European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 19 July, Sixjoy Hong Kong Limited, a bidco subsidiary of <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> and the Board of <a href="https://www.smartkarma.com/entities/sumo-group-plc" target="_blank" data-smartkarma-citation="entities:33770:1" rel="noopener">Sumo Group (SUMO LN)</a> reached an agreement to acquire a 91.25% stake in Sumo for 513p/share to be effected by means of a scheme of arrangement.
<ul class="">
<li>
For an implied equity value of £918.8 mn (as reported) and an implied EV of £925.7 mn.
</li>
<li>
8.9x EV/Fwd Revenue, 38.8x EV/Fwd EBITDA and 57.0x P/Fwd EPS.
<ul>
<li>
This is more generous than the 8x EV/Fwd EBITDA that Tencent offered for <a href="https://www.smartkarma.com/entities/funcom-se" target="_blank" data-smartkarma-citation="entities:28819:1" rel="noopener">Funcom NO (FUNCOM NO)</a>, or the 9x EV/Fwd EBITDA for a stake in <a href="https://www.smartkarma.com/entities/ubisoft-entertainment" target="_blank" data-smartkarma-citation="entities:21564:1" rel="noopener">UBISOFT Entertainment (UBI FP)</a>.
</li>
</ul>
</li>
<li>The irrevocable undertakings received plus the stake of Tencent represent in aggregate 35.7% of the share capital of Sumo.</li>
</ul>
Tencent's deep pockets will allow Sumo to increase the resources to increase scale and finance new game projects. Moreover, Sumo would greatly benefit from Tencent's know-how in its international expansion plans.
Transaction is subject to approval from shareholders of Sumo Group, third party clearance, the sanction of the scheme by the Court, the receipt of antitrust clearances in the United Kingdom and United States and a foreign-direct investment approval under the CFIUS regime in the United States (or lapsing of the applicable waiting periods), and other customary conditions.
The offer is in line with the European comparables median of 8.4x EV/Fwd Revenue. On this basis, the offer looks fair. Given both the irrevocable undertakings, the stake of Tencent, and the premium offered, a counteroffer seems highly unlikely.
This is a rock-solid trade, in my view. Completion should take place in about five months. On 19 July, the shares closed at 503p, a 40.5% increase. Gross spread is 1.95%, around 4% annualised.
Recommendation is long SUMO LN, TP 513p.

On 19 July, Sixjoy Hong Kong Limited, a bidco subsidiary of Tencent (700 HK) and the Board of Sumo Group (SUMO LN) reached an agreement to acquire a 91.25% stake in Sumo for 513p/share to be effected by means of a scheme of arrangement.


For an implied equity value of £918.8 mn (as reported) and an implied EV of £925.7 mn.


8.9x EV/Fwd Revenue, 38.8x EV/Fwd EBITDA and 57.0x P/Fwd EPS.


This is more generous than the 8x EV/Fwd EBITDA that Tencent offered for Funcom NO (FUNCOM NO), or the 9x EV/Fwd EBITDA for a stake in UBISOFT Entertainment (UBI FP).



The irrevocable undertakings received plus the stake of Tencent represent in aggregate 35.7% of the share capital of Sumo.

Tencent's deep pockets will allow Sumo to increase the resources to increase scale and finance new game projects. Moreover, Sumo would greatly benefit from Tencent's know-how in its international expansion plans.
Transaction is subject to approval from shareholders of Sumo Group, third party clearance, the sanction of the scheme by the Court, the receipt of antitrust clearances in the United Kingdom and United States and a foreign-direct investment approval under the CFIUS regime in the United States (or lapsing of the applicable waiting periods), and other customary conditions.
The offer is in line with the European comparables median of 8.4x EV/Fwd Revenue. On this basis, the offer looks fair. Given both the irrevocable undertakings, the stake of Tencent, and the premium offered, a counteroffer seems highly unlikely.
This is a rock-solid trade, in my view. Completion should take place in about five months. On 19 July, the shares closed at 503p, a 40.5% increase. Gross spread is 1.95%, around 4% annualised.
Recommendation is long SUMO LN, TP 513p.

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

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.

Quantitative Analysis

In our weekly HK Connect Flow series, we aim to highlight key stocks and sectors which the mainland investors traded via the southbound Hong Kong Connect, as analyzed by our proprietary data engine.Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In a Hong Kong exchange report released in July 2019, the exchange highlighted that flows from mainland China accounted for 12% of the total trading volume in the market and is ahead of the US investors' 10% and UK investors' 7% share respectively. We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.In this insight, we will highlight inflows into Geely Automobile Holdings Limited (175 HK), Xiaomi Corporation (1810 HK), Haidilao International Holding Ltd. (6862 HK), as well as outflows from Tencent Holdings Limited (700 HK), and Meituan (3690 HK).

In our weekly HK Connect Flow series, we aim to highlight key stocks and sectors which the mainland investors traded via the southbound Hong Kong Connect, as analyzed by our proprietary data engine.Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In a Hong Kong exchange report released in July 2019, the exchange highlighted that flows from mainland China accounted for 12% of the total trading volume in the market and is ahead of the US investors' 10% and UK investors' 7% share respectively. We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.In this insight, we will highlight inflows into Geely Automobile Holdings Limited (175 HK), Xiaomi Corporation (1810 HK), Haidilao International Holding Ltd. (6862 HK), as well as outflows from Tencent Holdings Limited (700 HK), and Meituan (3690 HK).

Hong Kong Connect Flows: Geely & Xiaomi Inflows

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.

Thematic (Sector/Industry)

Headline Developments Apple (AAPL) and Goldman Sachs (GS) are reportedly partnering to launch a buy now, pay later (BNPL) service through Apple Pay, according to Bloomberg .  The service will reportedly allow users to spread payments of their purchases across four interest-free payments every two weeks, or across several months with interest.

Headline Developments Apple (AAPL) and Goldman Sachs (GS) are reportedly partnering to launch a buy now, pay later (BNPL) service through Apple Pay, according to Bloomberg .  The service will reportedly allow users to spread payments of their purchases across four interest-free payments every two weeks, or across several months with interest.

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

Equity Bottom-Up

<ul>
<li>Apps are over-crowded in mobile handsets and the time of mini-program is coming.</li>
<li>WeChat is the largest mini-program platform.</li>
<li>We raise a case of the competition between Meituan and Ele.me.</li>
<li>Other companies also use mini-program to introduce users to their apps.</li>
</ul>


Apps are over-crowded in mobile handsets and the time of mini-program is coming.
WeChat is the largest mini-program platform.
We raise a case of the competition between Meituan and Ele.me.
Other companies also use mini-program to introduce users to their apps.


Tencent (700 HK): Meituan Wins in Mini-Program, But Actually Tencent Wins

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<div>
Nearly a year after Chinese search-engine <a href="https://www.smartkarma.com/entities/sogou-inc" target="_blank" data-smartkarma-citation="entities:25996:1" rel="noopener">Sogou Inc (SOGO US)</a>  <a href="http://ir.sogou.com/2020-07-27-Sogou-Announces-Receipt-of-a-Preliminary-Non-Binding-Proposal-to-Acquire-the-Company" target="_blank" rel="noopener">announced</a> a preliminary non-binding proposal from <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>, and around 9.5 months since <a href="http://app.quotemedia.com/data/downloadFiling?webmasterId=101533&amp;ref=115257193&amp;type=PDF&amp;symbol=SOGO&amp;companyName=Sogou+Inc.+American+Depositary+Shares+each+representing+one+Class+A&amp;formType=6-K&amp;dateFiled=2020-09-29&amp;CK=1713947" target="_blank" rel="noopener">entering</a> into a definitive agreement for a Going-Private Transaction, the Offer has been granted unconditional approval by the State Administration for Market Regulation (SAMR). 
</div>
<div>
This Merger is in the form of a short-form merger as per section 233(7) of the <a href="https://www.cima.ky/upimages/commonfiles/CompaniesLaw2020Revision_1579811065.pdf" target="_blank" rel="noopener">Companies Law of the Cayman Islands</a> - there is no vote. With SAMR sign-off in the bag, this deal should become effective very shortly, and accordingly, is trading tight to terms.
</div>
<div>
Separately, <a href="https://www.smartkarma.com/entities/sohu-com-ltd" target="_blank" data-smartkarma-citation="entities:22853:1" rel="noopener">Sohu.com Inc (SOHU US)</a> will pocket ~US$1.2bn from the merger via its 33.8% equity stake in Sogou, versus its current market cap of US$933mn. And that is after yesterday's 28% jump in price.
</div>
<div>
<div>
More below the fold.
</div>
</div>


Nearly a year after Chinese search-engine Sogou Inc (SOGO US)  announced a preliminary non-binding proposal from Tencent (700 HK), and around 9.5 months since entering into a definitive agreement for a Going-Private Transaction, the Offer has been granted unconditional approval by the State Administration for Market Regulation (SAMR). 


This Merger is in the form of a short-form merger as per section 233(7) of the Companies Law of the Cayman Islands - there is no vote. With SAMR sign-off in the bag, this deal should become effective very shortly, and accordingly, is trading tight to terms.


Separately, Sohu.com Inc (SOHU US) will pocket ~US$1.2bn from the merger via its 33.8% equity stake in Sogou, versus its current market cap of US$933mn. And that is after yesterday's 28% jump in price.



More below the fold.



Tencent/Sogou: And That's (Finally) A Wrap

China

Tencent Holdings Limited operates as an investment holding company. The Company, through its subsidiaries, provides Internet and mobile value-added services (VAS), online advertising, and e-commerce transactions. Tencent Holdings offers services to users worldwide.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Tencent Holdings (ADR) (TCEHY US)

Tencent/Sumo: Recommended Cash Offer

This is a rock-solid trade, 1.9% gross spread, c.4% annualised. Completion should take place in about five months. On 19 July, the shares closed at...

Jesus Rodriguez Aguilar

Hong Kong Connect Flows: Geely & Xiaomi Inflows

We highlight Hong Kong Connect inflows into Geely Automobile Holdings Limited (175 HK), and Xiaomi Corporation (1810 HK) in the past week.

Ke Yan, CFA, FRM

Weekly Innovation Review (WIRE) #40

Headline Developments Apple (AAPL) and Goldman Sachs (GS) are reportedly partnering to launch a buy now, pay later (BNPL) service through Apple

Granite Bay Capital

Tencent (700 HK): Meituan Wins in Mini-Program, But Actually Tencent Wins

Apps are over-crowded in mobile handsets and the time of mini-program is coming. WeChat is the largest mini-program platform. We raise a case of...

Ming Lu

Tencent/Sogou: And That's (Finally) A Wrap

The gross spread to terms is only 1%, but this is a done deal. I think this can become effective in a matter of weeks. Sohu's NAV discount is at...

David Blennerhassett

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)