Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Event-Driven

Late in the evening on Sep 18th, after the trading world in Japan had gone home for the 5-day weekend, Osaka Steel (5449 JP) announced that it planned a tender offer to take over Tokyo Kohtetsu (5448 JP) at 630 yen - a nice 63% premium&nbsp;vs the close. &nbsp;Tokyo Kohtetsu came out with a statement in <a href="http://www.kohtetsu.jp/ir/library/pdf/2015/20150918-2.pdf" target="_blank">Japanese</a>&nbsp;and <a href="http://www.kohtetsu.jp/ir/library/pdf/2015/20150918-3.pdf" target="_blank">English</a>&nbsp;at the same time, saying the board supported the deal.&nbsp;Tokyo Kohtetsu has gone limit up the last two days and is expected to open today.This is a tiny deal.&nbsp;It matters nothing in the grand scheme of things - in the sector or Japan as a whole.&nbsp;But for some it&nbsp;is probably worth a look anyway.&nbsp;Investors have seen this show before. A deal between these two companies was blocked by shareholders 9 years ago. That was when Osaka Steel wanted to pay &gt;1x book in scrip. Now Osaka Steel is going to pay &lt;0.7x book in cash.It is probably too late for this deal. There is not much&nbsp;which&nbsp;can&nbsp;or&nbsp;will&nbsp;block a successful change in control unless either of the two sellers who have undertaken to make this tender successful have a change of heart - which is unheard of in Japan. Those two shareholders who have guaranteed the result of the tender are, for clarity's sake...&nbsp;<ol><li>Mitsui &amp; Co - the largest customer of both the sub-$100mm market cap Target (Kohtetsu) and the majority owner (Nippon Steel) of Buyer Osaka Steel, and</li><li>Hanwa Steel - the co-Buyer of the Target in this transaction (and a 14+% market share customer of the Target), who has separately struck a deal with Osaka Steel on how to divvy ownership of the deal.</li></ol>It is is not completely too late for Higashi Nippon Bank shareholders, who just got somewhat stuffed by their board of directors but where the vote is ahead. Or UNY shareholders where the market is telling you that it expects that UNY directors will throw&nbsp;its shareholders under the bus when the ratio gets announced (recent press reports suggest the first part of&nbsp;October). [Smartkarma subscribers can search for the half dozen-plus Insights&nbsp;put out on UNY so far, including several&nbsp;outlining why shareholders of UNY could or should think the UNY/FamiMa ratio should or could be a lot higher than current market prices suggest.] &nbsp;Investors in both would benefit from understanding how then-small Ichigo Asset Management led a not-overly hostile proxy solicitation which got the first Osaka Steel-Tokyo Kohtetsu&nbsp;merger blocked. Looking at the history will tell you that Japan's retail shareholders have not inconsiderable power.&nbsp;Shareholders should make boards work for significant capital changes.&nbsp;While shareholder proxies are heretofore&nbsp;rare, a new government/media/social/cultural/ regulatory emphasis on Stewardship by shareholders (and that&nbsp;includes&nbsp;you Corporate Crossholding Japan!) and Governance by Companies (and that explicitly means you Corporate Japan!) should make it easier for shareholders to explain that when companies and their boards make changes to the capital entrusted to them by shareholders, they should do it at the right price. It's your job as stewards to make Boards treat with care Principle 1.6 of the Japan Corporate Governance Code.A look at the history and a look at this new deal below the fold...

Late in the evening on Sep 18th, after the trading world in Japan had gone home for the 5-day weekend, Osaka Steel (5449 JP) announced that it planned a tender offer to take over Tokyo Kohtetsu (5448 JP) at 630 yen - a nice 63% premium&nbsp;vs the close. &nbsp;Tokyo Kohtetsu came out with a statement in Japanese&nbsp;and English&nbsp;at the same time, saying the board supported the deal.&nbsp;Tokyo Kohtetsu has gone limit up the last two days and is expected to open today.This is a tiny deal.&nbsp;It matters nothing in the grand scheme of things - in the sector or Japan as a whole.&nbsp;But for some it&nbsp;is probably worth a look anyway.&nbsp;Investors have seen this show before. A deal between these two companies was blocked by shareholders 9 years ago. That was when Osaka Steel wanted to pay &gt;1x book in scrip. Now Osaka Steel is going to pay &lt;0.7x book in cash.It is probably too late for this deal. There is not much&nbsp;which&nbsp;can&nbsp;or&nbsp;will&nbsp;block a successful change in control unless either of the two sellers who have undertaken to make this tender successful have a change of heart - which is unheard of in Japan. Those two shareholders who have guaranteed the result of the tender are, for clarity's sake...&nbsp;Mitsui &amp; Co - the largest customer of both the sub-$100mm market cap Target (Kohtetsu) and the majority owner (Nippon Steel) of Buyer Osaka Steel, andHanwa Steel - the co-Buyer of the Target in this transaction (and a 14+% market share customer of the Target), who has separately struck a deal with Osaka Steel on how to divvy ownership of the deal.It is is not completely too late for Higashi Nippon Bank shareholders, who just got somewhat stuffed by their board of directors but where the vote is ahead. Or UNY shareholders where the market is telling you that it expects that UNY directors will throw&nbsp;its shareholders under the bus when the ratio gets announced (recent press reports suggest the first part of&nbsp;October). [Smartkarma subscribers can search for the half dozen-plus Insights&nbsp;put out on UNY so far, including several&nbsp;outlining why shareholders of UNY could or should think the UNY/FamiMa ratio should or could be a lot higher than current market prices suggest.] &nbsp;Investors in both would benefit from understanding how then-small Ichigo Asset Management led a not-overly hostile proxy solicitation which got the first Osaka Steel-Tokyo Kohtetsu&nbsp;merger blocked. Looking at the history will tell you that Japan's retail shareholders have not inconsiderable power.&nbsp;Shareholders should make boards work for significant capital changes.&nbsp;While shareholder proxies are heretofore&nbsp;rare, a new government/media/social/cultural/ regulatory emphasis on Stewardship by shareholders (and that&nbsp;includes&nbsp;you Corporate Crossholding Japan!) and Governance by Companies (and that explicitly means you Corporate Japan!) should make it easier for shareholders to explain that when companies and their boards make changes to the capital entrusted to them by shareholders, they should do it at the right price. It's your job as stewards to make Boards treat with care Principle 1.6 of the Japan Corporate Governance Code.A look at the history and a look at this new deal below the fold...

Tokyo Kohtetsu II:  The Backstory and Aftermath (and a mention of the rules of proxy solicitations) 

Late in the evening on Sep 18th, after the trading world in Japan had gone home for the 5-day weekend, Osaka Steel (5449 JP) announced that it planned a tender offer to take over Tokyo Kohtetsu (5448 JP) at 630 yen - a nice 63% premium&nbsp;vs the close. &nbsp;Tokyo Kohtetsu came out with a statement in&nbsp;<a href="http://www.kohtetsu.jp/ir/library/pdf/2015/20150918-2.pdf" target="_blank">Japanese</a>&nbsp;and&nbsp;<a href="http://www.kohtetsu.jp/ir/library/pdf/2015/20150918-3.pdf" target="_blank">English</a>&nbsp;at the same time, saying the board supported the deal.&nbsp;Tokyo Kohtetsu has gone limit up the last two days and is expected to open today.This is a tiny deal.&nbsp;It matters nothing in the grand scheme of things - in the sector or Japan as a whole.&nbsp;But&nbsp;for some it may be&nbsp;worth a look anyway.&nbsp;The backstory is interesting. And instructive. Especially for shareholders in situations where it is not too late.&nbsp;The backstory is separately discussed in the next Insight (Tokyo Kohtetsu II out later today) and if shareholders of Higashi Nippon Bank (and UNY, given the way the market is trading the UNY/FamilyMart ratio)&nbsp;are looking to understand their options in case they don't like the ratio they are given, they might spare the time to read it. Tilting at windmills has worked in the past.In any case, it is probably too late for this deal.&nbsp;There is not much&nbsp;which&nbsp;can&nbsp;or&nbsp;will&nbsp;block a successful change in control unless either of the two sellers who have undertaken to make this tender successful have a change of heart - which is unheard or in Japan.A look at the details&nbsp;below the fold...

Late in the evening on Sep 18th, after the trading world in Japan had gone home for the 5-day weekend, Osaka Steel (5449 JP) announced that it planned a tender offer to take over Tokyo Kohtetsu (5448 JP) at 630 yen - a nice 63% premium&nbsp;vs the close. &nbsp;Tokyo Kohtetsu came out with a statement in&nbsp;Japanese&nbsp;and&nbsp;English&nbsp;at the same time, saying the board supported the deal.&nbsp;Tokyo Kohtetsu has gone limit up the last two days and is expected to open today.This is a tiny deal.&nbsp;It matters nothing in the grand scheme of things - in the sector or Japan as a whole.&nbsp;But&nbsp;for some it may be&nbsp;worth a look anyway.&nbsp;The backstory is interesting. And instructive. Especially for shareholders in situations where it is not too late.&nbsp;The backstory is separately discussed in the next Insight (Tokyo Kohtetsu II out later today) and if shareholders of Higashi Nippon Bank (and UNY, given the way the market is trading the UNY/FamilyMart ratio)&nbsp;are looking to understand their options in case they don't like the ratio they are given, they might spare the time to read it. Tilting at windmills has worked in the past.In any case, it is probably too late for this deal.&nbsp;There is not much&nbsp;which&nbsp;can&nbsp;or&nbsp;will&nbsp;block a successful change in control unless either of the two sellers who have undertaken to make this tender successful have a change of heart - which is unheard or in Japan.A look at the details&nbsp;below the fold...

Tokyo Kohtetsu I:  Once More Unto the Breach? Nope - This one gets done

Japan

TOKYO KOHTETSU CO., Ltd. manufactures and sells steel products. The Company's products for the construction market include steel bars, steel wires, and structural steel.

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Tokyo Kohtetsu (5448 JP)

Tokyo Kohtetsu II: The Backstory and Aftermath (and a mention of the rules of proxy solicitations)

Late in the evening on Sep 18th, after the trading world in Japan had gone home for the 5-day weekend, Osaka Steel (5449 JP) announced that it...

Travis Lundy

Tokyo Kohtetsu I: Once More Unto the Breach? Nope - This one gets done

Late in the evening on Sep 18th, after the trading world in Japan had gone home for the 5-day weekend, Osaka Steel (5449 JP) announced that it...

Travis Lundy

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