Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Functional chemicals trading house <a href="https://www.smartkarma.com/entities/shoko-co-ltd" target="_blank" data-smartkarma-citation="entities:1167:1" rel="noopener">Shoko Co Ltd (8090 JP)</a> parent <a href="https://www.smartkarma.com/entities/showa-denko-k-k" target="_blank" data-smartkarma-citation="entities:1496:1" rel="noopener">Showa Denko K.K. (4004 JP)</a> announced earlier this month that it was going to support a Tender Offer whereby a third party would launch a tender offer with the aim to buy 85% of the subsidiary.
Showa Denko would retain 15%.
The price came in below the average of the high and the low of the DCF range. The deal is at an EV of 3.3x the 5-year average EBITDA. That masks the fact that the company runs about 4.0x average EBITDA in net receivables (2.5x) and securities holdings (1.5x - not included as assets in the DCF).
Procedural adherence to the METI Fair M&amp;A Guidelines? Minimal at best. 
There is a shareholder agreement in place between the two future shareholders and the deal was that the new buyer would agree to keep all employees on for 3 years. 
For that, Showa Denko is supporting the sale of minorities' shareholdings to the new buyer at a substantial discount to book value. 
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The market so far has not appreciated this and the shares are only in the last couple of days trading down to the Tender Offer level. 
The yuho came out today, which gives us more insight into the shareholder structure as of just before the launch of the Tender Offer. 
More discussion below.

Functional chemicals trading house Shoko Co Ltd (8090 JP) parent Showa Denko K.K. (4004 JP) announced earlier this month that it was going to support a Tender Offer whereby a third party would launch a tender offer with the aim to buy 85% of the subsidiary.
Showa Denko would retain 15%.
The price came in below the average of the high and the low of the DCF range. The deal is at an EV of 3.3x the 5-year average EBITDA. That masks the fact that the company runs about 4.0x average EBITDA in net receivables (2.5x) and securities holdings (1.5x - not included as assets in the DCF).
Procedural adherence to the METI Fair M&amp;A Guidelines? Minimal at best. 
There is a shareholder agreement in place between the two future shareholders and the deal was that the new buyer would agree to keep all employees on for 3 years. 
For that, Showa Denko is supporting the sale of minorities' shareholdings to the new buyer at a substantial discount to book value. 




The market so far has not appreciated this and the shares are only in the last couple of days trading down to the Tender Offer level. 
The yuho came out today, which gives us more insight into the shareholder structure as of just before the launch of the Tender Offer. 
More discussion below.

Shoko (8090 JP) TOB:  Still Looks Bumpity

David Blennerhassett

Last Week in Event SPACE: China Youzan, Mcdonald's, Beijing Jingneng, Ricoh, Melco Resorts, LG Corp

<a href="https://www.smartkarma.com/entities/shoko-co-ltd" target="_blank" data-smartkarma-citation="entities:1167:1" rel="noopener">Shoko Co Ltd (8090 JP)</a> is a trading company which deals in fertilizers and chemicals and is the consolidated subsidiary of <a href="https://www.smartkarma.com/entities/showa-denko-k-k" target="_blank" data-smartkarma-citation="entities:1496:1" rel="noopener">Showa Denko K.K. (4004 JP)</a>. Shoko is undergoing a transformation/restructuring as part of its Swing-by Mid-Term Management Plan (is any Japanese company ever NOT going through some kind of transformative effort?).
This is an LBO of sorts, done with the agreement of Showa Denko, which after its purchase of the Hitachi Chemicals business almost a year ago has better things to do.
It is being taken over by a PE project fund, and Showa Denko is keeping 15% and involving itself with a shareholder agreement and involvement on choosing directors going forward. 
The deal requires only 51.8% of shares out, of which Showa Denko provides 29%. It needs 22% of the other 56% outstanding. It basically all has to come from domestic passive, some small measure of crossholders, and retail. Foreigners own almost nothing. 
But this, like many other deals, is being done at the wrong price. The TOB price is at a tiny premium, and the effective Adjusted EV/EBITDA multiple (EV adjusted for securities holdings and net receivables) is too low.
More below the fold.

Shoko Co Ltd (8090 JP) is a trading company which deals in fertilizers and chemicals and is the consolidated subsidiary of Showa Denko K.K. (4004 JP). Shoko is undergoing a transformation/restructuring as part of its Swing-by Mid-Term Management Plan (is any Japanese company ever NOT going through some kind of transformative effort?).
This is an LBO of sorts, done with the agreement of Showa Denko, which after its purchase of the Hitachi Chemicals business almost a year ago has better things to do.
It is being taken over by a PE project fund, and Showa Denko is keeping 15% and involving itself with a shareholder agreement and involvement on choosing directors going forward. 
The deal requires only 51.8% of shares out, of which Showa Denko provides 29%. It needs 22% of the other 56% outstanding. It basically all has to come from domestic passive, some small measure of crossholders, and retail. Foreigners own almost nothing. 
But this, like many other deals, is being done at the wrong price. The TOB price is at a tiny premium, and the effective Adjusted EV/EBITDA multiple (EV adjusted for securities holdings and net receivables) is too low.
More below the fold. 

Shoko (8090 JP) Tender Offer - Showa Denko Sells Too Cheap. Looks Bumpity.

Japan

SHOKO CO., LTD. primarily distributes chemicals, synthetic resins, and metals. The Company diversifies to pharmaceuticals and electronic materials.  Shoko also operates real estate and insurance businesses.

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Shoko Co Ltd (8090 JP)

Shoko (8090 JP) TOB: Still Looks Bumpity

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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...

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Travis Lundy

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