Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Event-Driven

Three months ago, on September 15th, China's largest publicly-traded automobile dealer <a href="https://www.smartkarma.com/entities/17171" target="_blank" data-smartkarma-citation="entities:17171">China Grand Automotive Services Co Ltd</a> (hereafter "China Grand" or CGAS") <a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0915/LTN20150915457.pdf" target="_blank">announced</a> it was in preliminary talks to acquire <a href="https://www.smartkarma.com/entities/20829" target="_blank" data-smartkarma-citation="entities:20829">Baoxin Auto Group Ltd</a>  - China's largest distributor of BMW vehicles.Baoxin shares popped 36% the day after the announcement to HK$3.58/share. The stock could not keep those gains as it did not close for three consecutive days above that price until Friday Dec 4th, and that was only because on Wednesday the stock jumped 10.8% to $3.60/share on 3x the previous day's volume on news, then it jumped 15.5% on 5+x normal volume the next day. That will undoubtedly raise some flags, but one could easily say that until Dec3, "the market" was reasonably skeptical of a deal actually being done at a price favorable to Baoxin minorities. Baoxin shares were suspended Dec7 and on Dec9 a substantial shareholder <a href="http://sdinotice.hkex.com.hk/di/NSForm2.aspx?fn=286782&amp;sa2=ns&amp;sid=50000685&amp;corpn=Baoxin+Auto+Group+Ltd.&amp;sd=15%2f12%2f2014&amp;ed=04%2f12%2f2015&amp;sa1=cl&amp;scsd=11%2f12%2f2014&amp;sced=11%2f12%2f2015&amp;sc=1293&amp;src=MAIN&amp;lang=EN&amp;" target="_blank">filing</a> on the HKEx showed that China Grand had purchased 53.58% of Baoxin at HKD 5.99/share. <a href="https://www.smartkarma.com/profiles/11" target="_blank" data-smartkarma-citation="accounts:11">Crispin</a> wrote <a href="https://www.smartkarma.com/insights/baoxin-auto-group-mandatory-offer-to-kick-in" target="_blank" data-smartkarma-citation="insights:2101">a piece</a> noting a Mandatory Offer would kick in - as was the obvious conclusion. But it appears that filing was "hasty" or people got their wires crossed, and yesterday, the official <a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2015/1211/LTN20151211945.pdf" target="_blank">Joint Announcement</a> of a deal was posted on the HKEx website. The deal is that CGAS will buy 75% of Baoxin and that Mr. Yang Aihua, Baoxin Investment and Auspicious Splendid had entered into an Irrevocable Undertaking agreement to accept the Offer. CGAS also released an English translation of a <a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2015/1211/LTN201512111043.pdf" target="_blank">Major Asset Restructuring Report</a>.This deal looks pretty simple on the face of it, but for those who did the work on the China Resources Enterprise (now <a href="https://www.smartkarma.com/entities/399" target="_blank" data-smartkarma-citation="entities:399">China Resources Beer Holdings</a>) deal this past spring/summer/fall as to timing and deal-implied leverage, you'll see the similarities. That trade, if you looked at it the way we did here at Smartkarma, was REALLY interesting and profitable. If you liked Smartkarma's work on the CRE situation, we've got lots more below the fold.Including Arb Grids.

Three months ago, on September 15th, China's largest publicly-traded automobile dealer China Grand Automotive Services Co Ltd (hereafter "China Grand" or CGAS") announced it was in preliminary talks to acquire Baoxin Auto Group Ltd  - China's largest distributor of BMW vehicles.Baoxin shares popped 36% the day after the announcement to HK$3.58/share. The stock could not keep those gains as it did not close for three consecutive days above that price until Friday Dec 4th, and that was only because on Wednesday the stock jumped 10.8% to $3.60/share on 3x the previous day's volume on news, then it jumped 15.5% on 5+x normal volume the next day. That will undoubtedly raise some flags, but one could easily say that until Dec3, "the market" was reasonably skeptical of a deal actually being done at a price favorable to Baoxin minorities. Baoxin shares were suspended Dec7 and on Dec9 a substantial shareholder filing on the HKEx showed that China Grand had purchased 53.58% of Baoxin at HKD 5.99/share. Crispin wrote a piece noting a Mandatory Offer would kick in - as was the obvious conclusion. But it appears that filing was "hasty" or people got their wires crossed, and yesterday, the official Joint Announcement of a deal was posted on the HKEx website. The deal is that CGAS will buy 75% of Baoxin and that Mr. Yang Aihua, Baoxin Investment and Auspicious Splendid had entered into an Irrevocable Undertaking agreement to accept the Offer. CGAS also released an English translation of a Major Asset Restructuring Report.This deal looks pretty simple on the face of it, but for those who did the work on the China Resources Enterprise (now China Resources Beer Holdings) deal this past spring/summer/fall as to timing and deal-implied leverage, you'll see the similarities. That trade, if you looked at it the way we did here at Smartkarma, was REALLY interesting and profitable. If you liked Smartkarma's work on the CRE situation, we've got lots more below the fold.Including Arb Grids.

Baoxin: CGAS Partial Offer Promises Interesting Future - And Arb Grids

Equity Bottom-Up

On Sunday, both Volkswagen and Suzuki separately announced that arbitration at the&nbsp;ICC International Court of Arbitration in London had ended, determining that their "alliance"&nbsp;had ended in May 2012, some 6 months after Suzuki filed for international arbitration in November 2011 for "re-transfer" of the 19.89% interest held by Volkswagen AG, and for damages (the claims VW had considered unfounded, and had itself filed counter-claims). This had been expected because Suzuki President Osamu Suzuki had stated in the June 26 Suzuki AGM that the arbitration proceedings had been concluded.&nbsp;Suggesting May 2012 is "generous" as Suzuki started having problems with VW in January&nbsp;2011 after VW's accounting statements applied equity-method accounting for its Suzuki stake, listing&nbsp;Suzuki as an 'associate' (which angered Suzuki dramatically as it saw this move as a prelude to a hostile increase in stake), and&nbsp;Suzuki then-Executive Vice President Yasuhito Harayama (formerly of METI) flew to Germany in September 2011 just before the Frankfurt Auto Show to require that VW agree to discussions to end the alliance or CEO Osamu Suzuki would go public asking for a 'divorce' in three days' time (they didn't so&nbsp;he&nbsp;did). But it is the language of these things.The arbitrator&nbsp;separately decided that VW must&nbsp;sell its 19.89% stake in Suzuki&nbsp;back to Suzuki or to Suzuki's designee forthwith. Suzuki had announced in December of last year that it expected to buy back the shares VW held through a TostNet-3 buyback, and on August 7th of this year made a release on Edinet specifying the number of shares it would put into the buyback, and yesterday reiterated TostNet-3 as the likely process.The arbitrator also said that&nbsp;VW's counterclaims were partially upheld (the Fiat part) and Suzuki was found in the breach of the Framework Agreement. The remainder of VW's counterclaims and Suzuki's claims were dismissed, but VW may sue for claims, and that the Tribunal would address the amount of damages, if any, in a further stage of arbitration proceedings.This Insight looks back at the situation, and takes a brief look at Suzuki's options.&nbsp;There are some very interesting (and potentially highly profitable) dynamics at play here very near-term.A lot more below the fold for subscribers...

On Sunday, both Volkswagen and Suzuki separately announced that arbitration at the&nbsp;ICC International Court of Arbitration in London had ended, determining that their "alliance"&nbsp;had ended in May 2012, some 6 months after Suzuki filed for international arbitration in November 2011 for "re-transfer" of the 19.89% interest held by Volkswagen AG, and for damages (the claims VW had considered unfounded, and had itself filed counter-claims). This had been expected because Suzuki President Osamu Suzuki had stated in the June 26 Suzuki AGM that the arbitration proceedings had been concluded.&nbsp;Suggesting May 2012 is "generous" as Suzuki started having problems with VW in January&nbsp;2011 after VW's accounting statements applied equity-method accounting for its Suzuki stake, listing&nbsp;Suzuki as an 'associate' (which angered Suzuki dramatically as it saw this move as a prelude to a hostile increase in stake), and&nbsp;Suzuki then-Executive Vice President Yasuhito Harayama (formerly of METI) flew to Germany in September 2011 just before the Frankfurt Auto Show to require that VW agree to discussions to end the alliance or CEO Osamu Suzuki would go public asking for a 'divorce' in three days' time (they didn't so&nbsp;he&nbsp;did). But it is the language of these things.The arbitrator&nbsp;separately decided that VW must&nbsp;sell its 19.89% stake in Suzuki&nbsp;back to Suzuki or to Suzuki's designee forthwith. Suzuki had announced in December of last year that it expected to buy back the shares VW held through a TostNet-3 buyback, and on August 7th of this year made a release on Edinet specifying the number of shares it would put into the buyback, and yesterday reiterated TostNet-3 as the likely process.The arbitrator also said that&nbsp;VW's counterclaims were partially upheld (the Fiat part) and Suzuki was found in the breach of the Framework Agreement. The remainder of VW's counterclaims and Suzuki's claims were dismissed, but VW may sue for claims, and that the Tribunal would address the amount of damages, if any, in a further stage of arbitration proceedings.This Insight looks back at the situation, and takes a brief look at Suzuki's options.&nbsp;There are some very interesting (and potentially highly profitable) dynamics at play here very near-term.A lot more below the fold for subscribers...

VW-Suzuki Arbitration Complete - A REALLY Interesting Opportunity Near-Term?

Germany

Volkswagen AG manufactures and sells vehicles. The Company offers economy and luxury automobiles, sports cars, trucks, and commercial vehicles. Volkswagen serves customers worldwide.

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Baoxin: CGAS Partial Offer Promises Interesting Future - And Arb Grids

Three months ago, on September 15th, China's largest publicly-traded automobile dealer China Grand Automotive Services Co Ltd (hereafter "China...

Travis Lundy

VW-Suzuki Arbitration Complete - A REALLY Interesting Opportunity Near-Term?

On Sunday, both Volkswagen and Suzuki separately announced that arbitration at the ICC International Court of Arbitration in London had ended,...

Travis Lundy

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52-week Range

Market Cap (USDm)

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