Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p><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 <em>hostile</em>-<em>ish</em> 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.</p><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><p></p><p>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 <strong>Target Opinion</strong> 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. </p><p>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. </p><p>It is, however, a nuanced CONDITIONAL AGAINST. And that is where it is gets interesting.</p><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">
<p>The main two complaints are that..</p>
<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><p>Shinsei Bank is, of course, right on both counts. </p><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><p style="padding-left: 25px;">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.</p><div class="content-highlight"><p>However, Shinsei says that SBI can gain Shinsei's approval by meeting the conditions which are <strong>Requirements for Support</strong>.</p></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><p>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. </p><p>Shinsei proposes that Shinsei and SBI HDS enter discussions immediately. </p><p>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). </p><h3><strong>A First Impression: </strong></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>
<em><strong>This is really quite well done by Shinsei.</strong></em> 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><p>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. </p><p><em><strong>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>. </strong></em></p><p>The situation is now more complicated than before, so I take a little more time to discuss it below.</p>

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

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Thematic (Sector/Industry)

<p>Among active Global managers, Japan Consumer Discretionary stocks are the 3rd largest country/sector holding in the Asia region.  Average fund weights sit behind Taiwan Tech and Japan Industrials at 1.07%, with 57.1% of the 380 funds in our analysis invested in the sector with combined AUM of $9.18bn.</p><p>Measured against other Asian country/sectors, changes in fund ownership have been positive and among the highest across all measures over the last 6-months.  Against a backdrop of plummeting exposure in China Consumer Discretionary stocks, average weights, funds invested, cash flows and the balance of buyers vs sellers were all positive for Japan Consumer Discretionary stocks.  </p><p>Infact, across most ownership metrics, Japan Consumer Discretionary stocks have overtaken, or at least closed to gap to China Consumer Discretionary stocks since the 'Tech Crackdown' in October of 2020.  We can see evidence of this rotation on a fund level, with Aberdeen's Global Unconstrained Fund, LBPAM's Actions Monde and BNY Mellon's Global Opportunities Fund examples of managers rotating from China Consumer Discretionary and into Japan since October 2020.</p><p><em>Analysis taken from our Global research, covering 380 active Global strategies with combined AUM of $1.1bn</em></p>

Among active Global managers, Japan Consumer Discretionary stocks are the 3rd largest country/sector holding in the Asia region.  Average fund weights sit behind Taiwan Tech and Japan Industrials at 1.07%, with 57.1% of the 380 funds in our analysis invested in the sector with combined AUM of $9.18bn.Measured against other Asian country/sectors, changes in fund ownership have been positive and among the highest across all measures over the last 6-months.  Against a backdrop of plummeting exposure in China Consumer Discretionary stocks, average weights, funds invested, cash flows and the balance of buyers vs sellers were all positive for Japan Consumer Discretionary stocks.  Infact, across most ownership metrics, Japan Consumer Discretionary stocks have overtaken, or at least closed to gap to China Consumer Discretionary stocks since the 'Tech Crackdown' in October of 2020.  We can see evidence of this rotation on a fund level, with Aberdeen's Global Unconstrained Fund, LBPAM's Actions Monde and BNY Mellon's Global Opportunities Fund examples of managers rotating from China Consumer Discretionary and into Japan since October 2020.Analysis taken from our Global research, covering 380 active Global strategies with combined AUM of $1.1bn

Japan Consumer Discretionary:  Benefiting from China's Downfall

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Japan Post Holdings / Equity Capital Markets

<div><p>The Japanese government plans to sell over 26% or US$8bn worth of <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> We've covered most most aspects of the deal in our previous note, <a href="https://www.smartkarma.com/insights/japan-post-holdings-placement-the-final-us-8bn-countdown-past-deal-didn-t-do-well" target="_blank" rel="noopener">Japan Post Holdings Placement - The Final US$8bn Countdown - Past Deal Didn’t Do Well</a>. </p></div><div><p>In this note, we will talk about the updates and the share price performance so far.</p></div>

The Japanese government plans to sell over 26% or US$8bn worth of Japan Post Holdings (6178 JP). We've covered most most aspects of the deal in our previous note, Japan Post Holdings Placement - The Final US$8bn Countdown - Past Deal Didn’t Do Well. In this note, we will talk about the updates and the share price performance so far.

Japan Post Holdings Placement - The Final US$8bn Countdown - Shaping up Better than the Last Deal

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

<p>This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. </p><p><strong><em>Companies mentioned this week:</em></strong></p><p><a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>, <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony Corp (6758 JP)</a>, <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a>, <a href="https://www.smartkarma.com/entities/sk-hynix-inc" target="_blank" data-smartkarma-citation="entities:16955:1" rel="noopener">SK Hynix (000660 KS)</a>, <a href="https://www.smartkarma.com/entities/hyundai-motor-co" target="_blank" data-smartkarma-citation="entities:155:1" rel="noopener">Hyundai Motor Co (005380 KS)</a>, <a href="https://www.smartkarma.com/entities/hyundai-mobis-co-ltd" target="_blank" data-smartkarma-citation="entities:6089:1" rel="noopener">Hyundai Mobis (012330 KS)</a></p>

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:Meituan (3690 HK), TSMC (2330 TT), Sony Corp (6758 JP), Samsung Electronics (005930 KS), SK Hynix (000660 KS), Hyundai Motor Co (005380 KS), Hyundai Mobis (012330 KS)

Global Emerging Markets Weekly: 15 October 2021

Latest News from the World’s Leading Innovators

Granite Bay Capital

An innovation focussed investment company

Granite Bay Capital is an innovation focussed investment company with a deep focus on the companies at the leading edge of innovation across major themes such as AI, ubiquitous computing, sustainability, automation and longevity.

<h2>Headline Developments</h2><p>At 90, William Shatner became the oldest person to ever reach space, telling Blue Origin’s Jeff Bezos “what you have given me is the most profound experience” that “I hope I never recover from”.  I’m sure Bezos also breathed a huge sigh of relief because if anything happened to Captain Kirk there would have been one hell of a reaction from Star Trek fans!</p><p>Microsoft (MSFT) and Nvidia (NVDA) have trained the world’s most advanced AI-powered language model, Megatron-Turing Natural Language Generation (MT-NLP), containing 530 billion parameters to achieve unmatched accuracy across natural language tasks such as reading comprehension and commonsense reasoning.</p>

Headline DevelopmentsAt 90, William Shatner became the oldest person to ever reach space, telling Blue Origin’s Jeff Bezos “what you have given me is the most profound experience” that “I hope I never recover from”.  I’m sure Bezos also breathed a huge sigh of relief because if anything happened to Captain Kirk there would have been one hell of a reaction from Star Trek fans!Microsoft (MSFT) and Nvidia (NVDA) have trained the world’s most advanced AI-powered language model, Megatron-Turing Natural Language Generation (MT-NLP), containing 530 billion parameters to achieve unmatched accuracy across natural language tasks such as reading comprehension and commonsense reasoning.

Japan

Sony Corporation manufactures audio, home video game consoles, communications, key device and information technology products for the consumer and professional markets.  The Company's other businesses include music, pictures, computer entertainment, and online businesses.

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Sony Corp (6758 JP)

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

Shinsei comes out "AGAINST" the SBI tender, as was expected. But it offered SBI a way out. SBI lambasted the proposals and said it had no intention...

Travis Lundy

Japan Consumer Discretionary: Benefiting from China's Downfall

Against a backdrop of plummeting exposure in China Consumer Discretionary stocks, active Global managers have pivoted towards the Japan Consumer...

Steven Holden

Japan Post Holdings Placement - The Final US$8bn Countdown - Shaping up Better than the Last Deal

The Japanese government plans to sell over 26% or US$8bn worth of Japan Post Holdings (6178 JP). In this note, we will talk about the updates and...

Sumeet Singh

Global Emerging Markets Weekly: 15 October 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA

Weekly Innovation Review (WIRE) #53

At 90, William Shatner became the oldest person to ever reach space, telling Blue Origin’s Jeff Bezos “what you have given me is the most profound...

Granite Bay Capital

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