Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

On 9 September, <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> announced they would launch a Tender Offer at ¥2,000/share to acquire 27.68% 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 them to 48.00%. This was discussed 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> After the weekend had passed, there was news that Shinsei was looking for a white knight, and the Board would meet this past week to discuss a poison pill warrant issuance. This was discussed 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> on 14 September. During the week, there were suggestions from the Nikkei that Shinsei had approached <a href="https://www.smartkarma.com/entities/seven-i-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1041:1" rel="noopener">Seven &amp; I Holdings (3382 JP)</a> and <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony Corp (6758 JP)</a> and possibly a "rehabilitation fund" to be white knights. The two corporates already own banks but are relatively and highly independent from bank-led keiretsu affiliations and associations, and the rehabilitation fund would almost necessarily be independent.  Shibata Hisashi, the head of the Regional Banks Association of Japan said on the 15th in a press conference that hostile takeover bids for regional banks were not the preferable outcome because they can unsettle customers and business partners within their region. On 16 September, Shinsei released a long <a href="https://www.shinseibank.com/corporate/en/news/pdf/pdf2021/210916_Announcement_e.pdf" target="_blank" rel="noopener">report</a>, suggesting SBI's account of the relationship to date had been "inaccurate" or "insufficient" and proceeded to clarify things. SBI had said their proposal for a capital and business alliance in September 2019 had been ignored but Shinsei explained the reason for the rejection, and said that SBI accepted it at the time. Shinsei said they had not received a subsequent proposal (despite SBI saying they had made proposals on a continuous basis). Shinsei appears to correct the facts about the Monex tie-up. The details are somewhat eye-opening. <ul>
<li>SBI had proposed it buy up to 48%, then have Shinsei buy back shares from the market to reduce the percentage of general shareholders holding shares. When SBI and the government together owned 90%, they would squeeze out minority shareholders. After doing so, they would repurchase shares held by the government [unspoken is that it would happen at a higher price]. </li>
<li>The Board of Shinsei noted that without control, synergies would not have been meaningful, and buying out minorities at a price lower than the government posted logistical and governance problems. </li>
<li>Furthermore, Shinsei's clarification of the Monex situation seems to not jive with SBI's claims. </li>
</ul>There will always be a "he said, she said" problem where context, perceptions, and explanation do not match, but when they do show up, one side often gets the worse public perception because of the method and timing of presentation. On the 17th September, Shinsei <a href="https://www.shinseibank.com/corporate/en/news/pdf/pdf2021/210917_Announcement2_e.pdf" target="_blank" rel="noopener">announced</a> that it "reserved" its Target Opinion on the SBI Tender Offer based on having sent SBI questions but having not received answers yet. Shinsei also <a href="https://www.shinseibank.com/corporate/en/news/pdf/pdf2021/210917_Announcement1_e.pdf" target="_blank" rel="noopener">announced</a> the introduction of Takeover Defense Measures via Poison PillShareholder Rights (56 pages) to be introduced at an EGM, also <a href="https://www.shinseibank.com/corporate/en/news/pdf/pdf2021/210917_Announcement3_e.pdf" target="_blank" rel="noopener">announcing</a> that the Record Date would be 13 October (and an official announcement would be made 28 September.SBI provided an <a href="https://www.sbigroup.co.jp/news/2021/0917_12649.html" target="_blank" rel="noopener">initial response</a> (in Japanese) saying that the Tender Offer was long enough, and that the Shinsei request for an extension was only a tactic to waste time, and warned they may be required to withdraw the Tender Offer under certain circumstances.That sets the stage we discuss more fully below.

On 9 September, SBI Holdings (8473 JP) announced they would launch a Tender Offer at ¥2,000/share to acquire 27.68% of Shinsei Bank (8303 JP) to take them to 48.00%. This was discussed in SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)! After the weekend had passed, there was news that Shinsei was looking for a white knight, and the Board would meet this past week to discuss a poison pill warrant issuance. This was discussed in Shinsei Looks To A Poison Pill, But Probably Not Really on 14 September. During the week, there were suggestions from the Nikkei that Shinsei had approached Seven &amp; I Holdings (3382 JP) and Sony Corp (6758 JP) and possibly a "rehabilitation fund" to be white knights. The two corporates already own banks but are relatively and highly independent from bank-led keiretsu affiliations and associations, and the rehabilitation fund would almost necessarily be independent.  Shibata Hisashi, the head of the Regional Banks Association of Japan said on the 15th in a press conference that hostile takeover bids for regional banks were not the preferable outcome because they can unsettle customers and business partners within their region. On 16 September, Shinsei released a long report, suggesting SBI's account of the relationship to date had been "inaccurate" or "insufficient" and proceeded to clarify things. SBI had said their proposal for a capital and business alliance in September 2019 had been ignored but Shinsei explained the reason for the rejection, and said that SBI accepted it at the time. Shinsei said they had not received a subsequent proposal (despite SBI saying they had made proposals on a continuous basis). Shinsei appears to correct the facts about the Monex tie-up. The details are somewhat eye-opening. 
SBI had proposed it buy up to 48%, then have Shinsei buy back shares from the market to reduce the percentage of general shareholders holding shares. When SBI and the government together owned 90%, they would squeeze out minority shareholders. After doing so, they would repurchase shares held by the government [unspoken is that it would happen at a higher price]. 
The Board of Shinsei noted that without control, synergies would not have been meaningful, and buying out minorities at a price lower than the government posted logistical and governance problems. 
Furthermore, Shinsei's clarification of the Monex situation seems to not jive with SBI's claims. 
There will always be a "he said, she said" problem where context, perceptions, and explanation do not match, but when they do show up, one side often gets the worse public perception because of the method and timing of presentation. On the 17th September, Shinsei announced that it "reserved" its Target Opinion on the SBI Tender Offer based on having sent SBI questions but having not received answers yet. Shinsei also announced the introduction of Takeover Defense Measures via Poison PillShareholder Rights (56 pages) to be introduced at an EGM, also announcing that the Record Date would be 13 October (and an official announcement would be made 28 September.SBI provided an initial response (in Japanese) saying that the Tender Offer was long enough, and that the Shinsei request for an extension was only a tactic to waste time, and warned they may be required to withdraw the Tender Offer under certain circumstances.That sets the stage we discuss more fully below.

Shinsei To Launch a Poison Pill; SBI Plays Coy, So We Wait

Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Equity Bottom-Up

For our next Webinar, we are excited to welcome back Insight Provider <a href="https://www.smartkarma.com/profiles/mio-kato" target="_blank" data-smartkarma-citation="accounts:713" rel="noopener">Mio Kato</a> and the LightStream Research team, as they present unique views into approaching the Japanese market. LightStream offers insights gleaned from their expertise on the ground, engaging with company management and bridging business and culture gaps between Japan and western Investors.<h3>The webinar will be hosted on Wednesday, 1 September 2021, 17:00 SGT/HKT.</h3><div class="content-highlight"><h2><a href="https://share.hsforms.com/1H9pFZOB-RF2J00kbvMmxcw2c5gj?zoom_webinar_id=89011968584" target="_blank" rel="noopener">Register for the Webinar here</a></h2></div>Mio Kato has over 15 years of experience looking at Japanese and Asian cyclically driven sectors such as Gaming, Factory Automation and Autos. He was previously with FrontPoint Partners LP, Arrowhawk Capital Partners, and Uzabase before founding LightStream Research.LightStream Research conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia. The team supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available. They further refine the accuracy of their insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

For our next Webinar, we are excited to welcome back Insight Provider Mio Kato and the LightStream Research team, as they present unique views into approaching the Japanese market. LightStream offers insights gleaned from their expertise on the ground, engaging with company management and bridging business and culture gaps between Japan and western Investors.The webinar will be hosted on Wednesday, 1 September 2021, 17:00 SGT/HKT.Register for the Webinar hereMio Kato has over 15 years of experience looking at Japanese and Asian cyclically driven sectors such as Gaming, Factory Automation and Autos. He was previously with FrontPoint Partners LP, Arrowhawk Capital Partners, and Uzabase before founding LightStream Research.LightStream Research conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia. The team supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available. They further refine the accuracy of their insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Smartkarma Webinar | Understanding Japanese Companies: Insights from LightStream Research

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

In 2002, Seiyu was saved by the foreign might of Walmart. Today it is about 25% smaller but over the same 20 years, it has gone from a ¥90 billion loss to an estimated ¥40 billion operating profit last year. Now, with the backing of its new majority owners, <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1" rel="noopener">KKR &amp; Co Inc (KKR US)</a> and <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten Inc (4755 JP)</a>, Seiyu has announced ambitious plans to become Japan’s largest online supermarket by 2025. This is increasingly likely thanks to Rakuten's new reach through its new joint venture with <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post Holdings (6178 JP).</a> Right now, online food retailing is a two horse race between Amazon and Rakuten, with Z Holdings nowhere in sight.

In 2002, Seiyu was saved by the foreign might of Walmart. Today it is about 25% smaller but over the same 20 years, it has gone from a ¥90 billion loss to an estimated ¥40 billion operating profit last year. Now, with the backing of its new majority owners, KKR &amp; Co Inc (KKR US) and Rakuten Inc (4755 JP), Seiyu has announced ambitious plans to become Japan’s largest online supermarket by 2025. This is increasingly likely thanks to Rakuten's new reach through its new joint venture with Japan Post Holdings (6178 JP). Right now, online food retailing is a two horse race between Amazon and Rakuten, with Z Holdings nowhere in sight.

Seiyu: Back in the Mainstream Thanks to Rakuten

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Our 2021 High Conviction call, <a href="https://www.smartkarma.com/entities/seven-i-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1041:1" rel="noopener">Seven &amp; I Holdings (3382 JP)</a> delivered 1QFY22 results today with revenue surpassing consensus estimate by around 2.0%. The company’s 1QFY22 operating income was 10% below consensus.Although Q1 results seemed a bit weak on profitability, we think the weakness is somewhat exaggerated by inflated consensus OP estimates. The consolidated OP increased 8.6% YoY in the quarter and the weak profitability in Superstores was the only real surprise. Weaknesses in superstore and department store business could provoke activists which might even be a good thing for Seven &amp; I’s share price. Hence, there is not a lot to do here unless the shares fall 5-6% tomorrow, which we think could be a good entry point to ride a rally towards Seven &amp; I’s all-time high of ¥5,906 per share in the short term.

Our 2021 High Conviction call, Seven &amp; I Holdings (3382 JP) delivered 1QFY22 results today with revenue surpassing consensus estimate by around 2.0%. The company’s 1QFY22 operating income was 10% below consensus.Although Q1 results seemed a bit weak on profitability, we think the weakness is somewhat exaggerated by inflated consensus OP estimates. The consolidated OP increased 8.6% YoY in the quarter and the weak profitability in Superstores was the only real surprise. Weaknesses in superstore and department store business could provoke activists which might even be a good thing for Seven &amp; I’s share price. Hence, there is not a lot to do here unless the shares fall 5-6% tomorrow, which we think could be a good entry point to ride a rally towards Seven &amp; I’s all-time high of ¥5,906 per share in the short term.

1QFY22 Results: Underperforms Consensus, A Minor Blip Could Be a Good Entry Point

Thematic (Sector/Industry)

Japan’s retail and distribution sector has long been seen as fragmented, even to the point of being accused of inefficiency. On the surface, concentration levels do remain low, but scratch that surface and a very different picture emerges.
By format and by category sector, larger companies are taking increasing share and, over the past five years, this trend has accelerated.
Now, given the pressures of Covid, there is ample opportunity for stronger players to gain ground by buying out weaker ones, while some mid-level companies are joining together, hoping to become a fish too big to swallow.
Business tie-ups are also increasing in number, particularly as physical retailers seek to bring in and learn skills necessary to succeed in e-commerce and to build omnichannel models.
The following is a detailed review of how concentration has increased along with a map of who own who in retailing today.
There is a strong possibility that we could see some really big deals, even ones that span format and geographical borders, as many mid-sized retailers recognise that independent survival is getting hard. Acquirers will use the current environment to diversify into new areas, expand volumes and market share, or simply acquire more retail property for long-term development.

Japan’s retail and distribution sector has long been seen as fragmented, even to the point of being accused of inefficiency. On the surface, concentration levels do remain low, but scratch that surface and a very different picture emerges.
By format and by category sector, larger companies are taking increasing share and, over the past five years, this trend has accelerated.
Now, given the pressures of Covid, there is ample opportunity for stronger players to gain ground by buying out weaker ones, while some mid-level companies are joining together, hoping to become a fish too big to swallow.
Business tie-ups are also increasing in number, particularly as physical retailers seek to bring in and learn skills necessary to succeed in e-commerce and to build omnichannel models.
The following is a detailed review of how concentration has increased along with a map of who own who in retailing today.
There is a strong possibility that we could see some really big deals, even ones that span format and geographical borders, as many mid-sized retailers recognise that independent survival is getting hard. Acquirers will use the current environment to diversify into new areas, expand volumes and market share, or simply acquire more retail property for long-term development.

Who Owns Who: Concentration Levels Accelerate in Japan Retail, with More M&A to Come

Japan

Seven & i Holdings Co., Ltd. is a holding company which was established through the merger of Ito-Yokado Co., Seven Eleven Japan Co., and Denny's Japan. The Company plans, manages, and operates mainly convenience stores, supermarkets, and department stores.

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Seven & I Holdings (3382 JP)

Shinsei To Launch a Poison Pill; SBI Plays Coy, So We Wait

Shinsei announced Friday it would later announce a Poison Pill at end-Sep, followed by an EGM Record Date in mid-Oct. This is setting up to go full...

Travis Lundy

Smartkarma Webinar | Understanding Japanese Companies: Insights from LightStream Research

On 1 September, 5pm SGT, join us for a Webinar with Mio Kato and the LightStream Research team, as they present unique views into approaching the...

Smartkarma Research

Seiyu: Back in the Mainstream Thanks to Rakuten

Online is only 3% of food retail in Japan but this is about to change fast. Amazon leads in this race but Rakuten is about to catch up through...

Michael Causton

1QFY22 Results: Underperforms Consensus, A Minor Blip Could Be a Good Entry Point

Q1 results seem a bit weak on profitability but we are confident that our investment thesis remains intact. So a minor blip in the share price due...

Oshadhi Kumarasiri

Who Owns Who: Concentration Levels Accelerate in Japan Retail, with More M&A to Come

Japanese retail is in the process of extensive concentration and market consolidation through M&A, organic expansion and tie-ups. Numerous...

Michael Causton

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