Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Friday post-close, <a href="https://www.smartkarma.com/entities/idemitsu-kosan-co-ltd" target="_blank" data-smartkarma-citation="entities:109:1" rel="noopener">Idemitsu Kosan (5019 JP)</a> announced a deal to buy out subsidiary <a href="https://www.smartkarma.com/entities/toa-oil-co-ltd" target="_blank" data-smartkarma-citation="entities:11021:1" rel="noopener">Toa Oil Co Ltd (5008 JP)</a>. Cornwall has agreed to tender, so it's a done deal. </li>
<li>This is at ¥3,150/share, which is nearly 30% higher than the bid 21 months ago, where Cornwall bought enough to block, but it is a disappointing outcome for governance.</li>
<li>A clearly problematic tolling agreement with the parent, and what could be ¥100bn of excess land value are ignored. Minority investors get hosed. One of the problems of minority investments.</li>
</ul>


Friday post-close, Idemitsu Kosan (5019 JP) announced a deal to buy out subsidiary Toa Oil Co Ltd (5008 JP). Cornwall has agreed to tender, so it's a done deal. 
This is at ¥3,150/share, which is nearly 30% higher than the bid 21 months ago, where Cornwall bought enough to block, but it is a disappointing outcome for governance.
A clearly problematic tolling agreement with the parent, and what could be ¥100bn of excess land value are ignored. Minority investors get hosed. One of the problems of minority investments.


BREAKING! Dog Loses To Mangalore - Idemitsu Kosan Does Its Deal for Toa Oil (5008)

<ul>
<li>On Friday, post-close, there was a flurry of excitement as YFO put out a press release amending the start date of the planned Tender Offer to early November.</li>
<li>Not long after, there was another release by <a href="https://www.smartkarma.com/entities/toyo-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:1176:1" rel="noopener">Toyo Construction (1890 JP)</a> itself. </li>
<li>You have to read both for what they are. And as they say.... Get your programs here!</li>
</ul>


On Friday, post-close, there was a flurry of excitement as YFO put out a press release amending the start date of the planned Tender Offer to early November.
Not long after, there was another release by Toyo Construction (1890 JP) itself. 
You have to read both for what they are. And as they say.... Get your programs here!


Toyo Construction (1890 JP) - There's Nuance in Them Thar Press Releases

<ul>
<li>Mubadala bought 20.8% of <a href="https://www.smartkarma.com/entities/cosmo-energy-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:26565:1" rel="noopener">Cosmo Energy Holdings (5021 JP)</a> in 2007 at ¥5,068/share (split-adjusted). A few months later it dipped below that and hasn't seen that price since. </li>
<li>The sovereign wealth fund sold 5% last year at ¥2,610, and just 7 months later is bailing on the other 15.7% at a 12-17% discount. </li>
<li>Result? Float will rise. Index funds will buy a bit, and active foreign institutional investors will nearly double their holdings.</li>
</ul>


Mubadala bought 20.8% of Cosmo Energy Holdings (5021 JP) in 2007 at ¥5,068/share (split-adjusted). A few months later it dipped below that and hasn't seen that price since. 
The sovereign wealth fund sold 5% last year at ¥2,610, and just 7 months later is bailing on the other 15.7% at a 12-17% discount. 
Result? Float will rise. Index funds will buy a bit, and active foreign institutional investors will nearly double their holdings.


Cosmo Oil (5021 JP) Accelerated Block Offering - Big Discount But... 👀

Equity Bottom-Up

In mid-December 2020, <a href="https://www.smartkarma.com/entities/idemitsu-kosan-co-ltd" target="_blank" data-smartkarma-citation="entities:109:1" rel="noopener">Idemitsu Kosan (5019 JP)</a> launched a lowball Tender Offer for its 51% subsidiary <a href="https://www.smartkarma.com/entities/toa-oil-co-ltd" target="_blank" data-smartkarma-citation="entities:11021:1" rel="noopener">Toa Oil Co Ltd (5008 JP)</a>. It was not the right bid, and I discussed this before the stock started trading the next business day in <a href="https://www.smartkarma.com/insights/idemitsu-launches-lowball-tender-offer-for-subsidiary-toa-oil-5008" target="_blank" data-smartkarma-citation="insights:46384" rel="noopener">Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008)</a>. 
<div class="content-highlight">
There are MULTIPLE reasons why the bid as presented did not value Toa Oil correctly. The reasons range from Sum Of The Parts valuation, liquidation scenarios, and private market bidder value, to simply measuring replacement value.
</div>
There was already a large shareholder, Cornwall Capital. They had just started buying more, as a large shareholder filing amendment showed the same day as the Idemitsu announcement. After the Tender Offer started, they started buying more, then more. And did so above terms. 
The stock climbed above terms the first day it was able to trade there. Then it did not fall until the Tender Offer went ex-. Since it went free to trade, it has closed below terms once, post deal failure.
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</section>
Coverage of this deal was presented in the insights listed below.
<table class="table table-striped">
<tbody>
<tr>
<td colspan="2" style="width: 723.636px;">
<h2>List of insights on Toa Oil (5008) Tender Offer by Idemitsu (5019)</h2>
</td>
</tr>
<tr>
<td style="width: 130px;">Date Published</td>
<td style="width: 572.727px;">
Title / Explanation
</td>
</tr>
<tr>
<td style="width: 130px;">16 Dec 2020</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/idemitsu-launches-lowball-tender-offer-for-subsidiary-toa-oil-5008" target="_blank" data-smartkarma-citation="insights:46384" rel="noopener">Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008)</a> </td>
</tr>
<tr>
<td style="width: 130px;"></td>
<td style="width: 572.727px;">Discussion of the nature of the asset, why it is the wrong price. </td>
</tr>
<tr>
<td style="width: 130px;">13 Jan 2021</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/toa-oil-5008-tender-offer-update-looks-bumpity" target="_blank" data-smartkarma-citation="insights:46996" rel="noopener">Toa Oil (5008) Tender Offer Update - Looks Bumpity.</a> </td>
</tr>
<tr>
<td style="width: 130px;"></td>
<td style="width: 572.727px;">Article in Sentaku, breakdown of location of refinery assets in the Tokyo Bay Area, and why it makes sense to look at a potentially different outcome involving <a href="https://www.smartkarma.com/entities/eneos-holdings-inc" target="_blank" data-smartkarma-citation="entities:638:1" rel="noopener">ENEOS Holdings (5020 JP)</a> </td>
</tr>
<tr>
<td style="width: 130px;">31 Jan 2021</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/toa-oil-5008-tender-offer-updated-update-still-looks-bumpity" target="_blank" data-smartkarma-citation="insights:47625" rel="noopener">Toa Oil (5008) Tender Offer Updated Update - STILL Looks Bumpity</a> </td>
</tr>
<tr>
<td style="width: 130px;"></td>
<td style="width: 572.727px;">Shares climbing, profits soaring. </td>
</tr>
<tr>
<td style="width: 130px;">12 Feb 2021</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/toa-oil-5008-tender-has-the-dog-caught-the-car" target="_blank" data-smartkarma-citation="insights:48018" rel="noopener">Toa Oil (5008) Tender - Has the Dog Caught the Car?</a> </td>
</tr>
<tr>
<td style="width: 130px;"></td>
<td style="width: 572.727px;">Profits, a Bump, Analysis of the Tank Farm value, and the value of investors making noise</td>
</tr>
<tr>
<td style="width: 130px;">17 Feb 2021</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/toa-oil-5008-the-dog-has-caught-the-car-but-beware-mangalores" target="_blank" data-smartkarma-citation="insights:48228" rel="noopener">Toa Oil (5008) - The Dog Has Caught the Car, But Beware Mangalores</a> </td>
</tr>
<tr>
<td style="width: 130px;"></td>
<td style="width: 572.727px;">The Tender Offer is blocked, but Idemitsu has historical form in diluting noisy minority shareholders to get its way. What to watch for going forward.  And a gif of Mangalores.</td>
</tr>
<tr>
<td colspan="2" style="width: 723.636px;"></td>
</tr>
<tr>
<td colspan="2" style="width: 723.636px;">
<h3>Background</h3>
</td>
</tr>
<tr>
<td style="width: 130px;">2 Jan 2016</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/japan-refiner-mergers-antitrust-approvals-grouped-together" target="_blank" rel="noopener">Japan Refiner Mergers:  Antitrust Approvals Grouped Together</a></td>
</tr>
</tbody>
</table>
Eventually, the deal failed. And the company reinstated its dividend for March 2021 at the same level as it had originally forecast for the year back in July 2020 - ¥40/share (-20% yoy).
This was, to my knowledge, the first deal where a Japanese parent would buy out a Japanese subsidiary which ever failed. 
The problem is, that doesn't change Idemitsu's mind. It still wants to consolidate and integrate refinery operations based on demand for refined products dropping even more radically than expected. 
This week, there was a Nikkei article/op-ed out after the deal failed and it caused the stock to pop 13.3% the day it came out. The stock closed today 10.5% above the original Tender Offer terms. 
The <a href="https://www.nikkei.com/article/DGXZQOGD17D3H0X10C21A2000000/?unlock=1" target="_blank" rel="noopener">article/op-ed</a> was... kind of obvious. And not terribly insightful. It is worth a read, and then it is worth thinking about one's rebuttals.
More below.

In mid-December 2020, Idemitsu Kosan (5019 JP) launched a lowball Tender Offer for its 51% subsidiary Toa Oil Co Ltd (5008 JP). It was not the right bid, and I discussed this before the stock started trading the next business day in Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008). 

There are MULTIPLE reasons why the bid as presented did not value Toa Oil correctly. The reasons range from Sum Of The Parts valuation, liquidation scenarios, and private market bidder value, to simply measuring replacement value.

There was already a large shareholder, Cornwall Capital. They had just started buying more, as a large shareholder filing amendment showed the same day as the Idemitsu announcement. After the Tender Offer started, they started buying more, then more. And did so above terms. 
The stock climbed above terms the first day it was able to trade there. Then it did not fall until the Tender Offer went ex-. Since it went free to trade, it has closed below terms once, post deal failure.




Coverage of this deal was presented in the insights listed below.




List of insights on Toa Oil (5008) Tender Offer by Idemitsu (5019)



Date Published

Title / Explanation



16 Dec 2020
Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008) 



Discussion of the nature of the asset, why it is the wrong price. 


13 Jan 2021
Toa Oil (5008) Tender Offer Update - Looks Bumpity. 



Article in Sentaku, breakdown of location of refinery assets in the Tokyo Bay Area, and why it makes sense to look at a potentially different outcome involving ENEOS Holdings (5020 JP) 


31 Jan 2021
Toa Oil (5008) Tender Offer Updated Update - STILL Looks Bumpity 



Shares climbing, profits soaring. 


12 Feb 2021
Toa Oil (5008) Tender - Has the Dog Caught the Car? 



Profits, a Bump, Analysis of the Tank Farm value, and the value of investors making noise


17 Feb 2021
Toa Oil (5008) - The Dog Has Caught the Car, But Beware Mangalores 



The Tender Offer is blocked, but Idemitsu has historical form in diluting noisy minority shareholders to get its way. What to watch for going forward.  And a gif of Mangalores.






Background



2 Jan 2016
Japan Refiner Mergers:  Antitrust Approvals Grouped Together



Eventually, the deal failed. And the company reinstated its dividend for March 2021 at the same level as it had originally forecast for the year back in July 2020 - ¥40/share (-20% yoy).
This was, to my knowledge, the first deal where a Japanese parent would buy out a Japanese subsidiary which ever failed. 
The problem is, that doesn't change Idemitsu's mind. It still wants to consolidate and integrate refinery operations based on demand for refined products dropping even more radically than expected. 
This week, there was a Nikkei article/op-ed out after the deal failed and it caused the stock to pop 13.3% the day it came out. The stock closed today 10.5% above the original Tender Offer terms. 
The article/op-ed was... kind of obvious. And not terribly insightful. It is worth a read, and then it is worth thinking about one's rebuttals.
More below.

Toa Oil (5008) - Idemitsu Looking To The Next Attempt?

True to the sentiment expressed by the <a href="https://www.smartkarma.com/entities/idemitsu-kosan-co-ltd" target="_blank" data-smartkarma-citation="entities:109:1" rel="noopener">Idemitsu Kosan (5019 JP)</a> Finance Dept chief who spoke at the earnings news conference last week, Idemitsu Kosan did not change the price on its ¥2450/share Tender Offer for <a href="https://www.smartkarma.com/entities/toa-oil-co-ltd" target="_blank" data-smartkarma-citation="entities:11021:1" rel="noopener">Toa Oil Co Ltd (5008 JP)</a>.Yesterday, the Tender Offer closed without fanfare. Today Idemitsu announced the results (<a href="https://ssl4.eir-parts.net/doc/5019/ir_material9/154414/00.pdf" target="_blank" rel="noopener">English</a>, <a href="https://www.idss.co.jp/content/100034505.pdf" target="_blank" rel="noopener">Japanese</a>). Because Idemitsu already owned 50+% it only needed 2,058,875 shares which was 16+% or roughly a third of the minority to get to 66.7% to squeeze out remaining minority shareholders. Idemitsu got 470,668 shares, or 3.82%. In my first insight <a href="https://www.smartkarma.com/insights/idemitsu-launches-lowball-tender-offer-for-subsidiary-toa-oil-5008" target="_blank" data-smartkarma-citation="insights:46384" rel="noopener">Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008)</a>, I showed what I thought the shareholder structure breakdown for support looked like. In that table, I suggested at a minimum, it was likely to get support from financial and corporate crossholders 483,000 shares) and from directors (13,500 shares). They did not even get that much. Cornwall Capital, which had climbed from 18+% to 26.5+% during the course of the Tender Offer obviously did not tender, but neither did 99% of the other non-crossholder-held shares. This was an enormous failure for Idemitsu. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/093/original/Screenshot+2021-02-16+at+8.26.07+PM.png?1613478380" class="editor-image img-responsive" data-smartkarma-image-id="189093"></figure></section>What next? Read on.

True to the sentiment expressed by the Idemitsu Kosan (5019 JP) Finance Dept chief who spoke at the earnings news conference last week, Idemitsu Kosan did not change the price on its ¥2450/share Tender Offer for Toa Oil Co Ltd (5008 JP).Yesterday, the Tender Offer closed without fanfare. Today Idemitsu announced the results (English, Japanese). Because Idemitsu already owned 50+% it only needed 2,058,875 shares which was 16+% or roughly a third of the minority to get to 66.7% to squeeze out remaining minority shareholders. Idemitsu got 470,668 shares, or 3.82%. In my first insight Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008), I showed what I thought the shareholder structure breakdown for support looked like. In that table, I suggested at a minimum, it was likely to get support from financial and corporate crossholders 483,000 shares) and from directors (13,500 shares). They did not even get that much. Cornwall Capital, which had climbed from 18+% to 26.5+% during the course of the Tender Offer obviously did not tender, but neither did 99% of the other non-crossholder-held shares. This was an enormous failure for Idemitsu. What next? Read on.

Toa Oil (5008) - The Dog Has Caught the Car, But Beware Mangalores

Japan

TOA OIL CO., LTD. refines oil on a consignment basis.  The Company also ties up with Tokyo Electric Power Company to distribute electric power as well as steam air.  Toa Oil is a member of Showa Shell Sekiyu.

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Toa Oil Co Ltd (5008 JP)

BREAKING! Dog Loses To Mangalore - Idemitsu Kosan Does Its Deal for Toa Oil (5008)

Idemitsu wins Toa Oil. Cornwall blocked the first deal in Dec2020 (ended Feb21) but agreed to this one. It's a "win" but not really. This was still...

Travis Lundy

Toyo Construction (1890 JP) - There's Nuance in Them Thar Press Releases

Toyo Const suitor YFO put out a press release which was boilperplate in its fact and interesting in its detail. Toyo also released a statement,...

Travis Lundy

Cosmo Oil (5021 JP) Accelerated Block Offering - Big Discount But... 👀

Mubadala - Abu Dhabi's SWF is selling the remaining 15.7% of Cosmo Energy Holdings it holds in an Accelerated Block Offering for a 12-17% discount....

Travis Lundy

Toa Oil (5008) - Idemitsu Looking To The Next Attempt?

The Idemitsu TOB for Toa failed but Idemitsu still wants it. The question is when and how. Cornwall is now above 30% and the market can clearly...

Travis Lundy

Toa Oil (5008) - The Dog Has Caught the Car, But Beware Mangalores

The Idemitsu Tender Offer for Toa failed. Independent shareholders stayed away in droves. Next, Idemitsu may be inclined to try something less...

Travis Lundy

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