Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

There is an interesting <a href="https://www.zaikai.jp/articles/detail/1046" target="_blank" rel="noopener">article</a> out in Zaikai Online (財界オンライン zaikai.jp) today which talks about the possibility of how the FSA might vote in the <a href="https://www.smartkarma.com/entities/shinsei-bank-ltd" target="_blank" data-smartkarma-citation="entities:16897:1" rel="noopener">Shinsei Bank (8303 JP)</a> EGM which comes in just under three weeks.
The two government entities which own the stock are the Resolution &amp; Collection Corporation (RCC) which owns 26.912mm shares, and the Deposit Insurance Corporation of Japan (DICJ), which owns 20.00mm shares. Together their 46.912mm shares are worth about 22.31% of voting rights, which is a bit more than the total owned by <a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">SBI Holdings (8473 JP)</a> which is opposing the poison pill to be voted on at the EGM. 
The FSA will be the decision-maker on the vote as the DICJ is an FSA entity and the RCC is a subsidiary of a subsidiary of the DICJ. 
I discussed the possible outcomes for tendering by the government entities in <a href="https://www.smartkarma.com/insights/sbi-8473-launches-a-hostile-tender-offer-on-shinsei-bank-8303" target="_blank" data-smartkarma-citation="insights:57426" rel="noopener">SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)!</a> and I discussed the possibilities of how they might vote for a poison pill in <a href="https://www.smartkarma.com/insights/shinsei-looks-to-a-poison-pill-but-probably-not-really" target="_blank" data-smartkarma-citation="insights:57630" rel="noopener">Shinsei Looks To A Poison Pill, But Probably Not Really</a>. 
The tone of the article linked above is interesting. I think worth taking another look. 
Late today, Japanese news agency Jiji reported that US-based international proxy advisor Glass Lewis came out in support of the Poison Pill at the Shinsei EGM. This surprised the market and shares - which had been trading in the ¥1,860-1,870/share range after last week's large TOPIX and JPX Nikkei 400 index down-weight fell sharply - ending the day down more than 3% - a big move for a risk arb situation.
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/239/850/original/Screenshot+2021-11-05+at+2.27.43+PM.png?1636093720" class="editor-image img-responsive" data-smartkarma-image-id="239850"></figure>
While the Glass Lewis and ISS voting guidelines suggest that they generally vote against Poison Pills, there are conditions under which they could support. They don't say they will endorse a poison pill if managements do meet those hurdles, just that they could not support if they don't. Shinsei's poison pill plan met all those hurdles as it proposed in its 21 October 2021 <a href="https://www.shinseibank.com/corporate/en/news/pdf/pdf2021/211021_announcement1_e.pdf" target="_blank" rel="noopener">document</a> (p27-28) where it came out against the SBI Tender Offer, officially. 
I had not expected Glass Lewis or ISS to endorse the Poison Pill but it was not a slam dunk they would knock it back. IF the proxy advisors knocked it back, it was a high probability event that the Poison Pill would get voted down.
The result of the EGM might be less assured now that Glass Lewis has supported. But it is complicated. The result of the EGM could have effects on future buybacks, future index events, and profitability, and the way the shares move prior to the EGM could affect how people vote at the EGM. The shares at ¥1650 might trigger a different decision than the shares at ¥1,900.
Much more discussion below the fold. 

</section>

There is an interesting article out in Zaikai Online (財界オンライン zaikai.jp) today which talks about the possibility of how the FSA might vote in the Shinsei Bank (8303 JP) EGM which comes in just under three weeks.
The two government entities which own the stock are the Resolution &amp; Collection Corporation (RCC) which owns 26.912mm shares, and the Deposit Insurance Corporation of Japan (DICJ), which owns 20.00mm shares. Together their 46.912mm shares are worth about 22.31% of voting rights, which is a bit more than the total owned by SBI Holdings (8473 JP) which is opposing the poison pill to be voted on at the EGM. 
The FSA will be the decision-maker on the vote as the DICJ is an FSA entity and the RCC is a subsidiary of a subsidiary of the DICJ. 
I discussed the possible outcomes for tendering by the government entities in SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)! and I discussed the possibilities of how they might vote for a poison pill in Shinsei Looks To A Poison Pill, But Probably Not Really. 
The tone of the article linked above is interesting. I think worth taking another look. 
Late today, Japanese news agency Jiji reported that US-based international proxy advisor Glass Lewis came out in support of the Poison Pill at the Shinsei EGM. This surprised the market and shares - which had been trading in the ¥1,860-1,870/share range after last week's large TOPIX and JPX Nikkei 400 index down-weight fell sharply - ending the day down more than 3% - a big move for a risk arb situation.


While the Glass Lewis and ISS voting guidelines suggest that they generally vote against Poison Pills, there are conditions under which they could support. They don't say they will endorse a poison pill if managements do meet those hurdles, just that they could not support if they don't. Shinsei's poison pill plan met all those hurdles as it proposed in its 21 October 2021 document (p27-28) where it came out against the SBI Tender Offer, officially. 
I had not expected Glass Lewis or ISS to endorse the Poison Pill but it was not a slam dunk they would knock it back. IF the proxy advisors knocked it back, it was a high probability event that the Poison Pill would get voted down.
The result of the EGM might be less assured now that Glass Lewis has supported. But it is complicated. The result of the EGM could have effects on future buybacks, future index events, and profitability, and the way the shares move prior to the EGM could affect how people vote at the EGM. The shares at ¥1650 might trigger a different decision than the shares at ¥1,900.
Much more discussion below the fold. 



Further Shinsei Complications: Glass Lewis Endorses the Poison Pill. Will the FSA Vote?

<a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">SBI Holdings (8473 JP)</a> reported earnings after the close of 28 October. Earnings were high, and ROE achieved a record high. There was considerable good news in the results, but results were largely as expected and the stock price didn't do much. 
Most notable, I thought, in the analyst meeting afterwards was a barrage of comments about <a href="https://www.smartkarma.com/entities/shinsei-bank-ltd" target="_blank" data-smartkarma-citation="entities:16897:1" rel="noopener">Shinsei Bank (8303 JP)</a> seemingly meant to embarrass and disparage Shinsei senior management, and possibly the entire Shinsei management layer.
He likened the fact that Shinsei had not repaid public monies this long after the injection/conversion to "theft" and spent considerable time comparing apples to bananas.
It was not encouraging. Furthermore, he also said that he was "overpaying" at ¥2,000 and had no intention of raising his price. 
The entire call was interesting, and aggressive, and you can find the call and transcript  on Smartkarma <a href="https://www.smartkarma.com/entities/sbi-holdings-inc/events?item=7805" target="_blank" rel="noopener">here</a>. 
More below the fold.

SBI Holdings (8473 JP) reported earnings after the close of 28 October. Earnings were high, and ROE achieved a record high. There was considerable good news in the results, but results were largely as expected and the stock price didn't do much. 
Most notable, I thought, in the analyst meeting afterwards was a barrage of comments about Shinsei Bank (8303 JP) seemingly meant to embarrass and disparage Shinsei senior management, and possibly the entire Shinsei management layer.
He likened the fact that Shinsei had not repaid public monies this long after the injection/conversion to "theft" and spent considerable time comparing apples to bananas.
It was not encouraging. Furthermore, he also said that he was "overpaying" at ¥2,000 and had no intention of raising his price. 
The entire call was interesting, and aggressive, and you can find the call and transcript  on Smartkarma here. 
More below the fold. 

Aggressive Commentary by SBI About Shinsei at Earnings

Two-plus years ago, <a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">SBI Holdings (8473 JP)</a> built up a stake in <a href="https://www.smartkarma.com/entities/shinsei-bank-ltd" target="_blank" data-smartkarma-citation="entities:16897:1" rel="noopener">Shinsei Bank (8303 JP)</a> and tried to negotiate a partnership. Earlier this year when Shinsei decided to partner with a competing online broker for its own securities business, media reports suggest SBI head Kitao-san was beside himself, and from January to end-March, he ended up buying 8% of the voting rights, getting SBI to just under 20% of Shinsei voting rights by March-end. On 9 September, SBI launched a Tender Offer to attempt to take its ownership from 20.32% to 48.00% in a Partial Tender Offer at ¥2,000/share, which was a 30+% premium to the then-traded price, but a much smaller premium to the highest price paid by SBI in the previous 6 months. It is also "only" 0.45x book, and 48% would likely gain AGM control because attendance is rarely much above 90%. The stock jumped. Then fell back a bit. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/237/739/original/Screenshot+2021-10-27+at+1.57.33+PM.png?1635314281" class="editor-image img-responsive" data-smartkarma-image-id="237739"></figure></section>Shinsei took exception, but has been quite reasoned - in the end - about their opposition. They have proposed a Poison Pill as a form of "Shareholder Approval" of the takeover - a kind of referendum if you will - and in its Target Opinion opposing the deal last week, Shinsei's Board said it could recommend the deal if a) SBI raised its price to a fair price (0.45x book and high single digit forward PER is deemed low by the Board), and b) removed the cap limiting the number of shares shareholders may sell. Both of those are utterly reasonable requests - or should be seen that way by shareholders - but SBI lambasted them, refusing to do either. This history is described in the extensive coverage on the Shinsei opportunity and the deal so far. <table class="table table-striped">
<colgroup>
<col>
<col>
</colgroup>
<tbody>
<tr><td colspan="2" style="text-align: left; width: 481pt;"><h3><a href="https://www.smartkarma.com/entities/shinsei-bank-ltd" target="_blank" rel="noopener">The Recent History of Shinsei Bank (8303 JP)  Insights</a></h3></td></tr>
<tr>
<td>Date</td>
<td>Title</td>
</tr>
<tr>
<td>22-Dec-20</td>
<td><a href="https://www.smartkarma.com/insights/2021-high-conviction-shinsei-bank" target="_blank" data-smartkarma-citation="insights:46544" rel="noopener">2021 High Conviction - Shinsei Bank </a></td>
</tr>
<tr>
<td>10-Mar-21</td>
<td><a href="https://www.smartkarma.com/insights/2021-high-conviction-update-shinsei-bank-float-squeeze-to-mitigate-near-term" target="_blank" data-smartkarma-citation="insights:48989" rel="noopener">2021 High Conviction Update - Shinsei Bank Float Squeeze to Mitigate Near-Term </a></td>
</tr>
<tr>
<td>23-Mar-21</td>
<td><a href="https://www.smartkarma.com/insights/jih-sun-tender-offer-successful-now-the-squeezeout" target="_blank" data-smartkarma-citation="insights:49544" rel="noopener">Jih Sun Tender Offer Successful - Now the Squeezeout </a></td>
</tr>
<tr>
<td>26-Apr-21</td>
<td><a href="https://www.smartkarma.com/insights/shinsei-bank-8303-jp-update-the-pause-that-refreshed-may-end-soon" target="_blank" data-smartkarma-citation="insights:50711" rel="noopener">Shinsei Bank (8303 JP) Update - The Pause That Refreshed May End Soon </a></td>
</tr>
<tr>
<td>13-May-21</td>
<td><a href="https://www.smartkarma.com/insights/shinsei-reports-results-what-looks-bad-isn-t-so-bad-but-it-isn-t-fantastic" target="_blank" data-smartkarma-citation="insights:51424" rel="noopener">Shinsei Reports Results - What Looks Bad Isn't So Bad, But It Isn't Fantastic </a></td>
</tr>
<tr><td colspan="2" style="text-align: center;"></td></tr>
<tr><td colspan="2" style="text-align: left;"><h3>The Tender Offer</h3></td></tr>
<tr>
<td>9-Sep-21</td>
<td><a href="https://www.smartkarma.com/insights/sbi-8473-launches-a-hostile-tender-offer-on-shinsei-bank-8303" target="_blank" data-smartkarma-citation="insights:57426" rel="noopener">SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)! </a></td>
</tr>
<tr>
<td>14-Sep-21</td>
<td><a href="https://www.smartkarma.com/insights/shinsei-looks-to-a-poison-pill-but-probably-not-really" target="_blank" data-smartkarma-citation="insights:57630" rel="noopener">Shinsei Looks To A Poison Pill, But Probably Not Really </a></td>
</tr>
<tr>
<td>20-Sep-21</td>
<td><a href="https://www.smartkarma.com/insights/shinsei-to-launch-a-poison-pill-sbi-plays-coy-so-we-wait" target="_blank" data-smartkarma-citation="insights:57824" rel="noopener">Shinsei To Launch a Poison Pill; SBI Plays Coy, So We Wait </a></td>
</tr>
<tr>
<td>29-Sep-21</td>
<td><a href="https://www.smartkarma.com/insights/sbi-shinsei-talking-past-each-other" target="_blank" data-smartkarma-citation="insights:58250" rel="noopener">SBI &amp; Shinsei Talking Past Each Other </a></td>
</tr>
<tr>
<td>21-Oct-21</td>
<td><a href="https://www.smartkarma.com/insights/shinsei-objects-to-sbi-tender-offers-requirements-to-approve" target="_blank" data-smartkarma-citation="insights:59298" rel="noopener">Shinsei Objects to SBI Tender - Offers "Requirements" To Approve </a></td>
</tr>
</tbody>
</table><hr><h2>Games People Play</h2>There is a fair bit of gamesmanship involved in positioning for a partial tender offer. One is presented with an opportunity to buy (or sell) shares now, before the tender, then faced with a choice to tender or not tender shares at a price above market and above undisturbed, with the idea that one might not sell everything and instead one would own a residual, which might trade at a different price. One can look at that as a "breakeven" trade. If you bought shares today at the closing price of ¥1,915/share, you are implicitly making the bet that IF the Tender Offer goes through on the terms announced, the post-Tender market price will trade in the ¥1,670-1,715 range, give or take, compared to the pre-announcement undisturbed price of ¥1,453/share, if 90-95% of likely-eligible-to-tender shareholders tender. That's 17% higher than pre-announcement while the TOPIX Banks Index is roughly unchanged. However, if fewer than 80% of likely-eligible-to-tender shareholders tender, then the breakeven is about where the pre-announcement level was. So investors have to think about a bunch of things... But in this case, investors also have to think about... <ul>
<li>What happens if shareholders decide to approve the Poison Pill defence at the shareholder meeting, or...</li>
<li>What changes will be wrought by SBI if they get to 48% which would warrant seeing a back end price different than the undisturbed price? </li>
<li>Or how the shareholder structure would change post-Tender. </li>
</ul>Below the fold we look at...<ul>
<li>Are there big flows pre-Tender?</li>
<li>Is there Dilution Risk Buying Before the EGM?</li>
<li>What are the drivers which could prompt a bump?</li>
<li>Is there room to own a chunk of shares post-Tender?</li>
<li>What are the drivers and flows post-Tender which matter?</li>
</ul>And we look at the Serious Game Of Chicken which could be played.

Two-plus years ago, SBI Holdings (8473 JP) built up a stake in Shinsei Bank (8303 JP) and tried to negotiate a partnership. Earlier this year when Shinsei decided to partner with a competing online broker for its own securities business, media reports suggest SBI head Kitao-san was beside himself, and from January to end-March, he ended up buying 8% of the voting rights, getting SBI to just under 20% of Shinsei voting rights by March-end. On 9 September, SBI launched a Tender Offer to attempt to take its ownership from 20.32% to 48.00% in a Partial Tender Offer at ¥2,000/share, which was a 30+% premium to the then-traded price, but a much smaller premium to the highest price paid by SBI in the previous 6 months. It is also "only" 0.45x book, and 48% would likely gain AGM control because attendance is rarely much above 90%. The stock jumped. Then fell back a bit. Shinsei took exception, but has been quite reasoned - in the end - about their opposition. They have proposed a Poison Pill as a form of "Shareholder Approval" of the takeover - a kind of referendum if you will - and in its Target Opinion opposing the deal last week, Shinsei's Board said it could recommend the deal if a) SBI raised its price to a fair price (0.45x book and high single digit forward PER is deemed low by the Board), and b) removed the cap limiting the number of shares shareholders may sell. Both of those are utterly reasonable requests - or should be seen that way by shareholders - but SBI lambasted them, refusing to do either. This history is described in the extensive coverage on the Shinsei opportunity and the deal so far. 





The Recent History of Shinsei Bank (8303 JP)  Insights

Date
Title


22-Dec-20
2021 High Conviction - Shinsei Bank 


10-Mar-21
2021 High Conviction Update - Shinsei Bank Float Squeeze to Mitigate Near-Term 


23-Mar-21
Jih Sun Tender Offer Successful - Now the Squeezeout 


26-Apr-21
Shinsei Bank (8303 JP) Update - The Pause That Refreshed May End Soon 


13-May-21
Shinsei Reports Results - What Looks Bad Isn't So Bad, But It Isn't Fantastic 


The Tender Offer

9-Sep-21
SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)! 


14-Sep-21
Shinsei Looks To A Poison Pill, But Probably Not Really 


20-Sep-21
Shinsei To Launch a Poison Pill; SBI Plays Coy, So We Wait 


29-Sep-21
SBI &amp; Shinsei Talking Past Each Other 


21-Oct-21
Shinsei Objects to SBI Tender - Offers "Requirements" To Approve 


Games People PlayThere is a fair bit of gamesmanship involved in positioning for a partial tender offer. One is presented with an opportunity to buy (or sell) shares now, before the tender, then faced with a choice to tender or not tender shares at a price above market and above undisturbed, with the idea that one might not sell everything and instead one would own a residual, which might trade at a different price. One can look at that as a "breakeven" trade. If you bought shares today at the closing price of ¥1,915/share, you are implicitly making the bet that IF the Tender Offer goes through on the terms announced, the post-Tender market price will trade in the ¥1,670-1,715 range, give or take, compared to the pre-announcement undisturbed price of ¥1,453/share, if 90-95% of likely-eligible-to-tender shareholders tender. That's 17% higher than pre-announcement while the TOPIX Banks Index is roughly unchanged. However, if fewer than 80% of likely-eligible-to-tender shareholders tender, then the breakeven is about where the pre-announcement level was. So investors have to think about a bunch of things... But in this case, investors also have to think about... 
What happens if shareholders decide to approve the Poison Pill defence at the shareholder meeting, or...
What changes will be wrought by SBI if they get to 48% which would warrant seeing a back end price different than the undisturbed price? 
Or how the shareholder structure would change post-Tender. 
Below the fold we look at...
Are there big flows pre-Tender?
Is there Dilution Risk Buying Before the EGM?
What are the drivers which could prompt a bump?
Is there room to own a chunk of shares post-Tender?
What are the drivers and flows post-Tender which matter?
And we look at the Serious Game Of Chicken which could be played.

Shinsei TOB: A Complicated Game of 🐓 Nobody Has Thought About?

<a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">SBI Holdings (8473 JP)</a> launched a surprise hostile-ish Tender Offer on <a href="https://www.smartkarma.com/entities/shinsei-bank-ltd" target="_blank" data-smartkarma-citation="entities:16897:1" rel="noopener">Shinsei Bank (8303 JP)</a> about 6 weeks ago, and that has now officially become HOSTILE.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/236/716/original/Screenshot+2021-10-21+at+11.40.17+PM.png?1634830918" class="editor-image img-responsive" data-smartkarma-image-id="236716"></figure></section>Shares traded up originally, then down below ¥1,900/share, then near ¥1,900/share, and today, after a delay, which followed an extension, or vice versa, <a href="https://www.smartkarma.com/entities/shinsei-bank-ltd" target="_blank" data-smartkarma-citation="entities:16897:1" rel="noopener">Shinsei Bank (8303 JP)</a> finally came out with their Target Opinion of the <a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">SBI Holdings (8473 JP)</a> Tender Offer to purchase an additional 27.68% of Shinsei Bank at ¥2,000/share which would get them to 48% ownership. The Contents of the <a href="https://sp.shinseibank.com/corporate/en/news/pdf/pdf2021/211021_announcement1_e.pdf" target="_blank" rel="noopener">The Opinion</a> were leaked by the Nikkei overnight, and indeed, the Opinion is AGAINST. This bit is not at all surprising. The arguments presented are indeed almost exactly what one would expect. It is, however, a nuanced CONDITIONAL AGAINST. And that is where it is gets interesting.<section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/236/664/original/Screenshot+2021-10-21+at+4.57.07+PM.png?1634806642" class="editor-image img-responsive" data-smartkarma-image-id="236664"></figure></section></section><div class="content-highlight">
The main two complaints are that..
<ol>
<li>it does not offer minorities a way out of their shares because it is only a partial tender, but it effectively gives control to SBI. </li>
<li>the price is not sufficiently high, and the premium is not high when applied to the whole minority share base (a 37% premium applied to only 27.68% shares which is about one-third of the shares SBI doesn't own suggests a 13% effective premium for all the minority shares - which is inadequate.</li>
</ol>
</div>Shinsei Bank is, of course, right on both counts. <ol>
<li>SBI, by getting to 48%, can effectively control the Board because to block a full SBI slate would require that more than 96% of shareholders show up to a shareholder meeting and that is unlikely (no meeting in five years has gotten measurably above 91%), and because they cannot act in contravention of the Rehabilitation/Revitalisation Plan, and the government owns 20%, the combination of the government and SBI would own a super-majority, and even if the government were to abstain from such a vote, SBI would have 60%  of the other shares, at a minimum. And if 10% of the non-government holders were to not show up for a vote and the govt were to abstain, SBI's 48% would be more than two-thirds. <ul><li>The objection is to the idea of a "Coercive Tender" which is called that because it has few enough limits and while possibly short-term beneficial to shareholders prior to the announcement, even shareholders who do not want to tender may feel obliged to do so because their "minority" interest may lose value after the Tender Offer because of the control gained by the Tender Offeror and resulting conflict of interest.</li></ul>
</li>
<li>The price of ¥2,000/share is likely to be about 0.45x book value per share as of 30 Sep 2021. Combined with their average in-price of about ¥1480/share for their existing 20.32% means a combined average purchase price for control of approximately ¥1,780/share or about 0.40x book (though when they first purchased shares, BVPS was lower).</li>
</ol>The "average weighted premium" argument is unusual. I personally have never seen a company defend itself with that, though those objecting to tender offers have used the argument before, and like the "coercion" argument, it relies on the weighted average benefit being low, which it is. This tender offer is being conducted at too low a price.<div class="content-highlight">However, Shinsei says that SBI can gain Shinsei's approval by meeting the conditions which are Requirements for Support.</div><ol>
<li>Either remove the upper limit for shares tendered, or conduct a Second TOB by 8 June 2022 which has no upper limit on shares tendered.</li>
<li>Raise the Tender Offer Price by negotiation with Shinsei.</li>
</ol>If SBI complies with these Requirements for Support by 19 November 2021 - three business days prior to the EGM intended to gauge shareholder support for the Poison Pill - by agreeing and signing an MOU, Shinsei will withdraw the proposal for the Poison Pill and cancel the EGM. It will release data and materials which would allow SBI to conduct reasonable due diligence. Shinsei proposes that Shinsei and SBI HDS enter discussions immediately. Separately, Shinsei said that it is conducting discussions with potential partners regarding capital and business alliances, and will do so even after the Tender Offer if it is not successful (this is tough - there is no minimum). <h3>A First Impression: </h3><ul>
<li>I am normally quite skeptical of Target Opinions which are AGAINST because they tend to be totally self-serving and management entrenching.</li>
<li>But this is remarkably different than what would normally come from a Japanese company. </li>
<li>
This is really quite well done by Shinsei. There may be places to nitpick, and Shinsei should have proposed one more measure to make sure that SBI didn't just decide to take the run and ignore Shinsei's concerns.</li>
</ul>Shinsei may still have room to do that thing, and if done right, that could prove devastating to SBI's near-term plans. But the window to act on that is probably pretty small, unless there is another delay in the EGM, which would be possible. Or unless SBI rejects Shinsei's proposals out of hand.  Which it <a href="https://www.sbigroup.co.jp/news/2021/1021_12711.html" target="_blank" rel="noopener">just did</a>. The situation is now more complicated than before, so I take a little more time to discuss it below.

SBI Holdings (8473 JP) launched a surprise hostile-ish Tender Offer on Shinsei Bank (8303 JP) about 6 weeks ago, and that has now officially become HOSTILE.Shares traded up originally, then down below ¥1,900/share, then near ¥1,900/share, and today, after a delay, which followed an extension, or vice versa, Shinsei Bank (8303 JP) finally came out with their Target Opinion of the SBI Holdings (8473 JP) Tender Offer to purchase an additional 27.68% of Shinsei Bank at ¥2,000/share which would get them to 48% ownership. The Contents of the The Opinion were leaked by the Nikkei overnight, and indeed, the Opinion is AGAINST. This bit is not at all surprising. The arguments presented are indeed almost exactly what one would expect. It is, however, a nuanced CONDITIONAL AGAINST. And that is where it is gets interesting.
The main two complaints are that..

it does not offer minorities a way out of their shares because it is only a partial tender, but it effectively gives control to SBI. 
the price is not sufficiently high, and the premium is not high when applied to the whole minority share base (a 37% premium applied to only 27.68% shares which is about one-third of the shares SBI doesn't own suggests a 13% effective premium for all the minority shares - which is inadequate.

Shinsei Bank is, of course, right on both counts. 
SBI, by getting to 48%, can effectively control the Board because to block a full SBI slate would require that more than 96% of shareholders show up to a shareholder meeting and that is unlikely (no meeting in five years has gotten measurably above 91%), and because they cannot act in contravention of the Rehabilitation/Revitalisation Plan, and the government owns 20%, the combination of the government and SBI would own a super-majority, and even if the government were to abstain from such a vote, SBI would have 60%  of the other shares, at a minimum. And if 10% of the non-government holders were to not show up for a vote and the govt were to abstain, SBI's 48% would be more than two-thirds. The objection is to the idea of a "Coercive Tender" which is called that because it has few enough limits and while possibly short-term beneficial to shareholders prior to the announcement, even shareholders who do not want to tender may feel obliged to do so because their "minority" interest may lose value after the Tender Offer because of the control gained by the Tender Offeror and resulting conflict of interest.

The price of ¥2,000/share is likely to be about 0.45x book value per share as of 30 Sep 2021. Combined with their average in-price of about ¥1480/share for their existing 20.32% means a combined average purchase price for control of approximately ¥1,780/share or about 0.40x book (though when they first purchased shares, BVPS was lower).
The "average weighted premium" argument is unusual. I personally have never seen a company defend itself with that, though those objecting to tender offers have used the argument before, and like the "coercion" argument, it relies on the weighted average benefit being low, which it is. This tender offer is being conducted at too low a price.However, Shinsei says that SBI can gain Shinsei's approval by meeting the conditions which are Requirements for Support.
Either remove the upper limit for shares tendered, or conduct a Second TOB by 8 June 2022 which has no upper limit on shares tendered.
Raise the Tender Offer Price by negotiation with Shinsei.
If SBI complies with these Requirements for Support by 19 November 2021 - three business days prior to the EGM intended to gauge shareholder support for the Poison Pill - by agreeing and signing an MOU, Shinsei will withdraw the proposal for the Poison Pill and cancel the EGM. It will release data and materials which would allow SBI to conduct reasonable due diligence. Shinsei proposes that Shinsei and SBI HDS enter discussions immediately. Separately, Shinsei said that it is conducting discussions with potential partners regarding capital and business alliances, and will do so even after the Tender Offer if it is not successful (this is tough - there is no minimum). A First Impression: 
I am normally quite skeptical of Target Opinions which are AGAINST because they tend to be totally self-serving and management entrenching.
But this is remarkably different than what would normally come from a Japanese company. 

This is really quite well done by Shinsei. There may be places to nitpick, and Shinsei should have proposed one more measure to make sure that SBI didn't just decide to take the run and ignore Shinsei's concerns.
Shinsei may still have room to do that thing, and if done right, that could prove devastating to SBI's near-term plans. But the window to act on that is probably pretty small, unless there is another delay in the EGM, which would be possible. Or unless SBI rejects Shinsei's proposals out of hand.  Which it just did. The situation is now more complicated than before, so I take a little more time to discuss it below.

Shinsei Objects to SBI Tender - Offers "Requirements" To Approve

Since <a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">SBI Holdings (8473 JP)</a> launched a Tender Offer to buy 27+% of <a href="https://www.smartkarma.com/entities/shinsei-bank-ltd" target="_blank" data-smartkarma-citation="entities:16897:1" rel="noopener">Shinsei Bank (8303 JP)</a> to take it to a 48% stake nearly three weeks ago, there has been considerable back and forth between the two parties - both directly in press releases and Opinion Statements - and through the press and speculation/opinion/commentary by disinterested third parties.The series of interactions in public in a kind of dual-path 'Call and Response' function is shown below. <table class="table table-striped">
<colgroup>
<col>
<col span="2">
<col>
</colgroup>
<tbody>
<tr><td colspan="4" style="text-align: left; width: 675pt;"><h2>The Series of Documents - Call &amp; Response</h2></td></tr>
<tr>
<td>Date</td>
<td>Issuer</td>
<td>Language</td>
<td>Title</td>
</tr>
<tr>
<td>09-Sep-21</td>
<td>SBI</td>
<td>English</td>
<td><a href="https://www.sbigroup.co.jp/english/news/pdf/2021/0909_a_en.pdf" target="_blank" rel="noopener">Notice Regarding Commencement of Tender Offer</a></td>
</tr>
<tr>
<td colspan="3" style="text-align: center;"></td>
<td>Self-explanatory</td>
</tr>
<tr>
<td>09-Sep-21</td>
<td>Shinsei</td>
<td>English</td>
<td>Acknowledgment of Tender Offer</td>
</tr>
<tr>
<td colspan="3" style="text-align: center;"></td>
<td>Self-explanatory</td>
</tr>
<tr>
<td>17-Sep-21</td>
<td>Shinsei</td>
<td>English</td>
<td><a href="https://www.shinseibank.com/corporate/en/news/pdf/pdf2021/210917" target="_blank" rel="noopener">Notice of Introduction of Takeover Defense Measures</a></td>
</tr>
<tr>
<td colspan="3" style="text-align: center;"></td>
<td>Shinsei proposes a Poison Pill to be decided at an EGM</td>
</tr>
<tr>
<td>17-Sep-21</td>
<td>Shinsei</td>
<td>English</td>
<td><a href="https://www.shinseibank.com/corporate/en/news/pdf/pdf2021/210917_Announcement2_e.pdf" target="_blank" rel="noopener">Notice of Reservation of Opinion on TOB</a></td>
</tr>
<tr>
<td colspan="3" style="text-align: center;"></td>
<td>Shinsei says SBI's account is not completely accurate, clarifies 2019 proposal</td>
</tr>
<tr>
<td>17-Sep-21</td>
<td>SBI</td>
<td>Japanese</td>
<td><a href="https://www.sbigroup.co.jp/news/2021/0917_12649.html" target="_blank" rel="noopener">Notice Regarding the Tender Offer for Shinsei Bank</a></td>
</tr>
<tr>
<td colspan="3" style="text-align: center;"></td>
<td>SBI says that the Poison Pill is a Delaying Tactic and is bad</td>
</tr>
<tr>
<td>24-Sep-21</td>
<td>SBI</td>
<td>English</td>
<td><a href="https://www.sbigroup.co.jp/english/news/pdf/2021/0924_a_en.pdf" target="_blank" rel="noopener">Notice Regarding Our Response to “Request for Extension of End Date of Tender Offer"</a></td>
</tr>
<tr>
<td colspan="3" style="text-align: center;"></td>
<td>SBI Says will extend if Shinsei Responds to Four Points</td>
</tr>
<tr>
<td>27-Sep-21</td>
<td>Shinsei</td>
<td>English</td>
<td><a href="https://www.shinseibank.com/corporate/en/news/pdf/pdf2021/210927_Announcement_e.pdf" target="_blank" rel="noopener">Notice Regarding Response from SBI Regional Holdings to Shinsei Questions</a></td>
</tr>
<tr>
<td colspan="3" style="text-align: center;"></td>
<td>Shinsei responds, saying four points irrelevant; ignores three questions</td>
</tr>
<tr>
<td>28-Sep-21</td>
<td>SBI</td>
<td>English</td>
<td><a href="https://www.sbigroup.co.jp/english/news/pdf/2021/0928_a_en.pdf" target="_blank" rel="noopener">Notice Regarding Our Response to “Questions to SBI"</a></td>
</tr>
<tr>
<td colspan="3" style="text-align: center;"></td>
<td>SBI Provides responses to Shinsei's questions</td>
</tr>
<tr>
<td>29-Sep-21</td>
<td>SBI</td>
<td>Japanese</td>
<td><a href="https://www.sbigroup.co.jp/news/2021/0929_12663.html" target="_blank" rel="noopener">Notice Regarding Extension of TOB for Shinsei Bank</a></td>
</tr>
<tr>
<td colspan="3" style="text-align: center;"></td>
<td>Response indicating displeasure to Shinsei's responses to four points and three questions</td>
</tr>
</tbody>
</table>The interaction so far can be described as follows:<ol>
<li>SBI launches a TOB. Shinsei says "Oh no."</li>
<li>Shinsei says SBI's portrayal of the original approach was "inaccurate". Shinsei looks for a white knight, and launches a poison pill defense. </li>
<li>Then they both talk past each other. </li>
</ol>Most of the interaction so far has been utterly pointless. The only really interesting part of the entire charade has been the "clarification" that in the original 2019 proposal, SBI had proposed buying a large stake, having Shinsei then raise BVPS and EPS by buying shares in the market, then squeezing out minorities, then agreeing to buy back the government's stake at a much higher price. <div class="content-remarks">While it was utterly appropriate for Shinsei to reject that as a proposal, the failure of that proposal to gain traction was not so much in the content as it was in the way it was presented. SBI buys a stake, Shinsei buys back shares, and eventually accretion gets to a point where Shinsei can buy back the shares held by the government. That's a pretty story in hindsight. There was no good reason to lay it out for all to see initially. </div>So where we stand now is that Shinsei has launched the Poison Pill, both sides have established that they are talking past each other, and it will become a war of public relations with Shinsei trying to convince various parties who fundamentally don't want to approve a poison pill that this time it would be OK to do so. So we wait... In the meantime, there are some interesting things going on.

Since SBI Holdings (8473 JP) launched a Tender Offer to buy 27+% of Shinsei Bank (8303 JP) to take it to a 48% stake nearly three weeks ago, there has been considerable back and forth between the two parties - both directly in press releases and Opinion Statements - and through the press and speculation/opinion/commentary by disinterested third parties.The series of interactions in public in a kind of dual-path 'Call and Response' function is shown below. 






The Series of Documents - Call &amp; Response

Date
Issuer
Language
Title


09-Sep-21
SBI
English
Notice Regarding Commencement of Tender Offer



Self-explanatory


09-Sep-21
Shinsei
English
Acknowledgment of Tender Offer



Self-explanatory


17-Sep-21
Shinsei
English
Notice of Introduction of Takeover Defense Measures



Shinsei proposes a Poison Pill to be decided at an EGM


17-Sep-21
Shinsei
English
Notice of Reservation of Opinion on TOB



Shinsei says SBI's account is not completely accurate, clarifies 2019 proposal


17-Sep-21
SBI
Japanese
Notice Regarding the Tender Offer for Shinsei Bank



SBI says that the Poison Pill is a Delaying Tactic and is bad


24-Sep-21
SBI
English
Notice Regarding Our Response to “Request for Extension of End Date of Tender Offer"



SBI Says will extend if Shinsei Responds to Four Points


27-Sep-21
Shinsei
English
Notice Regarding Response from SBI Regional Holdings to Shinsei Questions



Shinsei responds, saying four points irrelevant; ignores three questions


28-Sep-21
SBI
English
Notice Regarding Our Response to “Questions to SBI"



SBI Provides responses to Shinsei's questions


29-Sep-21
SBI
Japanese
Notice Regarding Extension of TOB for Shinsei Bank



Response indicating displeasure to Shinsei's responses to four points and three questions


The interaction so far can be described as follows:
SBI launches a TOB. Shinsei says "Oh no."
Shinsei says SBI's portrayal of the original approach was "inaccurate". Shinsei looks for a white knight, and launches a poison pill defense. 
Then they both talk past each other. 
Most of the interaction so far has been utterly pointless. The only really interesting part of the entire charade has been the "clarification" that in the original 2019 proposal, SBI had proposed buying a large stake, having Shinsei then raise BVPS and EPS by buying shares in the market, then squeezing out minorities, then agreeing to buy back the government's stake at a much higher price. While it was utterly appropriate for Shinsei to reject that as a proposal, the failure of that proposal to gain traction was not so much in the content as it was in the way it was presented. SBI buys a stake, Shinsei buys back shares, and eventually accretion gets to a point where Shinsei can buy back the shares held by the government. That's a pretty story in hindsight. There was no good reason to lay it out for all to see initially. So where we stand now is that Shinsei has launched the Poison Pill, both sides have established that they are talking past each other, and it will become a war of public relations with Shinsei trying to convince various parties who fundamentally don't want to approve a poison pill that this time it would be OK to do so. So we wait... In the meantime, there are some interesting things going on.

Japan

SBI Holdings, Inc. manages venture capital fund which mainly invest in Internet related venture companies.  The Company also provides brokerage, investment banking, and financial services.

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SBI Holdings (8473 JP)

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