IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<p><a href="https://www.smartkarma.com/entities/sydney-airport" target="_blank" data-smartkarma-citation="entities:19063:1" rel="noopener">Sydney Airport (SYD AU)</a> is Australia’s largest airport and the only listed airport on ASX. Sydney Airport has rejected a revised conditional, non-binding indicative offer of A$8.45 per share from a consortium (Sydney Aviation Alliance). The revised indicative offer of A$8.45 per share is a 45% premium to the unaffected price of A$5.81 (2 July). The revised indicative offer is also a marginal 2.4% bump to the original offer of A$8.25 per share received from the consortium on 5 July. </p><p>The Board rejected the revised offer as it continues to undervalue Sydney Airport and is opportunistic considering the COVID-19 pandemic. The Board argues that Sydney Airport has a 74-year lease on one of Australia’s most important valuable pieces of infrastructure. </p><p>Pushing for a better price is part of the M&amp;A game. The consortium responded to the Board’s rejection by warning that they are prepared to walk away but at the same time failing to declare that the A$8.45 per share revised offer was its final offer. The Board is open to engaging with the consortium if they lift the offer and is said to be seeking a price around A$9.00 per share, according to press reports. </p><p>The issue is complicated by the different methodologies used by the Board and the consortium to determine the rights adjusted share price to account for the dilutive raise in August 2020. The Board also argues that any proposal should be benchmarked against the pre-COVID share price high of A$9.20 per share reached on 6 December 2019. We think that the revised indicative offer is in line with the pre-COVID-19 rights adjusted share price high reached in December 2019. </p><p>The Board is facing increasing shareholder pushback to at least engage with the consortium and facilitate due diligence. UniSuper, the largest shareholder, has branded the rejection of the revised offer as “<em>disappointing</em>” and wants the Board to engage with the consortium.</p><div class="content-highlight"><p>Overall, the gamesmanship suggests both sides are now invested in securing a deal and the 6.5% valuation differential (A$9.00 Board’s value vs A$8.45 bid) suggest the two sides are not far apart on price. At the last close price of A$7.70, the shares are trading at a 9.7% gross spread to the revised indicative offer. The interim results will be announced on 20 August before market open.</p></div>

Sydney Airport (SYD AU) is Australia’s largest airport and the only listed airport on ASX. Sydney Airport has rejected a revised conditional, non-binding indicative offer of A$8.45 per share from a consortium (Sydney Aviation Alliance). The revised indicative offer of A$8.45 per share is a 45% premium to the unaffected price of A$5.81 (2 July). The revised indicative offer is also a marginal 2.4% bump to the original offer of A$8.25 per share received from the consortium on 5 July. The Board rejected the revised offer as it continues to undervalue Sydney Airport and is opportunistic considering the COVID-19 pandemic. The Board argues that Sydney Airport has a 74-year lease on one of Australia’s most important valuable pieces of infrastructure. Pushing for a better price is part of the M&amp;A game. The consortium responded to the Board’s rejection by warning that they are prepared to walk away but at the same time failing to declare that the A$8.45 per share revised offer was its final offer. The Board is open to engaging with the consortium if they lift the offer and is said to be seeking a price around A$9.00 per share, according to press reports. The issue is complicated by the different methodologies used by the Board and the consortium to determine the rights adjusted share price to account for the dilutive raise in August 2020. The Board also argues that any proposal should be benchmarked against the pre-COVID share price high of A$9.20 per share reached on 6 December 2019. We think that the revised indicative offer is in line with the pre-COVID-19 rights adjusted share price high reached in December 2019. The Board is facing increasing shareholder pushback to at least engage with the consortium and facilitate due diligence. UniSuper, the largest shareholder, has branded the rejection of the revised offer as “disappointing” and wants the Board to engage with the consortium.Overall, the gamesmanship suggests both sides are now invested in securing a deal and the 6.5% valuation differential (A$9.00 Board’s value vs A$8.45 bid) suggest the two sides are not far apart on price. At the last close price of A$7.70, the shares are trading at a 9.7% gross spread to the revised indicative offer. The interim results will be announced on 20 August before market open.

Sydney Airport's Rejection of a Revised Offer Is Likely Not the Final Act

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<div>
<p>On the 5 July, Australia’s largest airport <a href="https://www.smartkarma.com/entities/sydney-airport" target="_blank" data-smartkarma-citation="entities:19063:1" rel="noopener">Sydney Airport (SYD AU)</a> <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02391761-2A1307944?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> a consortium comprising IFM Investors, QSuper, and fund manager Global Infrastructure Management had made an indicative, non-binding Offer by way of a Scheme at $8.25/share,  a 42% premium to last close.  A little over a week later, SYD concluded the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02395613-2A1310027?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">proposal</a> was not in the best interest of its shareholders. </p>
<p>Today SYD announced it had received a <em>revised</em> offer of $8.45 from the consortium. The Board also concluded the proposal was low-balled. That rejection comes as no surprise - this is just a 2.4% bump in terms.</p>
<p>The revised bid arrives amid a surge in Covid cases, with New South Wales recording 478 new cases yesterday and seven deaths. </p>
<p>SYD's 2021 interim results will be released on the 20 August, before market open.</p>
</div>
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<p>More below the fold.</p>
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On the 5 July, Australia’s largest airport Sydney Airport (SYD AU) announced a consortium comprising IFM Investors, QSuper, and fund manager Global Infrastructure Management had made an indicative, non-binding Offer by way of a Scheme at $8.25/share,  a 42% premium to last close.  A little over a week later, SYD concluded the proposal was not in the best interest of its shareholders. 
Today SYD announced it had received a revised offer of $8.45 from the consortium. The Board also concluded the proposal was low-balled. That rejection comes as no surprise - this is just a 2.4% bump in terms.
The revised bid arrives amid a surge in Covid cases, with New South Wales recording 478 new cases yesterday and seven deaths. 
SYD's 2021 interim results will be released on the 20 August, before market open.


More below the fold.


Sydney Airports (SYD AU) Reject's Consortium's Revised Offer

<p>A drop in global demand resulted in international salmon prices declining 28% in the first six months of 2020. </p>
<p>In June of last year, China experienced a second Covid outbreak in Beijing that Chines authorities attributed to chopping boards used to handle imported salmon at the Xinfadi meat wholesale market. </p>
<p>Tasmania's <a href="https://www.smartkarma.com/entities/huon-aquaculture-group-ltd" target="_blank" data-smartkarma-citation="entities:12348:1" rel="noopener">Huon Aquaculture (HUO AU)</a> and <a href="https://www.smartkarma.com/entities/tassal-group-ltd" target="_blank" data-smartkarma-citation="entities:16234:1" rel="noopener">Tassal (TGR AU)</a> both sell salmon to China, although China's imports are primarily sourced from Chile, Denmark, and Norway.  </p>
<p>On the 26 February this year, Huon <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02347852-3A562617?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> a loss of A$95.3mn for the 1H21, including a non-impairment charge of A$113.9mn. In a <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02336871-3A560489?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">market update</a> earlier that month, Huon said salmon prices had declined ~40% relative to the first six months of 2020.</p>
<p>Concurrent with its 1H21 results, Huon said...</p>
<blockquote>
<p>In light of recent unsolicited approaches, the board has initiated a strategic review to assess the potential for corporate-level transactions for the benefit of shareholders.</p>
</blockquote>
<p>In a follow-up announcement on the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02387935-3A569418?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">25 June</a>, Huon said that strategic review remains ongoing. </p>
<p>Huon is in need of cash in the face of burgeoning debt amid falling salmon prices and rising freight expenses. A possible placement has been floated, although it would need to be substantial, which would reduce the Bender family's major shareholding. </p>
<p>A more likely outcome was a take-private transaction, yet an ongoing auction process, one that was (allegedly) repeatedly extended, appeared to be losing traction. As of about a week ago, reportedly only Brazil's <a href="https://www.smartkarma.com/entities/jbs-sa" target="_blank" data-smartkarma-citation="entities:24455:1" rel="noopener">JBS SA (JBSS3 BZ)</a> was still in the running.</p>
<div>
<h3>The New News</h3>
<p>Huon has now <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02404691-3A572314?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> a firm Offer with JBS.</p>
</div>
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<p>Under the terms of the Offer, by way of Scheme, Huon shareholders will receive A$3.85/share in cash. A fully-franked dividend of $0.0125/share  - if paid - will be netted. The cash price is a 61% premium to the last close, before the strategic review was announced on the 26 February. </p>
<p>The founding family (the Benders) with 53% intend to vote all of their shares in support of the Scheme, in the absence of a superior offer.</p>
<p>In addition to a shareholder vote, this Offer requires approval from FIRB.</p>
<p>A Scheme meeting is expected to take place late October with possible competition in November. </p>
</div>
<div>
<p>More below the fold.</p>
</div>
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<p></p>
</div>

A drop in global demand resulted in international salmon prices declining 28% in the first six months of 2020. 
In June of last year, China experienced a second Covid outbreak in Beijing that Chines authorities attributed to chopping boards used to handle imported salmon at the Xinfadi meat wholesale market. 
Tasmania's Huon Aquaculture (HUO AU) and Tassal (TGR AU) both sell salmon to China, although China's imports are primarily sourced from Chile, Denmark, and Norway.  
On the 26 February this year, Huon announced a loss of A$95.3mn for the 1H21, including a non-impairment charge of A$113.9mn. In a market update earlier that month, Huon said salmon prices had declined ~40% relative to the first six months of 2020.
Concurrent with its 1H21 results, Huon said...

In light of recent unsolicited approaches, the board has initiated a strategic review to assess the potential for corporate-level transactions for the benefit of shareholders.

In a follow-up announcement on the 25 June, Huon said that strategic review remains ongoing. 
Huon is in need of cash in the face of burgeoning debt amid falling salmon prices and rising freight expenses. A possible placement has been floated, although it would need to be substantial, which would reduce the Bender family's major shareholding. 
A more likely outcome was a take-private transaction, yet an ongoing auction process, one that was (allegedly) repeatedly extended, appeared to be losing traction. As of about a week ago, reportedly only Brazil's JBS SA (JBSS3 BZ) was still in the running.

The New News
Huon has now announced a firm Offer with JBS.


Under the terms of the Offer, by way of Scheme, Huon shareholders will receive A$3.85/share in cash. A fully-franked dividend of $0.0125/share  - if paid - will be netted. The cash price is a 61% premium to the last close, before the strategic review was announced on the 26 February. 
The founding family (the Benders) with 53% intend to vote all of their shares in support of the Scheme, in the absence of a superior offer.
In addition to a shareholder vote, this Offer requires approval from FIRB.
A Scheme meeting is expected to take place late October with possible competition in November. 


More below the fold.





<p><a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a> and <a href="https://www.smartkarma.com/entities/afterpay-limited" target="_blank" data-smartkarma-citation="entities:26940:1" rel="noopener">Afterpay (APT AU)</a> have <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02402191-3A571915?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> a firm merger, the completion of which will create Australia's largest-ever buyout, exceeding <a href="https://www.smartkarma.com/entities/unibail-rodamco-se" target="_blank" data-smartkarma-citation="entities:21140:1" rel="noopener">Unibail-Rodamco SE (UL NA)</a>'s 2017 takeover of <a href="https://www.smartkarma.com/entities/westfield-corp" target="_blank" data-smartkarma-citation="entities:896:1" rel="noopener">Westfield Corp (WFD AU)</a> - discussed <a href="https://skr.ma/8TPFU" target="_blank" rel="noopener">here</a>.</p>
<p>Under the terms of the Offer, by way of Scheme, Afterpay shareholders will receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay ordinary share.</p>
<p>Based on Square’s closing price of US$247.26 on July 30, 2021, this represents an implied transaction price of ~A$126.21 per Afterpay share, or a premium of ~30.6%.</p>
<p>Following completion of the transaction, Afterpay shareholders are expected to own ~18.5% of the merged entity on a fully diluted basis.</p>
<p>Square <em>may</em> elect to pay 1% of total consideration in cash.</p>
<p>Square has agreed to establish a secondary listing on the ASX to allow Afterpay shareholders to trade Square shares via CHESS.</p>
<p>The merger is tentatively expected to complete in the 1Q22. The Scheme has the unanimous backing of both Boards. </p>
<p>More below the fold.</p>

Square Inc (SQ US) and Afterpay (APT AU) have announced a firm merger, the completion of which will create Australia's largest-ever buyout, exceeding Unibail-Rodamco SE (UL NA)'s 2017 takeover of Westfield Corp (WFD AU) - discussed here.
Under the terms of the Offer, by way of Scheme, Afterpay shareholders will receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay ordinary share.
Based on Square’s closing price of US$247.26 on July 30, 2021, this represents an implied transaction price of ~A$126.21 per Afterpay share, or a premium of ~30.6%.
Following completion of the transaction, Afterpay shareholders are expected to own ~18.5% of the merged entity on a fully diluted basis.
Square may elect to pay 1% of total consideration in cash.
Square has agreed to establish a secondary listing on the ASX to allow Afterpay shareholders to trade Square shares via CHESS.
The merger is tentatively expected to complete in the 1Q22. The Scheme has the unanimous backing of both Boards. 
More below the fold.

<div>
<p>Despite a momentary memory lapse from <a href="https://www.smartkarma.com/entities/oil-search-ltd" target="_blank" data-smartkarma-citation="entities:773:1" rel="noopener">Oil Search Ltd (OSH AU)</a>, <a href="https://www.smartkarma.com/entities/santos-ltd" target="_blank" data-smartkarma-citation="entities:711:1" rel="noopener">Santos Ltd (STO AU)</a> <a target="_blank">confirmed</a> on the 20 July it had submitted a confidential, non-binding, indicative all-scrip merger proposal to Oil Search's board on the 25 June.</p>
</div>
<div>
<p>Santos proposed Oil Search shareholders receive 0.589 new Santos shares for each Oil Search share held, resulting in Oil Search shareholders holding 37% of the merged group and Santos shareholders 63%. The implied transaction price, to be implemented via a Scheme, was A$4.25 per Oil Search share - based on Santos’ closing price on 24 June 2021 - or a 12.3% premium to Oil Search's closing price on the same day.</p>
</div>
<div>
<p>Oil Search considered the terms were not fair but <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02397158-2A1310798?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">agreed</a> there was strategic logic combining with Santos. </p>
<p>In <em><a href="https://skr.ma/epYxh" target="_blank" rel="noopener">Santos/Oil Search: Getting Facts Straight</a></em>, I recommended buying Oil Search, with a view towards an improved ratio upwards of ~0.66x, or ~25% premium to last close using both share prices as 24 June. </p>
<p>This morning Santos <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02402372-2A1313090?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">bumped</a> the consideration by 6.5% to 0.6275 new Santos shares for every Oil Search share.  This would give Oil Search's shareholders 38.5% of the merger group. The implied transaction price of A$4.52/share  - if using Santos price on the 24 June - is a 19.7% premium to the undisturbed price. </p>
<p>The Oil Search board recommends the Offer in the absence of superior proposal. Due diligence has been afforded.</p>
<p>More below the fold.</p>
</div>
<div>
<p></p>
</div>


Despite a momentary memory lapse from Oil Search Ltd (OSH AU), Santos Ltd (STO AU) confirmed on the 20 July it had submitted a confidential, non-binding, indicative all-scrip merger proposal to Oil Search's board on the 25 June.


Santos proposed Oil Search shareholders receive 0.589 new Santos shares for each Oil Search share held, resulting in Oil Search shareholders holding 37% of the merged group and Santos shareholders 63%. The implied transaction price, to be implemented via a Scheme, was A$4.25 per Oil Search share - based on Santos’ closing price on 24 June 2021 - or a 12.3% premium to Oil Search's closing price on the same day.


Oil Search considered the terms were not fair but agreed there was strategic logic combining with Santos. 
In Santos/Oil Search: Getting Facts Straight, I recommended buying Oil Search, with a view towards an improved ratio upwards of ~0.66x, or ~25% premium to last close using both share prices as 24 June. 
This morning Santos bumped the consideration by 6.5% to 0.6275 new Santos shares for every Oil Search share.  This would give Oil Search's shareholders 38.5% of the merger group. The implied transaction price of A$4.52/share  - if using Santos price on the 24 June - is a 19.7% premium to the undisturbed price. 
The Oil Search board recommends the Offer in the absence of superior proposal. Due diligence has been afforded.
More below the fold.





Australia

Sydney Airport operates the Sydney, Australia airport. The Company develops and maintains the airport infrastructure and leases terminal space to airlines and retailers.

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Sydney Airport (SYD AU)

Sydney Airport's Rejection of a Revised Offer Is Likely Not the Final Act

The Board rejects a revised offer of A$8.45, a 2.4% bump to the previous offer. At the last close price of A$7.70, the shares are trading at a...

Arun George

Sydney Airports (SYD AU) Reject's Consortium's Revised Offer

A full Offer probably needs tat $9+ handle. Even then, neither ACCC nor FIRB approval is a certainty. I'm still disinclined to chase it here. I...

David Blennerhassett

JBS Nets Huon Agriculture (ASX: HUO)

The company is on the back foot in the face of increasing debt amid falling salmon prices and skyrocketing freight prices. JBS appears the only...

David Blennerhassett

Afterpay Ltd (APT AU): All Squared Away

I think it is highly illustrative the co-founders are happy to kick out at price ~22% below the recent high of A$160/share, potentially suggesting...

David Blennerhassett

Santos and Oil Search Agree on Terms

This remains a non-binding offer but ostensibly is done. Yet Wulff's resignation, Mubadala's sell-down, and chairman Rick Lee's odd short-term...

David Blennerhassett

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