Gross capital flows lead World shipping activity by 4 months
Capital flows have been slowly rising since June 2018: in February they jumped
Reinforces out pro-Asia and pro-China investment message
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While not new news, US-based hedge fund – somewhat well-known for being involved in M&A situations – started accumulating a position in MYOB in January and has now reached a stake of 11%. The last chunks purchased appear to have been done at (or around) A$3.40/share, which is equal to terms. The Manikay letter to the Board asks the Board to consider the market movements since December and posits a fair value in excess of A$4.00/share.
Manikay says that it is interested in becoming a long-term shareholder. But the letter seems to level its criticism of the deal price most pointedly at the fact that the deal was offered and agreed to just a few days off a two-year low in the S&P/ASX200 Index and since then the index has rebounded to within 1.5% of an 11-year high.
A “market context” bump is not a bad case in and of itself because of where peers have moved and where the market has moved, and we won’t know whether that point is taken up by the IER in the Scheme Document.
This strikes Travis Lundy as not a bad reward/risk to buy up to 1-2% through terms. The back end “undisturbed price” has risen and the recent earnings release shows online penetration continues to grow.
Irrespective of whether the Malaysian rare earth processing licence provided to Lynas was without adequate due process (as has been speculated) or whether the facility is indeed an environmental concern; the fact remains the Malaysian government has reneged on the previously agreed-upon three-step licence process – imposing unachievable pre-conditions by the licence renewal date this September – and that is wrong.
Ongoing negotiation with the Malaysian government is the only course of action by which Lynas will achieve the renewal of its operating licence (unencumbered or with “acceptable” caveats). The agreed management pathway for NUF provides scope for a positive outcome from extensive consultation.
But even if a viable resolution is reached, it would only serve to temporarily manage Lynas out of its current predicament – given the vocal domestic opposition, the long-term prognosis is likely the shuttering and removal of the LAMP.
Shares are down 45% from the pre-general election (for Malaysia) peak and ~24% down from when the Review Committee was first mooted in September 2018, and roughly a similar % compared to the 3 December closing price, the day before the pre-conditions were introduced. That still appears too optimistic. Resolving the Malaysian government roadblock will quite likely be a stop-gap measure, at best.
Posco Chemtech is to merge with POSCO ESM through a stock swap at a ratio of 1 to 0.2172865. The merger will be effective as of April 1. The merged company is planning to move from KOSDAQ to KOSPI. These proposals will be put to the vote at the upcoming AGM scheduled for March 18.
KOSPI 200’s re-balancing reference date is after the close of the last trading day in April and the change takes effect on the next trading day after the 2nd Thursday of June. If the KRX approves it before the end of April, Chemtech’s KOSPI inclusion will happen this June. If not, it will have to wait until next year.
New passive money flowing into Chemtech is estimated at ₩68bn. This represents 1.69% of market cap and 4.82% of float market cap. This is less than twice total daily trade value.
In a follow-up note John DeMasi provides an update of events, looking into VSM’s corporate governance documents, reviewing relevant landmark Delaware takeover case law, and elaborating on a possible path to control of Versum for Merck KGaA (MRK GR).
Merck has now filed form DFAN14A filed with the SEC. The talking points/Q&A confirm that the VSM/Entegris Inc (ENTG US) deal caught Merck by surprise as they had not been contacted by Versum as part of any market check.
Other important takeaways include number 7, where Merck stress (yet again) they are fully committed to pursuing their proposal; number 11, where they don’t rule out raising their price; and number 21, where they answer whether they have purchased any VSM shares with “The number of shares of Versum common stock held by Merck … does not exceed a level that would require disclosure.”
Merck continues to speak and act like a bidder who is not going away, and its upcoming roadshow in New York with shareholders underscores its commitment to the deal, adding to the pressure on the Versum Board.
JM has bought 662k shares in JS since the beginning of March, averaging 47.5% of daily volume, narrowing the simple ratio (JM/JS). JM has consistently bought back shares in JS over the years. Since December 2011, buybacks have taken place at an average price/book (for JS) of 0.75x (it is currently at 0.70x according to CapIQ) and at an average JM/JS ratio of 1.75x. The current ratio is 1.70x, bang in line with its 7+ year average. The 20-year average is 1.82x.
Presumably the Keswick family’s long-term plan is collapsing the circularity. But given the significant costs involved – either JM privatizing JS or vice versa – for now, the family will likely opt for the circularity creep, by continuing to chip away at minority ownership as JS takes its dividends in-specie, JM acquires JS, gradually increasing the inter holdings of the two entities.
JS is also trading “cheap”, at a 42% discount to NAV, adjusted for cross-holdings. JS is now around 25% points “cheaper” than JM (which has a discount to NAV of 17%), compared to a one-year average of ~24%. A year ago, the % difference was 6%.
JM has bought 1.8mn shares YTD compared to 2.5mn for the same period last year, while 4.9mn shares were acquired in 2018, compared to 7.6mn, 8.2mn, and 2.1mn in 2015-2017 respectively. The very long-term ratio is marginally in favour of JM, yet the more recent yearly average suggests it is line. JS looks cheap on a discount to NAV basis and it makes sense for JM to continue to acquire shares, favouring JS near-term. I also tilt in favour of this outcome.
Youngone Holdings (009970 KS)‘s 50.5%-held sub Youngone Corp (111770 KS) accounts for 70% of NAV. On a 20D MA, they are now at 312% of σ while the current price ratio is at a 120D high. Sanghyun recommended a set-up. The parent is up 9% this week vs 12% down for the sub. The NAV discount is now out of whack – plugging Sanghyun’s numbers I get a discount to NAV of 35% vs. an average of 48%. The parent is very illiquid. (link to Sanghyun’s insight: Youngone Holdco/Sub Trade: Price Divergence Got Too Wide)
Restaurant Brands Nz (RBD NZ) has announced “Consent has now been granted in respect of the Partial Takeover by certain subsidiaries of Yum! Brands“. The remaining condition is receipt of acceptance from 75% of shareholders. Acceptances currently total 40.68%.
NASDAQ raised its bid for Oslo Bors VPS Holding ASA (OSLO NS) to NOK 158 and lowered its minimum acceptance condition from 90% to two-thirds. The offer period is extended to 29 March. The Long Stop is extended to 4 Mar 2020.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Source: Company announcements. E = our estimates; C =confirmed
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At noon Sydney time Lynas Corp Ltd (LYC AU) held an investor briefing by webcast regarding comments made by the Malaysian Prime Minister in his first cabinet press conference on Friday 5 April 2019. Those comments were noted in the ASX regulatory update.
Graincorp Ltd A (GNC AU) said on Thursday it plans to spin off its malting and craft brewing distribution business (MaltCo). The proposed demerger, which will complete at the end of the year, would result in two independent ASX-listed companies – MaltCo and GrainCorp’s Grains and Oils businesses (New GrainCorp).
In the absence of an LTAP binding proposal, the GrainCorp Board to their credit has proposed an alternative way to create shareholder value or at least minimise a share price fall. Unfortunately, the proposed demerger is unlikely to be superior to the LTAP proposal, in our view.
On 5 April, Ap Eagers Ltd (APE AU) announced that it had lobbed an unsolicited all-scrip takeover for Automotive Holdings (AHG AU)/AHG. Under the proposal, AHG’s shareholders would receive 1 AP Eagers share for every 3.8 AHG share. In a 100% acquisition scenario, AP Eagers shareholders would own 75.5% of the merged AP Eagers-AHG.
Presumably, AP Eagers believes its proposal delivers fair value to both AP Eagers and AHG shareholders. While AP Eagers’ bid provides some relief for AHG shareholders, our analysis suggests that AP Eagers’ bid requires a bump to cross the finish line.
Australia underperformed the global benchmark due to Financials after their strong post-Royal-Commission-led rally. Trade protagonists China (24%) and the US (13.6%) lead the global rally this year buoyed by optimism of a truce and a more supportive policy backdrop. The bond market reaction to the change in US policy direction and a new TLTRO in Europe has been aggressive and has been the key support for risk appetite.
The bond market rally has underpinned the strong performance of defensive sectors such as Communications Services, Property and Consumer Staples. However, Materials also outperformed by a wide margin as well (3.2%pts) on the back of stronger Iron ore, Copper and Oil prices. Thermal coal remains problematic due to tighter Chinese environmental policy. The commodity fell 11.2% in the month and is now 17% lower year-to-date.
Downgrades have eased. The unrelenting run of downgrades between December and February now appears to have eased, with the upgrades: downgrades ratio almost twice the long-run average. Only IT, Healthcare and Communication Services saw larger than normal upgrades. However, downgrades were particularly scarce in Consumer Discretionary, Industrials and Energy. Valuations remain reasonably stretched, with IT, Industrials and Healthcare the most expensive sectors. Energy is cheap and Financials and Consumer Discretionary are around fair value.
Weaker GDP and housing data show that the domestic economy is reasonably soft, but the labour force data remains key for the policy outlook, in our view. In turn, this will depend on the global economy and the current patch of weakness in China and the US mean that the prospect of lower official interest rates will be in play. Indeed, the market has one full interest rate cut priced in by year-end. The Australian bond market rallied strongly along with global peers, with the 10-year yield at 1.81% by month-end. In real terms it is 0%, which is its lowest level since the mid-1970’s.
Company guidance remained little changed with weather-related downgrades by both BHP and RIO and COL providing some positive guidance from its merger with Ocado. In a repeat of last year, ECX aggressively cut its NPATA guidance only weeks after guiding single-digit growth. SGM downgraded both FY19 output and longer-term throughput from its Gwalia gold mine.
Stay long Resources and Energy over Banks. In our last model portfolio update we moved from neutral in Banks to underweight and moved from slightly underweight Resources and Energy to overweight. This trade has worked well over the past month, particularly now there are signs that the slide in global growth may have run its course. Our infrastructure and mining capex-related exposures have also performed well and we expect this to continue.
E. History of Rechargeable Battery Technologies And An In-Depth Analysis on Li-ion Batteries
F. Batteries Beyond Li-ion
G. Supply Constraints for Key Raw Materials
H. The Competitive Landscape
A. Key Conclusions
Global sales of EV’s reached 2m units in 2018. As a base case scenario, we expect a combination of improving EV battery cost-effectiveness, increasingly challenging emissions standards and ongoing incentives by various governments to propel unit sales to 8m units annually by 2025. Against this, we consider battery material price increases, a reduction of EV incentives in the US and China and political and environmental risks from the mining of metals used in batteries as downside risks which could delay the growth of the EV market.
Surprisingly, the EV battery technology that will drive us towards that 8m unit goal is still very much a work in progress. While Lithium Ion is the by far the dominant technology, there are striking differences between variants of the technology, battery pack design, battery management systems and manufacturing scale between the leading contenders. Furthermore, while there’s nothing on the horizon to completely displace Lithium Ion within the next decade, it remains unclear whether the technology will be the one to achieve the $100/kWh price target that would make the EV cost-neutral compared to its internal combustion predecessors.
Quite apart from the technology, the EV battery segment faces other significant challenges including increasing costs for core materials such as Cobalt, increasing safety concerns as the mix of that very same cobalt is reduced in the cathode, the growing risk of litigation amidst a fiercely competitive environment and last but not least, the appetite of various governments to maintain a favourable subsidy framework.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
While not new news, US-based hedge fund – somewhat well-known for being involved in M&A situations – started accumulating a position in MYOB in January and has now reached a stake of 11%. The last chunks purchased appear to have been done at (or around) A$3.40/share, which is equal to terms. The Manikay letter to the Board asks the Board to consider the market movements since December and posits a fair value in excess of A$4.00/share.
Manikay says that it is interested in becoming a long-term shareholder. But the letter seems to level its criticism of the deal price most pointedly at the fact that the deal was offered and agreed to just a few days off a two-year low in the S&P/ASX200 Index and since then the index has rebounded to within 1.5% of an 11-year high.
A “market context” bump is not a bad case in and of itself because of where peers have moved and where the market has moved, and we won’t know whether that point is taken up by the IER in the Scheme Document.
This strikes Travis Lundy as not a bad reward/risk to buy up to 1-2% through terms. The back end “undisturbed price” has risen and the recent earnings release shows online penetration continues to grow.
Irrespective of whether the Malaysian rare earth processing licence provided to Lynas was without adequate due process (as has been speculated) or whether the facility is indeed an environmental concern; the fact remains the Malaysian government has reneged on the previously agreed-upon three-step licence process – imposing unachievable pre-conditions by the licence renewal date this September – and that is wrong.
Ongoing negotiation with the Malaysian government is the only course of action by which Lynas will achieve the renewal of its operating licence (unencumbered or with “acceptable” caveats). The agreed management pathway for NUF provides scope for a positive outcome from extensive consultation.
But even if a viable resolution is reached, it would only serve to temporarily manage Lynas out of its current predicament – given the vocal domestic opposition, the long-term prognosis is likely the shuttering and removal of the LAMP.
Shares are down 45% from the pre-general election (for Malaysia) peak and ~24% down from when the Review Committee was first mooted in September 2018, and roughly a similar % compared to the 3 December closing price, the day before the pre-conditions were introduced. That still appears too optimistic. Resolving the Malaysian government roadblock will quite likely be a stop-gap measure, at best.
Posco Chemtech is to merge with POSCO ESM through a stock swap at a ratio of 1 to 0.2172865. The merger will be effective as of April 1. The merged company is planning to move from KOSDAQ to KOSPI. These proposals will be put to the vote at the upcoming AGM scheduled for March 18.
KOSPI 200’s re-balancing reference date is after the close of the last trading day in April and the change takes effect on the next trading day after the 2nd Thursday of June. If the KRX approves it before the end of April, Chemtech’s KOSPI inclusion will happen this June. If not, it will have to wait until next year.
New passive money flowing into Chemtech is estimated at ₩68bn. This represents 1.69% of market cap and 4.82% of float market cap. This is less than twice total daily trade value.
In a follow-up note John DeMasi provides an update of events, looking into VSM’s corporate governance documents, reviewing relevant landmark Delaware takeover case law, and elaborating on a possible path to control of Versum for Merck KGaA (MRK GR).
Merck has now filed form DFAN14A filed with the SEC. The talking points/Q&A confirm that the VSM/Entegris Inc (ENTG US) deal caught Merck by surprise as they had not been contacted by Versum as part of any market check.
Other important takeaways include number 7, where Merck stress (yet again) they are fully committed to pursuing their proposal; number 11, where they don’t rule out raising their price; and number 21, where they answer whether they have purchased any VSM shares with “The number of shares of Versum common stock held by Merck … does not exceed a level that would require disclosure.”
Merck continues to speak and act like a bidder who is not going away, and its upcoming roadshow in New York with shareholders underscores its commitment to the deal, adding to the pressure on the Versum Board.
JM has bought 662k shares in JS since the beginning of March, averaging 47.5% of daily volume, narrowing the simple ratio (JM/JS). JM has consistently bought back shares in JS over the years. Since December 2011, buybacks have taken place at an average price/book (for JS) of 0.75x (it is currently at 0.70x according to CapIQ) and at an average JM/JS ratio of 1.75x. The current ratio is 1.70x, bang in line with its 7+ year average. The 20-year average is 1.82x.
Presumably the Keswick family’s long-term plan is collapsing the circularity. But given the significant costs involved – either JM privatizing JS or vice versa – for now, the family will likely opt for the circularity creep, by continuing to chip away at minority ownership as JS takes its dividends in-specie, JM acquires JS, gradually increasing the inter holdings of the two entities.
JS is also trading “cheap”, at a 42% discount to NAV, adjusted for cross-holdings. JS is now around 25% points “cheaper” than JM (which has a discount to NAV of 17%), compared to a one-year average of ~24%. A year ago, the % difference was 6%.
JM has bought 1.8mn shares YTD compared to 2.5mn for the same period last year, while 4.9mn shares were acquired in 2018, compared to 7.6mn, 8.2mn, and 2.1mn in 2015-2017 respectively. The very long-term ratio is marginally in favour of JM, yet the more recent yearly average suggests it is line. JS looks cheap on a discount to NAV basis and it makes sense for JM to continue to acquire shares, favouring JS near-term. I also tilt in favour of this outcome.
Youngone Holdings (009970 KS)‘s 50.5%-held sub Youngone Corp (111770 KS) accounts for 70% of NAV. On a 20D MA, they are now at 312% of σ while the current price ratio is at a 120D high. Sanghyun recommended a set-up. The parent is up 9% this week vs 12% down for the sub. The NAV discount is now out of whack – plugging Sanghyun’s numbers I get a discount to NAV of 35% vs. an average of 48%. The parent is very illiquid. (link to Sanghyun’s insight: Youngone Holdco/Sub Trade: Price Divergence Got Too Wide)
Restaurant Brands Nz (RBD NZ) has announced “Consent has now been granted in respect of the Partial Takeover by certain subsidiaries of Yum! Brands“. The remaining condition is receipt of acceptance from 75% of shareholders. Acceptances currently total 40.68%.
NASDAQ raised its bid for Oslo Bors VPS Holding ASA (OSLO NS) to NOK 158 and lowered its minimum acceptance condition from 90% to two-thirds. The offer period is extended to 29 March. The Long Stop is extended to 4 Mar 2020.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Source: Company announcements. E = our estimates; C =confirmed
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Graincorp Ltd A (GNC AU) said on Thursday it plans to spin off its malting and craft brewing distribution business (MaltCo). The proposed demerger, which will complete at the end of the year, would result in two independent ASX-listed companies – MaltCo and GrainCorp’s Grains and Oils businesses (New GrainCorp).
In the absence of an LTAP binding proposal, the GrainCorp Board to their credit has proposed an alternative way to create shareholder value or at least minimise a share price fall. Unfortunately, the proposed demerger is unlikely to be superior to the LTAP proposal, in our view.
On 5 April, Ap Eagers Ltd (APE AU) announced that it had lobbed an unsolicited all-scrip takeover for Automotive Holdings (AHG AU)/AHG. Under the proposal, AHG’s shareholders would receive 1 AP Eagers share for every 3.8 AHG share. In a 100% acquisition scenario, AP Eagers shareholders would own 75.5% of the merged AP Eagers-AHG.
Presumably, AP Eagers believes its proposal delivers fair value to both AP Eagers and AHG shareholders. While AP Eagers’ bid provides some relief for AHG shareholders, our analysis suggests that AP Eagers’ bid requires a bump to cross the finish line.
Australia underperformed the global benchmark due to Financials after their strong post-Royal-Commission-led rally. Trade protagonists China (24%) and the US (13.6%) lead the global rally this year buoyed by optimism of a truce and a more supportive policy backdrop. The bond market reaction to the change in US policy direction and a new TLTRO in Europe has been aggressive and has been the key support for risk appetite.
The bond market rally has underpinned the strong performance of defensive sectors such as Communications Services, Property and Consumer Staples. However, Materials also outperformed by a wide margin as well (3.2%pts) on the back of stronger Iron ore, Copper and Oil prices. Thermal coal remains problematic due to tighter Chinese environmental policy. The commodity fell 11.2% in the month and is now 17% lower year-to-date.
Downgrades have eased. The unrelenting run of downgrades between December and February now appears to have eased, with the upgrades: downgrades ratio almost twice the long-run average. Only IT, Healthcare and Communication Services saw larger than normal upgrades. However, downgrades were particularly scarce in Consumer Discretionary, Industrials and Energy. Valuations remain reasonably stretched, with IT, Industrials and Healthcare the most expensive sectors. Energy is cheap and Financials and Consumer Discretionary are around fair value.
Weaker GDP and housing data show that the domestic economy is reasonably soft, but the labour force data remains key for the policy outlook, in our view. In turn, this will depend on the global economy and the current patch of weakness in China and the US mean that the prospect of lower official interest rates will be in play. Indeed, the market has one full interest rate cut priced in by year-end. The Australian bond market rallied strongly along with global peers, with the 10-year yield at 1.81% by month-end. In real terms it is 0%, which is its lowest level since the mid-1970’s.
Company guidance remained little changed with weather-related downgrades by both BHP and RIO and COL providing some positive guidance from its merger with Ocado. In a repeat of last year, ECX aggressively cut its NPATA guidance only weeks after guiding single-digit growth. SGM downgraded both FY19 output and longer-term throughput from its Gwalia gold mine.
Stay long Resources and Energy over Banks. In our last model portfolio update we moved from neutral in Banks to underweight and moved from slightly underweight Resources and Energy to overweight. This trade has worked well over the past month, particularly now there are signs that the slide in global growth may have run its course. Our infrastructure and mining capex-related exposures have also performed well and we expect this to continue.
E. History of Rechargeable Battery Technologies And An In-Depth Analysis on Li-ion Batteries
F. Batteries Beyond Li-ion
G. Supply Constraints for Key Raw Materials
H. The Competitive Landscape
A. Key Conclusions
Global sales of EV’s reached 2m units in 2018. As a base case scenario, we expect a combination of improving EV battery cost-effectiveness, increasingly challenging emissions standards and ongoing incentives by various governments to propel unit sales to 8m units annually by 2025. Against this, we consider battery material price increases, a reduction of EV incentives in the US and China and political and environmental risks from the mining of metals used in batteries as downside risks which could delay the growth of the EV market.
Surprisingly, the EV battery technology that will drive us towards that 8m unit goal is still very much a work in progress. While Lithium Ion is the by far the dominant technology, there are striking differences between variants of the technology, battery pack design, battery management systems and manufacturing scale between the leading contenders. Furthermore, while there’s nothing on the horizon to completely displace Lithium Ion within the next decade, it remains unclear whether the technology will be the one to achieve the $100/kWh price target that would make the EV cost-neutral compared to its internal combustion predecessors.
Quite apart from the technology, the EV battery segment faces other significant challenges including increasing costs for core materials such as Cobalt, increasing safety concerns as the mix of that very same cobalt is reduced in the cathode, the growing risk of litigation amidst a fiercely competitive environment and last but not least, the appetite of various governments to maintain a favourable subsidy framework.
The JKM has halved its value since December, continuing its steady decline and dropping below the TTF, the benchmark for European LNG prices. Asian LNG spot prices are now at their lowest level since May 2015. While a prolonged LNG price downturn could force many projects to be cancelled, the winners among the developers are starting to emerge, aggressively pushing ahead their projects closer to the final investment decision.
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
While not new news, US-based hedge fund – somewhat well-known for being involved in M&A situations – started accumulating a position in MYOB in January and has now reached a stake of 11%. The last chunks purchased appear to have been done at (or around) A$3.40/share, which is equal to terms. The Manikay letter to the Board asks the Board to consider the market movements since December and posits a fair value in excess of A$4.00/share.
Manikay says that it is interested in becoming a long-term shareholder. But the letter seems to level its criticism of the deal price most pointedly at the fact that the deal was offered and agreed to just a few days off a two-year low in the S&P/ASX200 Index and since then the index has rebounded to within 1.5% of an 11-year high.
A “market context” bump is not a bad case in and of itself because of where peers have moved and where the market has moved, and we won’t know whether that point is taken up by the IER in the Scheme Document.
This strikes Travis Lundy as not a bad reward/risk to buy up to 1-2% through terms. The back end “undisturbed price” has risen and the recent earnings release shows online penetration continues to grow.
Irrespective of whether the Malaysian rare earth processing licence provided to Lynas was without adequate due process (as has been speculated) or whether the facility is indeed an environmental concern; the fact remains the Malaysian government has reneged on the previously agreed-upon three-step licence process – imposing unachievable pre-conditions by the licence renewal date this September – and that is wrong.
Ongoing negotiation with the Malaysian government is the only course of action by which Lynas will achieve the renewal of its operating licence (unencumbered or with “acceptable” caveats). The agreed management pathway for NUF provides scope for a positive outcome from extensive consultation.
But even if a viable resolution is reached, it would only serve to temporarily manage Lynas out of its current predicament – given the vocal domestic opposition, the long-term prognosis is likely the shuttering and removal of the LAMP.
Shares are down 45% from the pre-general election (for Malaysia) peak and ~24% down from when the Review Committee was first mooted in September 2018, and roughly a similar % compared to the 3 December closing price, the day before the pre-conditions were introduced. That still appears too optimistic. Resolving the Malaysian government roadblock will quite likely be a stop-gap measure, at best.
Posco Chemtech is to merge with POSCO ESM through a stock swap at a ratio of 1 to 0.2172865. The merger will be effective as of April 1. The merged company is planning to move from KOSDAQ to KOSPI. These proposals will be put to the vote at the upcoming AGM scheduled for March 18.
KOSPI 200’s re-balancing reference date is after the close of the last trading day in April and the change takes effect on the next trading day after the 2nd Thursday of June. If the KRX approves it before the end of April, Chemtech’s KOSPI inclusion will happen this June. If not, it will have to wait until next year.
New passive money flowing into Chemtech is estimated at ₩68bn. This represents 1.69% of market cap and 4.82% of float market cap. This is less than twice total daily trade value.
In a follow-up note John DeMasi provides an update of events, looking into VSM’s corporate governance documents, reviewing relevant landmark Delaware takeover case law, and elaborating on a possible path to control of Versum for Merck KGaA (MRK GR).
Merck has now filed form DFAN14A filed with the SEC. The talking points/Q&A confirm that the VSM/Entegris Inc (ENTG US) deal caught Merck by surprise as they had not been contacted by Versum as part of any market check.
Other important takeaways include number 7, where Merck stress (yet again) they are fully committed to pursuing their proposal; number 11, where they don’t rule out raising their price; and number 21, where they answer whether they have purchased any VSM shares with “The number of shares of Versum common stock held by Merck … does not exceed a level that would require disclosure.”
Merck continues to speak and act like a bidder who is not going away, and its upcoming roadshow in New York with shareholders underscores its commitment to the deal, adding to the pressure on the Versum Board.
JM has bought 662k shares in JS since the beginning of March, averaging 47.5% of daily volume, narrowing the simple ratio (JM/JS). JM has consistently bought back shares in JS over the years. Since December 2011, buybacks have taken place at an average price/book (for JS) of 0.75x (it is currently at 0.70x according to CapIQ) and at an average JM/JS ratio of 1.75x. The current ratio is 1.70x, bang in line with its 7+ year average. The 20-year average is 1.82x.
Presumably the Keswick family’s long-term plan is collapsing the circularity. But given the significant costs involved – either JM privatizing JS or vice versa – for now, the family will likely opt for the circularity creep, by continuing to chip away at minority ownership as JS takes its dividends in-specie, JM acquires JS, gradually increasing the inter holdings of the two entities.
JS is also trading “cheap”, at a 42% discount to NAV, adjusted for cross-holdings. JS is now around 25% points “cheaper” than JM (which has a discount to NAV of 17%), compared to a one-year average of ~24%. A year ago, the % difference was 6%.
JM has bought 1.8mn shares YTD compared to 2.5mn for the same period last year, while 4.9mn shares were acquired in 2018, compared to 7.6mn, 8.2mn, and 2.1mn in 2015-2017 respectively. The very long-term ratio is marginally in favour of JM, yet the more recent yearly average suggests it is line. JS looks cheap on a discount to NAV basis and it makes sense for JM to continue to acquire shares, favouring JS near-term. I also tilt in favour of this outcome.
Youngone Holdings (009970 KS)‘s 50.5%-held sub Youngone Corp (111770 KS) accounts for 70% of NAV. On a 20D MA, they are now at 312% of σ while the current price ratio is at a 120D high. Sanghyun recommended a set-up. The parent is up 9% this week vs 12% down for the sub. The NAV discount is now out of whack – plugging Sanghyun’s numbers I get a discount to NAV of 35% vs. an average of 48%. The parent is very illiquid. (link to Sanghyun’s insight: Youngone Holdco/Sub Trade: Price Divergence Got Too Wide)
Restaurant Brands Nz (RBD NZ) has announced “Consent has now been granted in respect of the Partial Takeover by certain subsidiaries of Yum! Brands“. The remaining condition is receipt of acceptance from 75% of shareholders. Acceptances currently total 40.68%.
NASDAQ raised its bid for Oslo Bors VPS Holding ASA (OSLO NS) to NOK 158 and lowered its minimum acceptance condition from 90% to two-thirds. The offer period is extended to 29 March. The Long Stop is extended to 4 Mar 2020.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Source: Company announcements. E = our estimates; C =confirmed
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On 5 April, Ap Eagers Ltd (APE AU) announced that it had lobbed an unsolicited all-scrip takeover for Automotive Holdings (AHG AU)/AHG. Under the proposal, AHG’s shareholders would receive 1 AP Eagers share for every 3.8 AHG share. In a 100% acquisition scenario, AP Eagers shareholders would own 75.5% of the merged AP Eagers-AHG.
Presumably, AP Eagers believes its proposal delivers fair value to both AP Eagers and AHG shareholders. While AP Eagers’ bid provides some relief for AHG shareholders, our analysis suggests that AP Eagers’ bid requires a bump to cross the finish line.
Australia underperformed the global benchmark due to Financials after their strong post-Royal-Commission-led rally. Trade protagonists China (24%) and the US (13.6%) lead the global rally this year buoyed by optimism of a truce and a more supportive policy backdrop. The bond market reaction to the change in US policy direction and a new TLTRO in Europe has been aggressive and has been the key support for risk appetite.
The bond market rally has underpinned the strong performance of defensive sectors such as Communications Services, Property and Consumer Staples. However, Materials also outperformed by a wide margin as well (3.2%pts) on the back of stronger Iron ore, Copper and Oil prices. Thermal coal remains problematic due to tighter Chinese environmental policy. The commodity fell 11.2% in the month and is now 17% lower year-to-date.
Downgrades have eased. The unrelenting run of downgrades between December and February now appears to have eased, with the upgrades: downgrades ratio almost twice the long-run average. Only IT, Healthcare and Communication Services saw larger than normal upgrades. However, downgrades were particularly scarce in Consumer Discretionary, Industrials and Energy. Valuations remain reasonably stretched, with IT, Industrials and Healthcare the most expensive sectors. Energy is cheap and Financials and Consumer Discretionary are around fair value.
Weaker GDP and housing data show that the domestic economy is reasonably soft, but the labour force data remains key for the policy outlook, in our view. In turn, this will depend on the global economy and the current patch of weakness in China and the US mean that the prospect of lower official interest rates will be in play. Indeed, the market has one full interest rate cut priced in by year-end. The Australian bond market rallied strongly along with global peers, with the 10-year yield at 1.81% by month-end. In real terms it is 0%, which is its lowest level since the mid-1970’s.
Company guidance remained little changed with weather-related downgrades by both BHP and RIO and COL providing some positive guidance from its merger with Ocado. In a repeat of last year, ECX aggressively cut its NPATA guidance only weeks after guiding single-digit growth. SGM downgraded both FY19 output and longer-term throughput from its Gwalia gold mine.
Stay long Resources and Energy over Banks. In our last model portfolio update we moved from neutral in Banks to underweight and moved from slightly underweight Resources and Energy to overweight. This trade has worked well over the past month, particularly now there are signs that the slide in global growth may have run its course. Our infrastructure and mining capex-related exposures have also performed well and we expect this to continue.
E. History of Rechargeable Battery Technologies And An In-Depth Analysis on Li-ion Batteries
F. Batteries Beyond Li-ion
G. Supply Constraints for Key Raw Materials
H. The Competitive Landscape
A. Key Conclusions
Global sales of EV’s reached 2m units in 2018. As a base case scenario, we expect a combination of improving EV battery cost-effectiveness, increasingly challenging emissions standards and ongoing incentives by various governments to propel unit sales to 8m units annually by 2025. Against this, we consider battery material price increases, a reduction of EV incentives in the US and China and political and environmental risks from the mining of metals used in batteries as downside risks which could delay the growth of the EV market.
Surprisingly, the EV battery technology that will drive us towards that 8m unit goal is still very much a work in progress. While Lithium Ion is the by far the dominant technology, there are striking differences between variants of the technology, battery pack design, battery management systems and manufacturing scale between the leading contenders. Furthermore, while there’s nothing on the horizon to completely displace Lithium Ion within the next decade, it remains unclear whether the technology will be the one to achieve the $100/kWh price target that would make the EV cost-neutral compared to its internal combustion predecessors.
Quite apart from the technology, the EV battery segment faces other significant challenges including increasing costs for core materials such as Cobalt, increasing safety concerns as the mix of that very same cobalt is reduced in the cathode, the growing risk of litigation amidst a fiercely competitive environment and last but not least, the appetite of various governments to maintain a favourable subsidy framework.
The JKM has halved its value since December, continuing its steady decline and dropping below the TTF, the benchmark for European LNG prices. Asian LNG spot prices are now at their lowest level since May 2015. While a prolonged LNG price downturn could force many projects to be cancelled, the winners among the developers are starting to emerge, aggressively pushing ahead their projects closer to the final investment decision.
FX markets are meandering with no clear trends, and it seems investors have little market conviction. This appears to be resulting in choppy price action influenced mainly by short term technicals rather than macroeconomic developments.
We have noted that in recent years the FX market has appeared to be less pre-emptive, and often responds surprisingly sharply after the event. As such we remain wary of a reversal of recent USD strength if, as it seems increasingly likely, a negotiated trade and Brexit deal might be found relatively soon.
If there is a trend, it is a mild downtrend in the EUR that has underperformed most other currencies over the last six months. It failed to rise much in January when most other currencies experienced a rebound against the USD, and it has continued to drift lower, in recent months, during a period of mixed to weaker price action in other currencies against the USD.
The market may be moving into a yield-seeking mode. Yield compression tends to shift capital to higher-yielding assets, resulting ina stronger performance for higher-yielding currencies even as their yield spreads narrow. The USD is now one of the higher-yielding currencies.
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While not new news, US-based hedge fund – somewhat well-known for being involved in M&A situations – started accumulating a position in MYOB in January and has now reached a stake of 11%. The last chunks purchased appear to have been done at (or around) A$3.40/share, which is equal to terms. The Manikay letter to the Board asks the Board to consider the market movements since December and posits a fair value in excess of A$4.00/share.
Manikay says that it is interested in becoming a long-term shareholder. But the letter seems to level its criticism of the deal price most pointedly at the fact that the deal was offered and agreed to just a few days off a two-year low in the S&P/ASX200 Index and since then the index has rebounded to within 1.5% of an 11-year high.
A “market context” bump is not a bad case in and of itself because of where peers have moved and where the market has moved, and we won’t know whether that point is taken up by the IER in the Scheme Document.
This strikes Travis Lundy as not a bad reward/risk to buy up to 1-2% through terms. The back end “undisturbed price” has risen and the recent earnings release shows online penetration continues to grow.
Irrespective of whether the Malaysian rare earth processing licence provided to Lynas was without adequate due process (as has been speculated) or whether the facility is indeed an environmental concern; the fact remains the Malaysian government has reneged on the previously agreed-upon three-step licence process – imposing unachievable pre-conditions by the licence renewal date this September – and that is wrong.
Ongoing negotiation with the Malaysian government is the only course of action by which Lynas will achieve the renewal of its operating licence (unencumbered or with “acceptable” caveats). The agreed management pathway for NUF provides scope for a positive outcome from extensive consultation.
But even if a viable resolution is reached, it would only serve to temporarily manage Lynas out of its current predicament – given the vocal domestic opposition, the long-term prognosis is likely the shuttering and removal of the LAMP.
Shares are down 45% from the pre-general election (for Malaysia) peak and ~24% down from when the Review Committee was first mooted in September 2018, and roughly a similar % compared to the 3 December closing price, the day before the pre-conditions were introduced. That still appears too optimistic. Resolving the Malaysian government roadblock will quite likely be a stop-gap measure, at best.
Posco Chemtech is to merge with POSCO ESM through a stock swap at a ratio of 1 to 0.2172865. The merger will be effective as of April 1. The merged company is planning to move from KOSDAQ to KOSPI. These proposals will be put to the vote at the upcoming AGM scheduled for March 18.
KOSPI 200’s re-balancing reference date is after the close of the last trading day in April and the change takes effect on the next trading day after the 2nd Thursday of June. If the KRX approves it before the end of April, Chemtech’s KOSPI inclusion will happen this June. If not, it will have to wait until next year.
New passive money flowing into Chemtech is estimated at ₩68bn. This represents 1.69% of market cap and 4.82% of float market cap. This is less than twice total daily trade value.
In a follow-up note John DeMasi provides an update of events, looking into VSM’s corporate governance documents, reviewing relevant landmark Delaware takeover case law, and elaborating on a possible path to control of Versum for Merck KGaA (MRK GR).
Merck has now filed form DFAN14A filed with the SEC. The talking points/Q&A confirm that the VSM/Entegris Inc (ENTG US) deal caught Merck by surprise as they had not been contacted by Versum as part of any market check.
Other important takeaways include number 7, where Merck stress (yet again) they are fully committed to pursuing their proposal; number 11, where they don’t rule out raising their price; and number 21, where they answer whether they have purchased any VSM shares with “The number of shares of Versum common stock held by Merck … does not exceed a level that would require disclosure.”
Merck continues to speak and act like a bidder who is not going away, and its upcoming roadshow in New York with shareholders underscores its commitment to the deal, adding to the pressure on the Versum Board.
JM has bought 662k shares in JS since the beginning of March, averaging 47.5% of daily volume, narrowing the simple ratio (JM/JS). JM has consistently bought back shares in JS over the years. Since December 2011, buybacks have taken place at an average price/book (for JS) of 0.75x (it is currently at 0.70x according to CapIQ) and at an average JM/JS ratio of 1.75x. The current ratio is 1.70x, bang in line with its 7+ year average. The 20-year average is 1.82x.
Presumably the Keswick family’s long-term plan is collapsing the circularity. But given the significant costs involved – either JM privatizing JS or vice versa – for now, the family will likely opt for the circularity creep, by continuing to chip away at minority ownership as JS takes its dividends in-specie, JM acquires JS, gradually increasing the inter holdings of the two entities.
JS is also trading “cheap”, at a 42% discount to NAV, adjusted for cross-holdings. JS is now around 25% points “cheaper” than JM (which has a discount to NAV of 17%), compared to a one-year average of ~24%. A year ago, the % difference was 6%.
JM has bought 1.8mn shares YTD compared to 2.5mn for the same period last year, while 4.9mn shares were acquired in 2018, compared to 7.6mn, 8.2mn, and 2.1mn in 2015-2017 respectively. The very long-term ratio is marginally in favour of JM, yet the more recent yearly average suggests it is line. JS looks cheap on a discount to NAV basis and it makes sense for JM to continue to acquire shares, favouring JS near-term. I also tilt in favour of this outcome.
Youngone Holdings (009970 KS)‘s 50.5%-held sub Youngone Corp (111770 KS) accounts for 70% of NAV. On a 20D MA, they are now at 312% of σ while the current price ratio is at a 120D high. Sanghyun recommended a set-up. The parent is up 9% this week vs 12% down for the sub. The NAV discount is now out of whack – plugging Sanghyun’s numbers I get a discount to NAV of 35% vs. an average of 48%. The parent is very illiquid. (link to Sanghyun’s insight: Youngone Holdco/Sub Trade: Price Divergence Got Too Wide)
Restaurant Brands Nz (RBD NZ) has announced “Consent has now been granted in respect of the Partial Takeover by certain subsidiaries of Yum! Brands“. The remaining condition is receipt of acceptance from 75% of shareholders. Acceptances currently total 40.68%.
NASDAQ raised its bid for Oslo Bors VPS Holding ASA (OSLO NS) to NOK 158 and lowered its minimum acceptance condition from 90% to two-thirds. The offer period is extended to 29 March. The Long Stop is extended to 4 Mar 2020.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Source: Company announcements. E = our estimates; C =confirmed
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Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
While not new news, US-based hedge fund – somewhat well-known for being involved in M&A situations – started accumulating a position in MYOB in January and has now reached a stake of 11%. The last chunks purchased appear to have been done at (or around) A$3.40/share, which is equal to terms. The Manikay letter to the Board asks the Board to consider the market movements since December and posits a fair value in excess of A$4.00/share.
Manikay says that it is interested in becoming a long-term shareholder. But the letter seems to level its criticism of the deal price most pointedly at the fact that the deal was offered and agreed to just a few days off a two-year low in the S&P/ASX200 Index and since then the index has rebounded to within 1.5% of an 11-year high.
A “market context” bump is not a bad case in and of itself because of where peers have moved and where the market has moved, and we won’t know whether that point is taken up by the IER in the Scheme Document.
This strikes Travis Lundy as not a bad reward/risk to buy up to 1-2% through terms. The back end “undisturbed price” has risen and the recent earnings release shows online penetration continues to grow.
Irrespective of whether the Malaysian rare earth processing licence provided to Lynas was without adequate due process (as has been speculated) or whether the facility is indeed an environmental concern; the fact remains the Malaysian government has reneged on the previously agreed-upon three-step licence process – imposing unachievable pre-conditions by the licence renewal date this September – and that is wrong.
Ongoing negotiation with the Malaysian government is the only course of action by which Lynas will achieve the renewal of its operating licence (unencumbered or with “acceptable” caveats). The agreed management pathway for NUF provides scope for a positive outcome from extensive consultation.
But even if a viable resolution is reached, it would only serve to temporarily manage Lynas out of its current predicament – given the vocal domestic opposition, the long-term prognosis is likely the shuttering and removal of the LAMP.
Shares are down 45% from the pre-general election (for Malaysia) peak and ~24% down from when the Review Committee was first mooted in September 2018, and roughly a similar % compared to the 3 December closing price, the day before the pre-conditions were introduced. That still appears too optimistic. Resolving the Malaysian government roadblock will quite likely be a stop-gap measure, at best.
Posco Chemtech is to merge with POSCO ESM through a stock swap at a ratio of 1 to 0.2172865. The merger will be effective as of April 1. The merged company is planning to move from KOSDAQ to KOSPI. These proposals will be put to the vote at the upcoming AGM scheduled for March 18.
KOSPI 200’s re-balancing reference date is after the close of the last trading day in April and the change takes effect on the next trading day after the 2nd Thursday of June. If the KRX approves it before the end of April, Chemtech’s KOSPI inclusion will happen this June. If not, it will have to wait until next year.
New passive money flowing into Chemtech is estimated at ₩68bn. This represents 1.69% of market cap and 4.82% of float market cap. This is less than twice total daily trade value.
In a follow-up note John DeMasi provides an update of events, looking into VSM’s corporate governance documents, reviewing relevant landmark Delaware takeover case law, and elaborating on a possible path to control of Versum for Merck KGaA (MRK GR).
Merck has now filed form DFAN14A filed with the SEC. The talking points/Q&A confirm that the VSM/Entegris Inc (ENTG US) deal caught Merck by surprise as they had not been contacted by Versum as part of any market check.
Other important takeaways include number 7, where Merck stress (yet again) they are fully committed to pursuing their proposal; number 11, where they don’t rule out raising their price; and number 21, where they answer whether they have purchased any VSM shares with “The number of shares of Versum common stock held by Merck … does not exceed a level that would require disclosure.”
Merck continues to speak and act like a bidder who is not going away, and its upcoming roadshow in New York with shareholders underscores its commitment to the deal, adding to the pressure on the Versum Board.
JM has bought 662k shares in JS since the beginning of March, averaging 47.5% of daily volume, narrowing the simple ratio (JM/JS). JM has consistently bought back shares in JS over the years. Since December 2011, buybacks have taken place at an average price/book (for JS) of 0.75x (it is currently at 0.70x according to CapIQ) and at an average JM/JS ratio of 1.75x. The current ratio is 1.70x, bang in line with its 7+ year average. The 20-year average is 1.82x.
Presumably the Keswick family’s long-term plan is collapsing the circularity. But given the significant costs involved – either JM privatizing JS or vice versa – for now, the family will likely opt for the circularity creep, by continuing to chip away at minority ownership as JS takes its dividends in-specie, JM acquires JS, gradually increasing the inter holdings of the two entities.
JS is also trading “cheap”, at a 42% discount to NAV, adjusted for cross-holdings. JS is now around 25% points “cheaper” than JM (which has a discount to NAV of 17%), compared to a one-year average of ~24%. A year ago, the % difference was 6%.
JM has bought 1.8mn shares YTD compared to 2.5mn for the same period last year, while 4.9mn shares were acquired in 2018, compared to 7.6mn, 8.2mn, and 2.1mn in 2015-2017 respectively. The very long-term ratio is marginally in favour of JM, yet the more recent yearly average suggests it is line. JS looks cheap on a discount to NAV basis and it makes sense for JM to continue to acquire shares, favouring JS near-term. I also tilt in favour of this outcome.
Youngone Holdings (009970 KS)‘s 50.5%-held sub Youngone Corp (111770 KS) accounts for 70% of NAV. On a 20D MA, they are now at 312% of σ while the current price ratio is at a 120D high. Sanghyun recommended a set-up. The parent is up 9% this week vs 12% down for the sub. The NAV discount is now out of whack – plugging Sanghyun’s numbers I get a discount to NAV of 35% vs. an average of 48%. The parent is very illiquid. (link to Sanghyun’s insight: Youngone Holdco/Sub Trade: Price Divergence Got Too Wide)
Restaurant Brands Nz (RBD NZ) has announced “Consent has now been granted in respect of the Partial Takeover by certain subsidiaries of Yum! Brands“. The remaining condition is receipt of acceptance from 75% of shareholders. Acceptances currently total 40.68%.
NASDAQ raised its bid for Oslo Bors VPS Holding ASA (OSLO NS) to NOK 158 and lowered its minimum acceptance condition from 90% to two-thirds. The offer period is extended to 29 March. The Long Stop is extended to 4 Mar 2020.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Japan skirts recession but near-term prospects remain weak
Deflationary headwinds to persist in H1, threatening business spending
Recovery likely in late 2019 as world trade finds a firmer footing
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Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
While not new news, US-based hedge fund – somewhat well-known for being involved in M&A situations – started accumulating a position in MYOB in January and has now reached a stake of 11%. The last chunks purchased appear to have been done at (or around) A$3.40/share, which is equal to terms. The Manikay letter to the Board asks the Board to consider the market movements since December and posits a fair value in excess of A$4.00/share.
Manikay says that it is interested in becoming a long-term shareholder. But the letter seems to level its criticism of the deal price most pointedly at the fact that the deal was offered and agreed to just a few days off a two-year low in the S&P/ASX200 Index and since then the index has rebounded to within 1.5% of an 11-year high.
A “market context” bump is not a bad case in and of itself because of where peers have moved and where the market has moved, and we won’t know whether that point is taken up by the IER in the Scheme Document.
This strikes Travis Lundy as not a bad reward/risk to buy up to 1-2% through terms. The back end “undisturbed price” has risen and the recent earnings release shows online penetration continues to grow.
Irrespective of whether the Malaysian rare earth processing licence provided to Lynas was without adequate due process (as has been speculated) or whether the facility is indeed an environmental concern; the fact remains the Malaysian government has reneged on the previously agreed-upon three-step licence process – imposing unachievable pre-conditions by the licence renewal date this September – and that is wrong.
Ongoing negotiation with the Malaysian government is the only course of action by which Lynas will achieve the renewal of its operating licence (unencumbered or with “acceptable” caveats). The agreed management pathway for NUF provides scope for a positive outcome from extensive consultation.
But even if a viable resolution is reached, it would only serve to temporarily manage Lynas out of its current predicament – given the vocal domestic opposition, the long-term prognosis is likely the shuttering and removal of the LAMP.
Shares are down 45% from the pre-general election (for Malaysia) peak and ~24% down from when the Review Committee was first mooted in September 2018, and roughly a similar % compared to the 3 December closing price, the day before the pre-conditions were introduced. That still appears too optimistic. Resolving the Malaysian government roadblock will quite likely be a stop-gap measure, at best.
Posco Chemtech is to merge with POSCO ESM through a stock swap at a ratio of 1 to 0.2172865. The merger will be effective as of April 1. The merged company is planning to move from KOSDAQ to KOSPI. These proposals will be put to the vote at the upcoming AGM scheduled for March 18.
KOSPI 200’s re-balancing reference date is after the close of the last trading day in April and the change takes effect on the next trading day after the 2nd Thursday of June. If the KRX approves it before the end of April, Chemtech’s KOSPI inclusion will happen this June. If not, it will have to wait until next year.
New passive money flowing into Chemtech is estimated at ₩68bn. This represents 1.69% of market cap and 4.82% of float market cap. This is less than twice total daily trade value.
In a follow-up note John DeMasi provides an update of events, looking into VSM’s corporate governance documents, reviewing relevant landmark Delaware takeover case law, and elaborating on a possible path to control of Versum for Merck KGaA (MRK GR).
Merck has now filed form DFAN14A filed with the SEC. The talking points/Q&A confirm that the VSM/Entegris Inc (ENTG US) deal caught Merck by surprise as they had not been contacted by Versum as part of any market check.
Other important takeaways include number 7, where Merck stress (yet again) they are fully committed to pursuing their proposal; number 11, where they don’t rule out raising their price; and number 21, where they answer whether they have purchased any VSM shares with “The number of shares of Versum common stock held by Merck … does not exceed a level that would require disclosure.”
Merck continues to speak and act like a bidder who is not going away, and its upcoming roadshow in New York with shareholders underscores its commitment to the deal, adding to the pressure on the Versum Board.
JM has bought 662k shares in JS since the beginning of March, averaging 47.5% of daily volume, narrowing the simple ratio (JM/JS). JM has consistently bought back shares in JS over the years. Since December 2011, buybacks have taken place at an average price/book (for JS) of 0.75x (it is currently at 0.70x according to CapIQ) and at an average JM/JS ratio of 1.75x. The current ratio is 1.70x, bang in line with its 7+ year average. The 20-year average is 1.82x.
Presumably the Keswick family’s long-term plan is collapsing the circularity. But given the significant costs involved – either JM privatizing JS or vice versa – for now, the family will likely opt for the circularity creep, by continuing to chip away at minority ownership as JS takes its dividends in-specie, JM acquires JS, gradually increasing the inter holdings of the two entities.
JS is also trading “cheap”, at a 42% discount to NAV, adjusted for cross-holdings. JS is now around 25% points “cheaper” than JM (which has a discount to NAV of 17%), compared to a one-year average of ~24%. A year ago, the % difference was 6%.
JM has bought 1.8mn shares YTD compared to 2.5mn for the same period last year, while 4.9mn shares were acquired in 2018, compared to 7.6mn, 8.2mn, and 2.1mn in 2015-2017 respectively. The very long-term ratio is marginally in favour of JM, yet the more recent yearly average suggests it is line. JS looks cheap on a discount to NAV basis and it makes sense for JM to continue to acquire shares, favouring JS near-term. I also tilt in favour of this outcome.
Youngone Holdings (009970 KS)‘s 50.5%-held sub Youngone Corp (111770 KS) accounts for 70% of NAV. On a 20D MA, they are now at 312% of σ while the current price ratio is at a 120D high. Sanghyun recommended a set-up. The parent is up 9% this week vs 12% down for the sub. The NAV discount is now out of whack – plugging Sanghyun’s numbers I get a discount to NAV of 35% vs. an average of 48%. The parent is very illiquid. (link to Sanghyun’s insight: Youngone Holdco/Sub Trade: Price Divergence Got Too Wide)
Restaurant Brands Nz (RBD NZ) has announced “Consent has now been granted in respect of the Partial Takeover by certain subsidiaries of Yum! Brands“. The remaining condition is receipt of acceptance from 75% of shareholders. Acceptances currently total 40.68%.
NASDAQ raised its bid for Oslo Bors VPS Holding ASA (OSLO NS) to NOK 158 and lowered its minimum acceptance condition from 90% to two-thirds. The offer period is extended to 29 March. The Long Stop is extended to 4 Mar 2020.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
A credible poll — the first new trustworthy data in a month — shows Widodo having expanded his lead to 59 percent, versus 31 percent for Prabowo. The latter’s prospects are dim. Indonesia’s Comprehensive Partnership (Cepa) with Australia will bring myriad import prices down — although, contrary to a spate of international press reports, it does not raise ownership ceilings for Australian investors. A senior activist with Amnesty International Indonesia suffered arrest for critizing the military’s plan to place hundreds of active officers in civilian posts. The BKPM’s OSS system for online permiting is making progress, although its smooth functioning remains a distanct prospect.
Politics: President Joko Widodo proposed monthly income support for graduates of vocational programs who lack immediate employment and need to search for jobs. He did not specify an amount per recipient. The proposal has some merit – but simple regulatory changes to facilitate investment and job‑creation would obviate its need. Politically, the concept will likely prove popular, further boosting Widodo (Page 2). A prominent Partai Demokrat official, Andi Arief, left the party to undergo drug rehabilitation. This marks yet another blow for a party that had been Indonesia’s largest only five years ago (p. 3). A human rights activist and lecturer suffered arrest for allegedly defaming the military (p. 4).
Surveys: In the first new poll data to emerge in over a month, the Survey Network (LSI) showed that, as of late February, nationwide support for Widodo stood at 59 percent, versus 31 percent for Gerindra Chair Prabowo Subianto. The findings, which are credible, suggest that Widodo strengthened during February, perhaps due to the two televised debates – and despite Prabowo’s emphatic attempts to provoke various economic fears. The data portray Prabowo’s prospects as distinctly remote. A Widodo landslide would further reduce the likelihood of disruption or unrest, as Prabowo‑camp claims of fraud or manipulation would lack credence. Meanwhile, Widodo would emerge with an unequivocal mandate and particularly strong political capital. Parties that defy him would jeopardize their own image. But whether he would use this strength effectively is questionable (p. 5). Findings from Polmark, a somewhat obscure firm employed by the National Mandate Party (Pan), claim that Widodo’s margin over Prabowo is only 15 percentage points – but the poll is old, it has a large error margin and it featured a 34 percent level of undecided respondents. As a percentage of decided respondents, Widodo’s support is comparable to other (and better) polls (p. 6).
Justice: In the first verdicts in Lippo’s Meikarta scandal, four Lippo personnel including Billy Sindoro received sentences ranging from 1.5‑3.5 years each. This is Sindoro’s second conviction from the Anti-Corruption Commission (KPK) (p. 8).
Policy News: A new phase of implementation is underway for online permitting (p. 8).
Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news. The writer is Kevin O’Rourke, author of the book Reformasi. For subscription info please contact: <[email protected]>.
International: During an election that features strident economic critiques, the government concluded the Comprehensive Economic Partnership with Australia (IA‑Cepa). Parties may yet posture when it comes due for ratification, but other trade agreements have managed to pass. The IA-Cepa reduces tariffs on myriad Australian goods from five percent to zero, while higher tariffs on certain foods will fall precipitously. Contrary to reports, it sets no new foreign ownership ceilings (p. 8).
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