9437 JP)</a> in TOPIX at the close of the 27th of November.I had expected that they would wait until <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> presented its Demand For Cash Out to NTT Docomo - an event I would expect to occur on 24 November - and for the TSE to designate NTT Docomo a Security To Be Delisted on that day. If that happened, TOPIX and other TSE-calculated indices would remove NTT Docomo from their indices at the close of the third business day following such designation. That would be the 27th. It is possible NTT does its Demand for Cash Out on a different day. If that happens, then the trade is split. The important trade here, as I have been trying to impress on readers, is NOT the NTT Docomo deletion but the index portfolio management trades which happen because of it. NTT Docomo will be bought by arbitrageurs. But the index funds will have to buy the index ex-Docomo in the size that they own(ed) Docomo. That is - over the course of the TOPIX and JPX Nikkei 400 index deletions - not far from JPY 900 billion to buy. Details and trade suggestions below.

When NTT announced its proposed cash takeover of NTT Docomo, it meant two things. 
The biggest cash takeover ever seen in Japan.
The biggest equity reallocation trade ever seen in Japan off a single event.
This was discussed to some extent in NTT Docomo: The Three Arbs and the Great Re-Allocation Tradebut details remained to be ironed out. That's happening now. Yesterday, the TSE let its TOPIX Index customers know that it would lower the Free Float Weight of NTT Docomo Inc (9437 JP) in TOPIX at the close of the 27th of November.I had expected that they would wait until NTT (Nippon Telegraph &amp; Telephone) (9432 JP) presented its Demand For Cash Out to NTT Docomo - an event I would expect to occur on 24 November - and for the TSE to designate NTT Docomo a Security To Be Delisted on that day. If that happened, TOPIX and other TSE-calculated indices would remove NTT Docomo from their indices at the close of the third business day following such designation. That would be the 27th. It is possible NTT does its Demand for Cash Out on a different day. If that happens, then the trade is split. The important trade here, as I have been trying to impress on readers, is NOT the NTT Docomo deletion but the index portfolio management trades which happen because of it. NTT Docomo will be bought by arbitrageurs. But the index funds will have to buy the index ex-Docomo in the size that they own(ed) Docomo. That is - over the course of the TOPIX and JPX Nikkei 400 index deletions - not far from JPY 900 billion to buy. Details and trade suggestions below.

The Great Docomo/TOPIX Reallocation Trade

With the results of the <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> Tender Offer for <a href="https://www.smartkarma.com/entities/ntt-docomo-inc" target="_blank" data-smartkarma-citation="entities:1089:1" rel="noopener">NTT Docomo Inc (9437 JP)</a> announced yesterday, getting them to 91.46%, this triggers a fast-track change in the Nikkei 225 treatment based on a <a href="https://indexes.nikkei.co.jp/nkave/archives/news/20200615E_1.pdf" target="_blank" rel="noopener">rule change for constituent selection</a> announced on 15 June. This was discussed briefly in <a href="https://www.smartkarma.com/insights/surprising-ntt-docomo-tender-result-accelerates-squeezeout-great-re-allocation-nikkei-225-change" target="_blank" data-smartkarma-citation="insights:45412" rel="noopener">Surprising NTT Docomo Tender Result Accelerates Squeezeout, Great Re-Allocation, Nikkei 225 Change</a>.The relevant part of the rule change is shown below. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/172/461/original/Screenshot%202020-11-18%20at%202.53.16%20PM.png?1605682411" class="editor-image img-responsive" data-smartkarma-image-id="172461"></figure></section>The first time it was used was with the replacement for <a href="https://www.smartkarma.com/entities/sony-financial-holdings-inc" target="_blank" data-smartkarma-citation="entities:564:1" rel="noopener">Sony Financial Holdings (8729 JP)</a> where the clearance of 90% made delisting a foregone conclusion because it only required the parent to ask. The same is the case here. Today, the Nikkei Index Business Office <a href="https://indexes.nikkei.co.jp/nkave/archives/news/20201118E_1.pdf" target="_blank" rel="noopener">announced</a> the replacement for NTT Docomo in the Nikkei 225 Index. It is <a href="https://www.smartkarma.com/entities/sharp-corp" target="_blank" data-smartkarma-citation="entities:391:1" rel="noopener">Sharp Corp (6753 JP)</a> with a presumed par value of 50 yen. The change will be made at the close of trading on 1 December 2020 (8 trading days left). This is surprising. Very surprising. And it matters a lot.Due to the reverse 1:10 share split of end-2017, this should have been a presumed par value of 500 yen. I half wonder whether they made a typo and will correct it. The other possibility is that because it happened while the stock was in the Purgatorio of the Second Section, that data simply didn't register so they ignored it. Which would be a Very Bureaucratic Thing To Do.Details on the index rebalance trade below.

With the results of the NTT (Nippon Telegraph &amp; Telephone) (9432 JP) Tender Offer for NTT Docomo Inc (9437 JP) announced yesterday, getting them to 91.46%, this triggers a fast-track change in the Nikkei 225 treatment based on a rule change for constituent selection announced on 15 June. This was discussed briefly in Surprising NTT Docomo Tender Result Accelerates Squeezeout, Great Re-Allocation, Nikkei 225 Change.The relevant part of the rule change is shown below. The first time it was used was with the replacement for Sony Financial Holdings (8729 JP) where the clearance of 90% made delisting a foregone conclusion because it only required the parent to ask. The same is the case here. Today, the Nikkei Index Business Office announced the replacement for NTT Docomo in the Nikkei 225 Index. It is Sharp Corp (6753 JP) with a presumed par value of 50 yen. The change will be made at the close of trading on 1 December 2020 (8 trading days left). This is surprising. Very surprising. And it matters a lot.Due to the reverse 1:10 share split of end-2017, this should have been a presumed par value of 500 yen. I half wonder whether they made a typo and will correct it. The other possibility is that because it happened while the stock was in the Purgatorio of the Second Section, that data simply didn't register so they ignored it. Which would be a Very Bureaucratic Thing To Do.Details on the index rebalance trade below.

NTT Docomo Delisting; Nikkei 225 Replacement Is SHARP (6753) - With a Surprise

Today during the lunch session, there were reports across the newswires of <a href="https://www.smartkarma.com/entities/kddi-corp" target="_blank" data-smartkarma-citation="entities:639:1" rel="noopener">KDDI Corp (9433 JP)</a> and other companies (including both <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a> and Rakuten Mobile) sending a letter to the Telecommunications Ministry (It was, in fact, addressed to the Ministry of Internal Affairs and Communications). The headlines were...<div><div>*KDDI: NTT TAKEOVER OF DOCOMO WOULD HURT MARKET DEVELOPMENT *KDDI, SOFTBANK AMONG FIRMS SEEKING REVIEW OF NTT DOCOMO DEAL</div></div>This caused NTT Docomo shares to fall sharply on the PM session open, briefly falling as much as 75bp to ¥3861 (vs the ¥3900 Tender Offer Price) before the shares settled around ¥10 down on the day near ¥3876-3884/share for most of the rest of the day.<section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/170/780/original/Screenshot%202020-11-11%20at%202.54.24%20PM.png?1605077689" class="editor-image img-responsive" data-smartkarma-image-id="170780"></figure></section>The media said that the letter called on Japan’s Telecommunications Ministry "to ensure a fair market environment amid NTT’s planned takeover of Docomo, arguing the deal could inhibit fair competition and development of the telecom market." (Bloomberg). 
The letter, it turns out, is on KDDI's home page in Japanese (<a href="https://news.kddi.com/kddi/corporate/newsrelease/2020/11/11/4779.html" target="_blank" rel="noopener">link</a>).
There are interesting comments within the letter but I am surprised it took this long to produce. This really looks like it is KDDI and others setting the stage to be able to pursue a campaign of harassment against NTT if necessary going forward. Complain about it in general terms before the deal goes through, in order to give yourself room to complain about specifics later. 
It is what I would do if I were in their shoes. 
What was surprising to me was the reaction on NTT Docomo shares. Given the nature of the document, the nature of JFTC and MIC purview on the transaction, and what must have been reasonably explicit "approval" to get the NTT deal for Docomo done in the first place, if this letter means something about the future competitiveness of the NTT/Docomo/East/West/Com grouping, the stock which should have been negatively impacted was <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>. Indeed, NTT shares ended up "only" 1.4% on the day after starting the day higher, but this was stronger than KDDI on the day.
More commentary about NTT Docomo, NTT, and KDDI below the fold.  

</section>

Today during the lunch session, there were reports across the newswires of KDDI Corp (9433 JP) and other companies (including both Softbank Corp (9434 JP) and Rakuten Mobile) sending a letter to the Telecommunications Ministry (It was, in fact, addressed to the Ministry of Internal Affairs and Communications). The headlines were...*KDDI: NTT TAKEOVER OF DOCOMO WOULD HURT MARKET DEVELOPMENT *KDDI, SOFTBANK AMONG FIRMS SEEKING REVIEW OF NTT DOCOMO DEALThis caused NTT Docomo shares to fall sharply on the PM session open, briefly falling as much as 75bp to ¥3861 (vs the ¥3900 Tender Offer Price) before the shares settled around ¥10 down on the day near ¥3876-3884/share for most of the rest of the day.The media said that the letter called on Japan’s Telecommunications Ministry "to ensure a fair market environment amid NTT’s planned takeover of Docomo, arguing the deal could inhibit fair competition and development of the telecom market." (Bloomberg). 
The letter, it turns out, is on KDDI's home page in Japanese (link).
There are interesting comments within the letter but I am surprised it took this long to produce. This really looks like it is KDDI and others setting the stage to be able to pursue a campaign of harassment against NTT if necessary going forward. Complain about it in general terms before the deal goes through, in order to give yourself room to complain about specifics later. 
It is what I would do if I were in their shoes. 
What was surprising to me was the reaction on NTT Docomo shares. Given the nature of the document, the nature of JFTC and MIC purview on the transaction, and what must have been reasonably explicit "approval" to get the NTT deal for Docomo done in the first place, if this letter means something about the future competitiveness of the NTT/Docomo/East/West/Com grouping, the stock which should have been negatively impacted was NTT (Nippon Telegraph &amp; Telephone) (9432 JP). Indeed, NTT shares ended up "only" 1.4% on the day after starting the day higher, but this was stronger than KDDI on the day.
More commentary about NTT Docomo, NTT, and KDDI below the fold.  



Japan

Nippon Telegraph and Telephone Corporation provides a variety of telecommunication services, including telephone, telegraph, leased circuits, data communication, terminal equipment sales, and related services. The Company provides both local and long distance telephone services within Japan.

NTT (Nippon Telegraph & Telephone) (9432 JP)

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NTT (Nippon Telegraph & Telephone) (9432 JP)

The Other Docomo Selldown and TOPIX Buy

NTT made a Demand for Shares Cash Out to NTT Docomo today and Docomo approved, triggering the delisting decision/designation. This means a further...

Travis Lundy

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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

The Great Docomo/TOPIX Reallocation Trade

The biggest part of the Great NTT Docomo Re-Allocation Trade is here. Lots to do on 27 November. There are baskets to trade and biases to hedge....

Travis Lundy

NTT Docomo Delisting; Nikkei 225 Replacement Is SHARP (6753) - With a Surprise

In Sharp (6753) Nikkei has offered an unsurprising replacement for Docomo in the Nikkei 225, but the terms are unexpected (and a trifle...

Travis Lundy

NTT/Docomo - The KDDI Quibble

KDDI and two dozen other telecom operators today revealed a letter protesting future NTT/Docomo market dominance. This isn't an attempt to block...

Travis Lundy

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