Friday 15 February after the close, the Offerors for M1 Ltd (M1 SP)announced that their Offer had been declared Unconditional In All Respects as the tendered amount was 57.04% and the total held by concert parties was 76.35%.
Axiata Group (AXIATA MK) made an announcement to the Bursa Malaysia that it had accepted the Offer as required because it was a significant asset disposal. The reasoning for the disposal was that given the long-term view required because of changes in the Singaporean telecom market structure and the inability of Axiata to exert management control, the disposal fit within Axiata’s portfolio rebalancing strategy and would serve to mitigate short- to medium-term risks associated with the changes in the Singaporean market.
Going unconditional has triggered an extension of the Closing Date to 4 March 2019 at 5:30pm Singapore time (our estimate pre-Offer Despatch was closing of 7 March).
If you are going to tender, you might as well do it now. Consideration (the offer price) will be despatched to those Shareholders who have already tendered within 7 business days, and those who accept the Offer starting now will get their funds within 7 business days of the Offer acceptance being validated.
Hansae Holdco/Sub duo is giving a very wide price divergence right now. They are now at -227% of σ. This is a 120D low. Holdco discount is 50% to NAV. Sub is 55% of the sub holdings and 60% of Holdco NAV. Sub has made a run lately mainly on improving outlook. Local long-term funds have led the recent Sub buying. They like Sub’s 4Q results. They also expect this trend to continue at least for this year.
Valuation wise, Sub price is at a little over 17x PER on already adjusted FY19 earnings. This is pretty much in line with the yearly average in the past 3 years. Sub price rally should be resisted at this point. Holdco/Sub price ratio is at the lowest in 120D on a 20D MA. It has also fallen to near 2 year low.
Local short-term money managers do not seem to be joining the current Sub buying. Shorting on Sub is still at a significant level (nearly 10%). I’d make a trade at this point. I’d go long Holdco and short Sub for a short-term mean reversion. Again, Holdco liquidity can be an issue to some of us.
On Thursday the 14th Feb 2019, Pepper Food Service (3053 JP) announced its results for FY2018 and the guidance for both 1HFY2019 and FY2019. The company managed to grow its revenue by an impressive 75.3% YoY outperforming its own estimate by 6.4%.
However, the gross profit only grew by 69.9% during the year as the gross margin slipped 137bps in FY2018 driven by higher energy prices and wages. Higher wages were due to active recruitment of foreign workers within the food service industry which created a supply shortage. To tackle increasing costs, towards the end of the year, Ikinari Steak restaurants increased the prices of its steak. We believe the margin recovery witnessed in 4Q2018 was a direct result of this price increase.
Gross Margin Showing Signs of Recovery
Source: Company Disclosures
Pepper Food Services saw its EBIT margin decline by 20bps to 6.1% in FY2018, as revenue growth offset most of the gross margin drop through gains from operating leverage. However, its restaurants in New York City continued to underperform. The company expected those restaurants to turn a corner and start contributing to the overall EBIT from FY2018, however, those restaurants failed miserably and continued to drag the overall EBIT margin down. Hence, the company failed to meet its EBIT margin forecast with EBIT falling 4.6% short of company guidance.
We have a really interesting and unusual situation in Korea right now with HDC Holdings (012630 KS)going activist on Samyang Foods (003230 KS). HDC Holdings is the second largest owner of Samyang Foods.
HDC Holdings is recommending that the company should exclude executive directors that have been sentenced to imprisonment on cases such as embezzlement and extreme negligence resulting in significant losses for Samyang Foods. This is an agenda which will be discussed in the Samyang Foods’ AGM next month on March 22nd.
HDC Holdings is taking a very unusual move right now in going against the traditional “save face” mentality in the Korea Inc. and trying to publicly urge Samyang Foods to make changes to its BOD.
The company’s flagship Star Vegas casino resort was victimized by an alleged diversion of VIP players by its contract management. Now under corporate control it is beginning to recover.
Its US$124m breech of contract claim against the vendor was filed in there Singapore court system and sits at final appeal stage.
Cambodia’s new gaming regulation law will stabilize and eliminate wild west dimension of Poipet casinos. This could lead to major earnings gains and increased investment going forward.
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We have a really interesting and unusual situation in Korea right now with HDC Holdings (012630 KS)going activist on Samyang Foods (003230 KS). HDC Holdings is the second largest owner of Samyang Foods.
HDC Holdings is recommending that the company should exclude executive directors that have been sentenced to imprisonment on cases such as embezzlement and extreme negligence resulting in significant losses for Samyang Foods. This is an agenda which will be discussed in the Samyang Foods’ AGM next month on March 22nd.
HDC Holdings is taking a very unusual move right now in going against the traditional “save face” mentality in the Korea Inc. and trying to publicly urge Samyang Foods to make changes to its BOD.
The company’s flagship Star Vegas casino resort was victimized by an alleged diversion of VIP players by its contract management. Now under corporate control it is beginning to recover.
Its US$124m breech of contract claim against the vendor was filed in there Singapore court system and sits at final appeal stage.
Cambodia’s new gaming regulation law will stabilize and eliminate wild west dimension of Poipet casinos. This could lead to major earnings gains and increased investment going forward.
KCL-SPH again extended the closing date of the offer from 18 February to 4 March 2019. M1’s shares are trading at S$2.04 per share, marginally below the VGO price of S$2.06 per share. We believe that the KCL-SPH should get the valid acceptances to complete the delisting and wholly own M1.
Musashino Bank (8336 JP) was one of the last regional banks to announce 3Q FY3/2019 results, and they were a nasty surprise: a consolidated net loss for the nine months to 31 December 2018, caused by heavy reserving in Q3 (October-December 2018) against the bank’s exposure to the troubled Akebono Brake Industry Co (7238 JP) . While the bank has slashed its full-year net profit guidance from ¥11.1 billion to ¥4.5 billion, this would still require an heroic level of profits in Q4 which the bank has never before achieved. The share price has fallen over 31% in the last twelve months. Valuations at current levels are still high (FY3/2019 PER is 17.6x) and we consider the share price to be vulnerable to further weakness. Caveat emptor (May the buyer beware) !
Softbank has announced a buyback of ¥600bn – its largest buyback ever. At ~¥10,500/share it is 57mm shares or 5.2% of shares out. At ¥12,000/share it is 50mm shares or 4.6%. The “official” float is about 68.7% or 750mm shares. However, by Travis’ estimate, only 44.5% of shares out or 488mm shares are Real World Float. 57mm shares out of 488mm shares is 11.7%. That is a non-negligible portion of float, and will mean significant reduction in foreign active management exposure to Softbank, or significant reduction in individual investor exposure to Softbank, or both.
Travis Lundy wrote the buyback will have further impact on the stock price simply because of flow dynamics. It isn’t easy to buy 10% of float. And we should remember that the BOJ is still buying ¥100bn+ of Softbank shares per year as it continues to buy ¥6trln of ETFs per year. And given the stock will be in the top momentum ranks of large cap Japan, Travis expects momentum flows will join the party adding more inflow.
For trading types, he thought Softbank was a buy, relatively and on an absolute basis. The Japan market is CHEAP on a current year and forecast year ahead, which suggests either the market is “wrong” or economic headwinds are picking up to a greater extent than pundits suggest.
The pre-conditons have been fulfilled and Delta Electronics (2308 TT)will now move to a tender offer. But there exist a number of unknowns for the transaction, which could delay the Offer timetable.
Although the initial wording in the August conditional voluntary tender offer announcement suggests the offer will be for ALL shares, there is talk there may be a maximum acceptance condition, therefore possible clawback for shareholders tendering. A rumoured 60% maximum translates to a minimum 50% pro-rata, potentially 67% if the family tenders 40% and the rest of holders tender half.
It is not clear whether the FY18 dividend will be netted. DELTA has announced two sets of quarterly results since the initial Offer announcement and it would be unjust for DEISG to net off any dividend. It would likely suit the family to receive the dividend. The Offer is pitched at a 1.79% premium to the then-current price. If the dividend is netted, then the Offer price will, in fact, be at a discount to last close as of announcement. DELTA will announce its full-year dividend tomorrow (18th February) and the terms of the deal may also be announced the same day. The AGM to ratify the dividend will take place around the 2 April.
Currently trading at terms or a gross/annualised spread of 4.6/21%, if including a Bt3.30 FY18 dividend and mid-May payment. That looks overly tight in the face of timing delays and actual consideration to be paid if indeed it comes out to be a partial offer.
Three months ago, Minebea Mitsumi (6479 JP) announced it would launch a Tender Offer for U Shin and it would take just under three months until the approvals were received and it could officially start the Tender Offer process. The background to the Tender Offer was discussed in Minebea Mitsumi Launches Offer for U-SHIN in early November. Travis first conclusion in November was that this was the “riskiest” straight-out non-hostile TOB he had seen in a while. Minebea Mitsumi has now announced the launch of its Tender Offer, at the same price as originally planned (¥985/share).
This deal is still perplexing to Travis. It’s easy enough from an industrial standpoint. Why not buy relatively cheap assets then see if you can cross-sell or assume some attrition? But for investors, he wonders why they put up with this. The process of reaching a “fair” valuation is, by definition, conflicted. It cannot NOT be conflicted. And just because some independent directors who don’t have skin in the game, and may have no clue about corporate valuation methodology, or fair market price, agree to a price that the acquiree’s managers, not wanting to lose their jobs, agree to doesn’t make this “fair.”
The tender offer period is QUITE long. Most tender offers are 30 days in order to give time for people to tender or “offer sufficient time for a rival bidder.” This time Travis thinks it is longer so people can take their time and get bored and tender.
Travis would sell shares now and use the balance sheet elsewhere until an activist shows his hand. If no activist, this deal is not an interesting one.
After multiple news outlets reported that LG Uplus Corp (032640 KS) will finalise a transaction with the CJ Hello, a deal was done at ₩800bn (instead of ₩1tn speculated), and only 50%+1 share instead of the full 53.92% stake held by CJ ENM (035760 KS). The acquisition price of ₩20,659 is a 107% premium to last price and translates to a EV/EBITDA multiple of 6.6x.
This is a straight stock acquisition deal. CJ Hello will be a subsidiary of LG Uplus and will continue to exist as a separate listed company. CJ ENM still owns nearly 4% CJH stake. SKT owns 8.61%.
LG Group is publicly saying that they have no plan of an immediate merger, which means neither party requires shareholder approval. But the transaction is subject to local regulator approval – MSIT and Korea FTC. MSIT approval is not an issue. FTC rejected the SKT-CJH deal last time. This time, the FTC’s head Kim Sang-jo is hinting that this deal will go through.
LG Uplus’ acquisition of CJ Hellovision is likely to further accelerate the consolidation of the Korean cable TV/media sector. KT Corp (030200 KS)is now likely to aggressively try to acquire cable-operator D’Live. SK Telecom (017670 KS) has shown some interests in acquiring Tbroad cable company.
Glow announced that the Energy Regulatory Commission (“ERC”) has resolved to approve the merger with GPSC, provided Glow sells its Glow SPP1 plant before or at the same time as the merger. A number of conditions were also attached to some of the remaining power plants. No price has been disclosed for the 69.11% stake in Glow, ex the SPP1 plant, but it will be in reference to the Bt94.892 Offer price previously announced, net of expenses with selling SPP1 and the reduced synergy thereon.
Given SPP1 is an immaterial contributor (~5%) to Glow, in terms of revenue, it can be argued that GPSC may make only a minimal change to the Offer price. Still, even a 5% downward adjustment would equate to a price below where Glow is trading.
The downside is ~8%, if using the closing price on the 11 October. Glow/GPSC/Engie want this deal to complete. I think the final Offer price will come in very close to that initially proposed. But I would not buy through Bt90, preferring to pick up shares at Bt89 or below. The merger is expected to be completed by next month, triggering a mandatory tender offer, which may take an additional 2 months or so to complete.
Sigma Healthcare released a 2-page Market Update saying the four month Business Review had identified A$100mm of annual cost savings, confirmed the FY19 EBIT guidance of A$75mn, and confirmed the FY20 EBITDA guidance of $55-60mm. The business review sees 10% underlying EBITDA growth from FY20 to FY23 so that after cost savings are included, FY23 sees the same EBITDA as FY19 [i.e. almost A$90mm].
On a standalone basis, at the end of FY22 looking towards FY23, at 8x EV/EBITDA, it looks like there is something like 60-80% upside. EBITDA might be worth even more than A$90mm in FY23 as long as the DCs can run at high capacity. And at mid-high teens PER that would be a pretty great result. They won’t get that 60-80% upside from now doing a deal with API, but they won’t have to wait for 4 years to get it either.
Travis expects another A$0.15 of value would do it. He doesn’t think they need A$0.20. The shares bounced and traded around A$0.80-1.00 from mid summer 2017 to mid-summer 2018. But that is when EBIT was supposed to fall to A$90mm. And that was nearer-term. Now we have a forecast of EBITDA of A$90mm and that is 3+ years out.
Travis thinks this could get done at 0.42-0.45 shares of API and A$0.23 of cash, given that would probably impact API shares a little bit, that would end up being a 10-15% bump vs original terms, but all told that would be pretty good – and almost a double from undisturbed.
KDDI Corp (9433 JP) announced its intention to conduct a Tender Offer for Kabu.com through a made-for-purpose SPC. The deal is not terribly different in scope than the one discussed in KDDI Deal for Kabu.com (8703 JP) Coming? about two weeks ago.
The Tender Offer is to purchase a minimum of 45,758,400 shares at ¥559/share, which is a 5.67% premium to last close and a 46.3% premium to the undisturbed price of 23 January 2019. Obtaining the minimum would get the combination of KDDI and MUFJ Securities (which currently holds 52.96% of the shares outstanding, and will not tender) to 66.67% which would allow the combination to do a Two Step Squeezeout, which KDDI states in the document that it intends to do.
Anti-trust and regulatory approvals are required (Travis can’t imagine any issues), and KDDI expects that the Tender Offer will commence in late April. This looks pretty easy as a deal, with few impediments. A rival bid is unlikely – KDDI has a headstart with the shares of MUFG Bank which have committed to the deal.
This is going to be boring. One can make markets, carry it, or allocate capital to something more interesting. However Kabu.com’s ¥6/share dividend for end March 2019 WILL BE PAID according to a press release by Kabu.com today after the close. That means there will be a down-shift in price on the ex-date of the dividend at end-March.
Via subsidiary NSITEXE, Inc, Denso has acquired a stake in Californian start-up quadric.io. NSITEXE was established to develop high performance, next generation semiconductor devices for automated driving solutions. quadric’s edge processing units compliment this technology push.
Xingfa announced its major shareholder, Guangxin Aluminium (a wholly-owned Guangdong SASAC vehicle), has acquired 5,000 shares, lifting its stake to 30.001%, triggering a mandatory general offer. The offer price is $5.60, a premium of just 2.94% to last close.
Guangxin, together with certain management of Xingfa, attempted to take Xingfa private at $3.70/share back in 1H17. That scheme failed comprehensively, which was a good outcome for minorities as FY17 net income increased 28%. 1H18 profit was also a 25% improvement over the corresponding period.
The offer price is in line with where Xingfa traded last October and is 23% below the recent peak back in mid-June 2018. It is also 37% below where China Lesso Group Holdings (2128 HK) acquired its 26.3% stake in April last year.
There has to be some behind the scenes play for Xingfa’s shares, and this potentially centres on China Lesso. While a look at CCASS shows Liao Yuqing (an ED in Xingfa) intriguingly moving his entire 48.2mn (11.5% of shares out) outside of CCASS in early December 2018.
OSLO NS is the target of competing tender offers from Euronext NV (ENX FP)andNasdaq Inc (NDAQ US). Euronext owns 5.3% and has irrevocables for 45.2% of OSLO NS shares, for 50.5% total. It launched an Offer to acquire all shares at NOK 145, and just raised that to NOK 158 on February 11, 2019. Nasdaq has irrevocables for 35.2% of OSLO NS shares and has launched an Offer to acquire all OSLO NS shares at NOK 152 per share. Nasdaq’s Offer received the unanimous recommendation of Oslo Børs VPS’s Board when it was announced. The IFA opined that NOK 152 per share is above the top end of what shareholders could expect.
Nasdaq’s undertakings are irrevocable and binding, including in the event of a higher offer. The pre-acceptances further include an obligation on the part of the pre-accepting shareholders not to accept the Euronext Offer. Irrevocables for both bidders have an end date of 31 December 2019, after which they are no longer binding.
Nasdaq, which is conditional on a 90% acceptance level, seems to have the weaker hand since its acceptance threshold condition won’t be met unless Euronext folds its cards and walks away; while Euronext (with a 50.01% acceptance condition) can keep its 50.5% “stake” as long as it gets regulatory approval. Therefore, Nasdaq would need to waive its 90% acceptance condition in order to stay in the game.
The Norwegian Ministry of Finance MoF may resolve this by approving both bidders, provided they reach a super majority acceptance threshold of two-thirds or 90% of shares outstanding (but not less). In this scenario, either party will have enough to block the other from reaching the threshold while the irrevocables are binding.
If the MoF says both parties have approval if they get to whatever super majority the MoF decides or is statutorily permitted to impose, and puts a deadline on getting there of some date after the irrevocable lock-up expiration (say, January 31, 2020), then the formerly locked-up shares are free to go to whichever bidder they chose.
I estimate HLG’s discount to NAV at 41% compared to its one-year average of 38%. The implied stub is right at the 2STD extreme and excluding a brief dip in late April 2018, is at the lowest level since June 2013.
What assets HLG does directly own at the stub level are intertwined with HLP’s own investments. There is therefore, very little to distinguish between the two companies. In addition, HLG has gradually offloaded its HK properties – to HLP no less – further increasing its exposure to China and blurring the lines between HLP and HLG’s business exposure.
HLG has also been increasing its stake in HLP since June 2011, from 48.96% to 57.62% as at 31 Dec 2018. It’s a pretty astute trade to sell a property at book to HLP, then “buy” it back indirectly via increasing its stake in HLP, which trades at 0.6x P/B.
There is no significant catalyst for the NAV discount to narrow. And liquidity does play a role, although HLG’s volume has narrowed the gap to HLP’s in recent years. Nevertheless, a ~40% discount to NAV is extreme for a straightforward, passive, single stock holdco structure.
Athaporn Arayasantiparb, CFA discussed his one-on-one with Intouch. Of interest is his discussions on the stub assets specifically InVent, a venture capital arm and considered the market leader in growth stage funding. In 2018, InVent invested Bt30m into ytm thailand, an end-to-end digital marketing and feedback platform, which used the proceeds to buy offline digital access; Bt40m into Choco CRM, a CRM and POS (point of sales) platform for SME; and Bt40m into E Studio, a B2C lifestyle portal.
Other investments discussed by Athaporn, at the stub level, include Wongnai and HSN. Wongnai is an online foodie guide and one of their largest investments to date, boasted 8m active users, 120m page views, 200,000 patron restaurants, and 10m pictures posted so far. Revenue grew 60% in 2018 to Bt250mn, and is expected to grow at 50%. HSN is an online shopping venture between Intuch and Hyundai, which managed to breakeven on a net basis.
The overall value of these investments, and the estimated 11 other start-up companies under InVent, is very much a “finger in the air” calculation. They may exceed the value of Intouch’s 41.1% stake in Thaicom Pcl (THCOM TB), but that still would be just 1% of NAV.
I estimate Intouch’s discount to NAV at ~21% (vs. the one-year average of 27%), having significantly narrowed in response to rumours of a purported sale of Thaicom (discussed in StubWorld: Intouch Gains On Possible Sale of Thaicom). At the time, I thought Intouch had run its course, noting Intouch had denied any definitive approach/agreement.
New Street Research also met with AIS and remains cautious on this telco in the current slowing environment ahead of delayed elections.
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.
Issuance of the new shares and common stock to be delisted on the Tokyo Stock Exchange
C
Japan
Showa Shell
Scheme
1-Apr
Close of offer
E
NZ
Trade Me Group
Scheme
19-Feb
Application for initial orders filed
C
Singapore
Courts Asia
Scheme
15-Mar
Offer Close Date
C
Singapore
M1 Limited
Off Mkt
18-Feb
Closing date of offer
C
Singapore
PCI Limited
Scheme
February
Release of Scheme Booklet
E
Thailand
Delta
Off Mkt
18-Feb
Submit Tender Offer Form
C
Finland
Amer Sports
Off Mkt
28-Feb
Offer Period Expires
C
Norway
Oslo Børs VPS
Off Mkt
4-Mar
Nasdaq Offer Close Date
C
Switzerland
Panalpina
Off Mkt
27-Feb
Binding offer to be announced
E
US
Red Hat, Inc.
Scheme
March/April
Deal lodged for approval with EU Regulators
C
Source: Company announcements. E = our estimates; C =confirmed
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Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
It has been a fairly quiet week in the ECM space.
We are hearing that Douyu (game streaming like HUYA Inc (HUYA US), Tiger Brokers (backed by Jim Rogers), Genshuixue (education) have either filed confidentially or seeking to list in the US.
In Hong Kong, Bank of Guizhou is said to be planning for a US$1bn IPO and we heard that Zhejiang New Century Hotel Management is pre-marketing for its US$200m IPO. The PHIP has already been filed on the Hong Kong Exchange.
Our overall accuracy rate is 72.1% for IPOs and 63.8% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
Reliance General Insurance (re-filed, India)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
Rakuten (4755 JP) has been under pressure recently from Amazon (AMZN US) and other competitors in its core online mall business and now seems to be giving more attention once again to the original Rakuten Ichiba, including a plan to cut shipping fees, although this also looks like a face-saving way to cut merchant commissions.
Rakuten is also investing in new logistics infrastructure to try and match the customer services levels of Amazon and ZOZO (3092 JP).
As part of this effort, Rakuten just announced a 9.9% stake in a logistics firm called Kantsu. The deal is part of Rakuten’s strategy to accelerate the move towards consolidated shipments of orders on Rakuten Ichiba – one of the key weaknesses of the Rakuten model compared to Amazon and Zozo.
Rakuten also just announced its year-end results this week: Domestic GMVs rose 11.2% to ¥3.4 trillion for the year ending December 2018. While GMVs rose and revenue increased by 9.2% to ¥426 billion, operating income on domestic e-commerce fell 17.7% to ¥61.3 billion partly due to higher logistics costs. For 4Q2018, operating income fell 27.3%.
LG Uplus Corp (032640 KS) actually pays ₩800bil (not ₩1tril) for the controlling stake of CJ Hello (037560 KS) from CJ ENM (035760 KS). LG Uplus gets not all of the shares owned by CJ ENM. It gets a total 38,723,433 shares. This is 50% + 1 share. Cost per share is ₩20,659. This is a 107% premium.
I suggested a long/short trade on LGU+/CJH starting this Monday on the grounds that their MC ratio should revert back to above 10. This trade is paying off very handsomely now. Current yield stands at 10.5%. But I wouldn’t close this position yet.
CJ ENM still owns nearly 4% CJH stake. SKT owns 8.61%. Neither of them has any reason to retain these shares. LG Uplus doesn’t seem to be interested in getting any of these additional shares. This means one thing. It is very likely that CJH will suffer huge stock overhang concerns.
Not only that, merger between them is inevitable. The LGU+/CJH MC ratio should be reverted back to 10. The MC ratio is now at 8.4. We still have more room on this. I expect it to reach at least near 9 level in very near future. I’d hold onto this position until then.
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Rakuten (4755 JP) has been under pressure recently from Amazon (AMZN US) and other competitors in its core online mall business and now seems to be giving more attention once again to the original Rakuten Ichiba, including a plan to cut shipping fees, although this also looks like a face-saving way to cut merchant commissions.
Rakuten is also investing in new logistics infrastructure to try and match the customer services levels of Amazon and ZOZO (3092 JP).
As part of this effort, Rakuten just announced a 9.9% stake in a logistics firm called Kantsu. The deal is part of Rakuten’s strategy to accelerate the move towards consolidated shipments of orders on Rakuten Ichiba – one of the key weaknesses of the Rakuten model compared to Amazon and Zozo.
Rakuten also just announced its year-end results this week: Domestic GMVs rose 11.2% to ¥3.4 trillion for the year ending December 2018. While GMVs rose and revenue increased by 9.2% to ¥426 billion, operating income on domestic e-commerce fell 17.7% to ¥61.3 billion partly due to higher logistics costs. For 4Q2018, operating income fell 27.3%.
LG Uplus Corp (032640 KS) actually pays ₩800bil (not ₩1tril) for the controlling stake of CJ Hello (037560 KS) from CJ ENM (035760 KS). LG Uplus gets not all of the shares owned by CJ ENM. It gets a total 38,723,433 shares. This is 50% + 1 share. Cost per share is ₩20,659. This is a 107% premium.
I suggested a long/short trade on LGU+/CJH starting this Monday on the grounds that their MC ratio should revert back to above 10. This trade is paying off very handsomely now. Current yield stands at 10.5%. But I wouldn’t close this position yet.
CJ ENM still owns nearly 4% CJH stake. SKT owns 8.61%. Neither of them has any reason to retain these shares. LG Uplus doesn’t seem to be interested in getting any of these additional shares. This means one thing. It is very likely that CJH will suffer huge stock overhang concerns.
Not only that, merger between them is inevitable. The LGU+/CJH MC ratio should be reverted back to 10. The MC ratio is now at 8.4. We still have more room on this. I expect it to reach at least near 9 level in very near future. I’d hold onto this position until then.
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The company’s flagship Star Vegas casino resort was victimized by an alleged diversion of VIP players by its contract management. Now under corporate control it is beginning to recover.
Its US$124m breech of contract claim against the vendor was filed in there Singapore court system and sits at final appeal stage.
Cambodia’s new gaming regulation law will stabilize and eliminate wild west dimension of Poipet casinos. This could lead to major earnings gains and increased investment going forward.
KCL-SPH again extended the closing date of the offer from 18 February to 4 March 2019. M1’s shares are trading at S$2.04 per share, marginally below the VGO price of S$2.06 per share. We believe that the KCL-SPH should get the valid acceptances to complete the delisting and wholly own M1.
Musashino Bank (8336 JP) was one of the last regional banks to announce 3Q FY3/2019 results, and they were a nasty surprise: a consolidated net loss for the nine months to 31 December 2018, caused by heavy reserving in Q3 (October-December 2018) against the bank’s exposure to the troubled Akebono Brake Industry Co (7238 JP) . While the bank has slashed its full-year net profit guidance from ¥11.1 billion to ¥4.5 billion, this would still require an heroic level of profits in Q4 which the bank has never before achieved. The share price has fallen over 31% in the last twelve months. Valuations at current levels are still high (FY3/2019 PER is 17.6x) and we consider the share price to be vulnerable to further weakness. Caveat emptor (May the buyer beware) !
Softbank has announced a buyback of ¥600bn – its largest buyback ever. At ~¥10,500/share it is 57mm shares or 5.2% of shares out. At ¥12,000/share it is 50mm shares or 4.6%. The “official” float is about 68.7% or 750mm shares. However, by Travis’ estimate, only 44.5% of shares out or 488mm shares are Real World Float. 57mm shares out of 488mm shares is 11.7%. That is a non-negligible portion of float, and will mean significant reduction in foreign active management exposure to Softbank, or significant reduction in individual investor exposure to Softbank, or both.
Travis Lundy wrote the buyback will have further impact on the stock price simply because of flow dynamics. It isn’t easy to buy 10% of float. And we should remember that the BOJ is still buying ¥100bn+ of Softbank shares per year as it continues to buy ¥6trln of ETFs per year. And given the stock will be in the top momentum ranks of large cap Japan, Travis expects momentum flows will join the party adding more inflow.
For trading types, he thought Softbank was a buy, relatively and on an absolute basis. The Japan market is CHEAP on a current year and forecast year ahead, which suggests either the market is “wrong” or economic headwinds are picking up to a greater extent than pundits suggest.
The pre-conditons have been fulfilled and Delta Electronics (2308 TT)will now move to a tender offer. But there exist a number of unknowns for the transaction, which could delay the Offer timetable.
Although the initial wording in the August conditional voluntary tender offer announcement suggests the offer will be for ALL shares, there is talk there may be a maximum acceptance condition, therefore possible clawback for shareholders tendering. A rumoured 60% maximum translates to a minimum 50% pro-rata, potentially 67% if the family tenders 40% and the rest of holders tender half.
It is not clear whether the FY18 dividend will be netted. DELTA has announced two sets of quarterly results since the initial Offer announcement and it would be unjust for DEISG to net off any dividend. It would likely suit the family to receive the dividend. The Offer is pitched at a 1.79% premium to the then-current price. If the dividend is netted, then the Offer price will, in fact, be at a discount to last close as of announcement. DELTA will announce its full-year dividend tomorrow (18th February) and the terms of the deal may also be announced the same day. The AGM to ratify the dividend will take place around the 2 April.
Currently trading at terms or a gross/annualised spread of 4.6/21%, if including a Bt3.30 FY18 dividend and mid-May payment. That looks overly tight in the face of timing delays and actual consideration to be paid if indeed it comes out to be a partial offer.
Three months ago, Minebea Mitsumi (6479 JP) announced it would launch a Tender Offer for U Shin and it would take just under three months until the approvals were received and it could officially start the Tender Offer process. The background to the Tender Offer was discussed in Minebea Mitsumi Launches Offer for U-SHIN in early November. Travis first conclusion in November was that this was the “riskiest” straight-out non-hostile TOB he had seen in a while. Minebea Mitsumi has now announced the launch of its Tender Offer, at the same price as originally planned (¥985/share).
This deal is still perplexing to Travis. It’s easy enough from an industrial standpoint. Why not buy relatively cheap assets then see if you can cross-sell or assume some attrition? But for investors, he wonders why they put up with this. The process of reaching a “fair” valuation is, by definition, conflicted. It cannot NOT be conflicted. And just because some independent directors who don’t have skin in the game, and may have no clue about corporate valuation methodology, or fair market price, agree to a price that the acquiree’s managers, not wanting to lose their jobs, agree to doesn’t make this “fair.”
The tender offer period is QUITE long. Most tender offers are 30 days in order to give time for people to tender or “offer sufficient time for a rival bidder.” This time Travis thinks it is longer so people can take their time and get bored and tender.
Travis would sell shares now and use the balance sheet elsewhere until an activist shows his hand. If no activist, this deal is not an interesting one.
After multiple news outlets reported that LG Uplus Corp (032640 KS) will finalise a transaction with the CJ Hello, a deal was done at ₩800bn (instead of ₩1tn speculated), and only 50%+1 share instead of the full 53.92% stake held by CJ ENM (035760 KS). The acquisition price of ₩20,659 is a 107% premium to last price and translates to a EV/EBITDA multiple of 6.6x.
This is a straight stock acquisition deal. CJ Hello will be a subsidiary of LG Uplus and will continue to exist as a separate listed company. CJ ENM still owns nearly 4% CJH stake. SKT owns 8.61%.
LG Group is publicly saying that they have no plan of an immediate merger, which means neither party requires shareholder approval. But the transaction is subject to local regulator approval – MSIT and Korea FTC. MSIT approval is not an issue. FTC rejected the SKT-CJH deal last time. This time, the FTC’s head Kim Sang-jo is hinting that this deal will go through.
LG Uplus’ acquisition of CJ Hellovision is likely to further accelerate the consolidation of the Korean cable TV/media sector. KT Corp (030200 KS)is now likely to aggressively try to acquire cable-operator D’Live. SK Telecom (017670 KS) has shown some interests in acquiring Tbroad cable company.
Glow announced that the Energy Regulatory Commission (“ERC”) has resolved to approve the merger with GPSC, provided Glow sells its Glow SPP1 plant before or at the same time as the merger. A number of conditions were also attached to some of the remaining power plants. No price has been disclosed for the 69.11% stake in Glow, ex the SPP1 plant, but it will be in reference to the Bt94.892 Offer price previously announced, net of expenses with selling SPP1 and the reduced synergy thereon.
Given SPP1 is an immaterial contributor (~5%) to Glow, in terms of revenue, it can be argued that GPSC may make only a minimal change to the Offer price. Still, even a 5% downward adjustment would equate to a price below where Glow is trading.
The downside is ~8%, if using the closing price on the 11 October. Glow/GPSC/Engie want this deal to complete. I think the final Offer price will come in very close to that initially proposed. But I would not buy through Bt90, preferring to pick up shares at Bt89 or below. The merger is expected to be completed by next month, triggering a mandatory tender offer, which may take an additional 2 months or so to complete.
Sigma Healthcare released a 2-page Market Update saying the four month Business Review had identified A$100mm of annual cost savings, confirmed the FY19 EBIT guidance of A$75mn, and confirmed the FY20 EBITDA guidance of $55-60mm. The business review sees 10% underlying EBITDA growth from FY20 to FY23 so that after cost savings are included, FY23 sees the same EBITDA as FY19 [i.e. almost A$90mm].
On a standalone basis, at the end of FY22 looking towards FY23, at 8x EV/EBITDA, it looks like there is something like 60-80% upside. EBITDA might be worth even more than A$90mm in FY23 as long as the DCs can run at high capacity. And at mid-high teens PER that would be a pretty great result. They won’t get that 60-80% upside from now doing a deal with API, but they won’t have to wait for 4 years to get it either.
Travis expects another A$0.15 of value would do it. He doesn’t think they need A$0.20. The shares bounced and traded around A$0.80-1.00 from mid summer 2017 to mid-summer 2018. But that is when EBIT was supposed to fall to A$90mm. And that was nearer-term. Now we have a forecast of EBITDA of A$90mm and that is 3+ years out.
Travis thinks this could get done at 0.42-0.45 shares of API and A$0.23 of cash, given that would probably impact API shares a little bit, that would end up being a 10-15% bump vs original terms, but all told that would be pretty good – and almost a double from undisturbed.
KDDI Corp (9433 JP) announced its intention to conduct a Tender Offer for Kabu.com through a made-for-purpose SPC. The deal is not terribly different in scope than the one discussed in KDDI Deal for Kabu.com (8703 JP) Coming? about two weeks ago.
The Tender Offer is to purchase a minimum of 45,758,400 shares at ¥559/share, which is a 5.67% premium to last close and a 46.3% premium to the undisturbed price of 23 January 2019. Obtaining the minimum would get the combination of KDDI and MUFJ Securities (which currently holds 52.96% of the shares outstanding, and will not tender) to 66.67% which would allow the combination to do a Two Step Squeezeout, which KDDI states in the document that it intends to do.
Anti-trust and regulatory approvals are required (Travis can’t imagine any issues), and KDDI expects that the Tender Offer will commence in late April. This looks pretty easy as a deal, with few impediments. A rival bid is unlikely – KDDI has a headstart with the shares of MUFG Bank which have committed to the deal.
This is going to be boring. One can make markets, carry it, or allocate capital to something more interesting. However Kabu.com’s ¥6/share dividend for end March 2019 WILL BE PAID according to a press release by Kabu.com today after the close. That means there will be a down-shift in price on the ex-date of the dividend at end-March.
Via subsidiary NSITEXE, Inc, Denso has acquired a stake in Californian start-up quadric.io. NSITEXE was established to develop high performance, next generation semiconductor devices for automated driving solutions. quadric’s edge processing units compliment this technology push.
Xingfa announced its major shareholder, Guangxin Aluminium (a wholly-owned Guangdong SASAC vehicle), has acquired 5,000 shares, lifting its stake to 30.001%, triggering a mandatory general offer. The offer price is $5.60, a premium of just 2.94% to last close.
Guangxin, together with certain management of Xingfa, attempted to take Xingfa private at $3.70/share back in 1H17. That scheme failed comprehensively, which was a good outcome for minorities as FY17 net income increased 28%. 1H18 profit was also a 25% improvement over the corresponding period.
The offer price is in line with where Xingfa traded last October and is 23% below the recent peak back in mid-June 2018. It is also 37% below where China Lesso Group Holdings (2128 HK) acquired its 26.3% stake in April last year.
There has to be some behind the scenes play for Xingfa’s shares, and this potentially centres on China Lesso. While a look at CCASS shows Liao Yuqing (an ED in Xingfa) intriguingly moving his entire 48.2mn (11.5% of shares out) outside of CCASS in early December 2018.
OSLO NS is the target of competing tender offers from Euronext NV (ENX FP)andNasdaq Inc (NDAQ US). Euronext owns 5.3% and has irrevocables for 45.2% of OSLO NS shares, for 50.5% total. It launched an Offer to acquire all shares at NOK 145, and just raised that to NOK 158 on February 11, 2019. Nasdaq has irrevocables for 35.2% of OSLO NS shares and has launched an Offer to acquire all OSLO NS shares at NOK 152 per share. Nasdaq’s Offer received the unanimous recommendation of Oslo Børs VPS’s Board when it was announced. The IFA opined that NOK 152 per share is above the top end of what shareholders could expect.
Nasdaq’s undertakings are irrevocable and binding, including in the event of a higher offer. The pre-acceptances further include an obligation on the part of the pre-accepting shareholders not to accept the Euronext Offer. Irrevocables for both bidders have an end date of 31 December 2019, after which they are no longer binding.
Nasdaq, which is conditional on a 90% acceptance level, seems to have the weaker hand since its acceptance threshold condition won’t be met unless Euronext folds its cards and walks away; while Euronext (with a 50.01% acceptance condition) can keep its 50.5% “stake” as long as it gets regulatory approval. Therefore, Nasdaq would need to waive its 90% acceptance condition in order to stay in the game.
The Norwegian Ministry of Finance MoF may resolve this by approving both bidders, provided they reach a super majority acceptance threshold of two-thirds or 90% of shares outstanding (but not less). In this scenario, either party will have enough to block the other from reaching the threshold while the irrevocables are binding.
If the MoF says both parties have approval if they get to whatever super majority the MoF decides or is statutorily permitted to impose, and puts a deadline on getting there of some date after the irrevocable lock-up expiration (say, January 31, 2020), then the formerly locked-up shares are free to go to whichever bidder they chose.
I estimate HLG’s discount to NAV at 41% compared to its one-year average of 38%. The implied stub is right at the 2STD extreme and excluding a brief dip in late April 2018, is at the lowest level since June 2013.
What assets HLG does directly own at the stub level are intertwined with HLP’s own investments. There is therefore, very little to distinguish between the two companies. In addition, HLG has gradually offloaded its HK properties – to HLP no less – further increasing its exposure to China and blurring the lines between HLP and HLG’s business exposure.
HLG has also been increasing its stake in HLP since June 2011, from 48.96% to 57.62% as at 31 Dec 2018. It’s a pretty astute trade to sell a property at book to HLP, then “buy” it back indirectly via increasing its stake in HLP, which trades at 0.6x P/B.
There is no significant catalyst for the NAV discount to narrow. And liquidity does play a role, although HLG’s volume has narrowed the gap to HLP’s in recent years. Nevertheless, a ~40% discount to NAV is extreme for a straightforward, passive, single stock holdco structure.
Athaporn Arayasantiparb, CFA discussed his one-on-one with Intouch. Of interest is his discussions on the stub assets specifically InVent, a venture capital arm and considered the market leader in growth stage funding. In 2018, InVent invested Bt30m into ytm thailand, an end-to-end digital marketing and feedback platform, which used the proceeds to buy offline digital access; Bt40m into Choco CRM, a CRM and POS (point of sales) platform for SME; and Bt40m into E Studio, a B2C lifestyle portal.
Other investments discussed by Athaporn, at the stub level, include Wongnai and HSN. Wongnai is an online foodie guide and one of their largest investments to date, boasted 8m active users, 120m page views, 200,000 patron restaurants, and 10m pictures posted so far. Revenue grew 60% in 2018 to Bt250mn, and is expected to grow at 50%. HSN is an online shopping venture between Intuch and Hyundai, which managed to breakeven on a net basis.
The overall value of these investments, and the estimated 11 other start-up companies under InVent, is very much a “finger in the air” calculation. They may exceed the value of Intouch’s 41.1% stake in Thaicom Pcl (THCOM TB), but that still would be just 1% of NAV.
I estimate Intouch’s discount to NAV at ~21% (vs. the one-year average of 27%), having significantly narrowed in response to rumours of a purported sale of Thaicom (discussed in StubWorld: Intouch Gains On Possible Sale of Thaicom). At the time, I thought Intouch had run its course, noting Intouch had denied any definitive approach/agreement.
New Street Research also met with AIS and remains cautious on this telco in the current slowing environment ahead of delayed elections.
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.
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
It has been a fairly quiet week in the ECM space.
We are hearing that Douyu (game streaming like HUYA Inc (HUYA US), Tiger Brokers (backed by Jim Rogers), Genshuixue (education) have either filed confidentially or seeking to list in the US.
In Hong Kong, Bank of Guizhou is said to be planning for a US$1bn IPO and we heard that Zhejiang New Century Hotel Management is pre-marketing for its US$200m IPO. The PHIP has already been filed on the Hong Kong Exchange.
Our overall accuracy rate is 72.1% for IPOs and 63.8% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
Reliance General Insurance (re-filed, India)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
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Rakuten (4755 JP) has been under pressure recently from Amazon (AMZN US) and other competitors in its core online mall business and now seems to be giving more attention once again to the original Rakuten Ichiba, including a plan to cut shipping fees, although this also looks like a face-saving way to cut merchant commissions.
Rakuten is also investing in new logistics infrastructure to try and match the customer services levels of Amazon and ZOZO (3092 JP).
As part of this effort, Rakuten just announced a 9.9% stake in a logistics firm called Kantsu. The deal is part of Rakuten’s strategy to accelerate the move towards consolidated shipments of orders on Rakuten Ichiba – one of the key weaknesses of the Rakuten model compared to Amazon and Zozo.
Rakuten also just announced its year-end results this week: Domestic GMVs rose 11.2% to ¥3.4 trillion for the year ending December 2018. While GMVs rose and revenue increased by 9.2% to ¥426 billion, operating income on domestic e-commerce fell 17.7% to ¥61.3 billion partly due to higher logistics costs. For 4Q2018, operating income fell 27.3%.
LG Uplus Corp (032640 KS) actually pays ₩800bil (not ₩1tril) for the controlling stake of CJ Hello (037560 KS) from CJ ENM (035760 KS). LG Uplus gets not all of the shares owned by CJ ENM. It gets a total 38,723,433 shares. This is 50% + 1 share. Cost per share is ₩20,659. This is a 107% premium.
I suggested a long/short trade on LGU+/CJH starting this Monday on the grounds that their MC ratio should revert back to above 10. This trade is paying off very handsomely now. Current yield stands at 10.5%. But I wouldn’t close this position yet.
CJ ENM still owns nearly 4% CJH stake. SKT owns 8.61%. Neither of them has any reason to retain these shares. LG Uplus doesn’t seem to be interested in getting any of these additional shares. This means one thing. It is very likely that CJH will suffer huge stock overhang concerns.
Not only that, merger between them is inevitable. The LGU+/CJH MC ratio should be reverted back to 10. The MC ratio is now at 8.4. We still have more room on this. I expect it to reach at least near 9 level in very near future. I’d hold onto this position until then.
Anheuser Busch Inbev Sa/Nv (ABI BB), the world’s largest brewer, is looking to list its Asian operations in order to lighten its debt burden. The listing will probably be in Hong Kong and the company could raise around US$5bn at a valuation of around US$70bn, as per media reports, which will make it one of the largest listings for 2019. Earlier this month, the company picked JPM and MS to lead the deal.
When listed, the company will be the third biggest brewer in China and the largest in South Korea and Australia.
While we have to wait for the application proof to be filed later this year to get more details on the operations, in this insight I’ll take a early look at the Asian operations using the data already available in the parent’s annual and quarterly reports. I’ll primarily address where the business is now and how it has shaped up over the past few years.
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LG Uplus Corp (032640 KS) actually pays ₩800bil (not ₩1tril) for the controlling stake of CJ Hello (037560 KS) from CJ ENM (035760 KS). LG Uplus gets not all of the shares owned by CJ ENM. It gets a total 38,723,433 shares. This is 50% + 1 share. Cost per share is ₩20,659. This is a 107% premium.
I suggested a long/short trade on LGU+/CJH starting this Monday on the grounds that their MC ratio should revert back to above 10. This trade is paying off very handsomely now. Current yield stands at 10.5%. But I wouldn’t close this position yet.
CJ ENM still owns nearly 4% CJH stake. SKT owns 8.61%. Neither of them has any reason to retain these shares. LG Uplus doesn’t seem to be interested in getting any of these additional shares. This means one thing. It is very likely that CJH will suffer huge stock overhang concerns.
Not only that, merger between them is inevitable. The LGU+/CJH MC ratio should be reverted back to 10. The MC ratio is now at 8.4. We still have more room on this. I expect it to reach at least near 9 level in very near future. I’d hold onto this position until then.
Anheuser Busch Inbev Sa/Nv (ABI BB), the world’s largest brewer, is looking to list its Asian operations in order to lighten its debt burden. The listing will probably be in Hong Kong and the company could raise around US$5bn at a valuation of around US$70bn, as per media reports, which will make it one of the largest listings for 2019. Earlier this month, the company picked JPM and MS to lead the deal.
When listed, the company will be the third biggest brewer in China and the largest in South Korea and Australia.
While we have to wait for the application proof to be filed later this year to get more details on the operations, in this insight I’ll take a early look at the Asian operations using the data already available in the parent’s annual and quarterly reports. I’ll primarily address where the business is now and how it has shaped up over the past few years.
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.
LG Uplus Corp (032640 KS) actually pays ₩800bil (not ₩1tril) for the controlling stake of CJ Hello (037560 KS) from CJ ENM (035760 KS). LG Uplus gets not all of the shares owned by CJ ENM. It gets a total 38,723,433 shares. This is 50% + 1 share. Cost per share is ₩20,659. This is a 107% premium.
I suggested a long/short trade on LGU+/CJH starting this Monday on the grounds that their MC ratio should revert back to above 10. This trade is paying off very handsomely now. Current yield stands at 10.5%. But I wouldn’t close this position yet.
CJ ENM still owns nearly 4% CJH stake. SKT owns 8.61%. Neither of them has any reason to retain these shares. LG Uplus doesn’t seem to be interested in getting any of these additional shares. This means one thing. It is very likely that CJH will suffer huge stock overhang concerns.
Not only that, merger between them is inevitable. The LGU+/CJH MC ratio should be reverted back to 10. The MC ratio is now at 8.4. We still have more room on this. I expect it to reach at least near 9 level in very near future. I’d hold onto this position until then.
Anheuser Busch Inbev Sa/Nv (ABI BB), the world’s largest brewer, is looking to list its Asian operations in order to lighten its debt burden. The listing will probably be in Hong Kong and the company could raise around US$5bn at a valuation of around US$70bn, as per media reports, which will make it one of the largest listings for 2019. Earlier this month, the company picked JPM and MS to lead the deal.
When listed, the company will be the third biggest brewer in China and the largest in South Korea and Australia.
While we have to wait for the application proof to be filed later this year to get more details on the operations, in this insight I’ll take a early look at the Asian operations using the data already available in the parent’s annual and quarterly reports. I’ll primarily address where the business is now and how it has shaped up over the past few years.
Three months ago, Minebea Mitsumi (6479 JP) announced that it would launch a Tender Offer for U Shin Ltd (6985 JP) and it would take just under three months until the approvals were received and it could officially start the Tender Offer process. It took a couple of weeks longer, as proposed by U Shin’s update on 30 January, which indicated anti-trust approvals had been received.
My first conclusion in November was that this was the “riskiest” straight-out non-hostile TOB I had seen in a while.
This is a wide-open deal. The buyer owns 1 round lot. The largest holder is an activist. The deal is being proposed at not such a super-high multiple (8x forecast FY earnings for the year ending 31 December 2018) and 4.9x EV/EBITDA. It is 3.7-4.0x when taking into account the 67 different equity positions they held at the end of last year, some of which they have recently liquidated.
In the interim, the activist dropped their position in half (necessitating a filing of a Large Shareholder Report for going below 5% – and they may have completely liquidated by now), and an investment bank has gone above 5% since then.
data source: investing.com
The financial advisory “valuations” at the time were more than questionable. A discussion of the valuation levels can be found in the previous insight (I don’t need to repeat them here, just go there).
Today, the company raised its OP and Ordinary Income forecasts for the year ended 31 December 2018, but lowered its Net Income forecast by 98.8% due to writeoffs at many overseas facilities. Then the promptly reported earnings (also only in Japanese) a few seconds later (only available in Japanese).
Op is now forecast to drop 2% in 2019 vs 2018, but the 2019 forecast is 11+% higher than the 2018 forecast was just yesterday. The forecast for Net Income is ¥99.35/share, putting the deal at <10x forecast PER. And even less if one considers that the cross-shareholdings could be reduced.
The New News
Today Minebea Mitsumi announced the launch of its Tender Offer, to commence tomorrow, at the same price as originally planned (¥985/share), and to run for 38 days.
This deal is still perplexing to me. It’s easy enough from an industrial standpoint. I mean, why not buy relatively cheap assets then see if you can cross-sell or assume some attrition. But for investors… I wonder why they put up with this.
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KCL-SPH again extended the closing date of the offer from 18 February to 4 March 2019. M1’s shares are trading at S$2.04 per share, marginally below the VGO price of S$2.06 per share. We believe that the KCL-SPH should get the valid acceptances to complete the delisting and wholly own M1.
Musashino Bank (8336 JP) was one of the last regional banks to announce 3Q FY3/2019 results, and they were a nasty surprise: a consolidated net loss for the nine months to 31 December 2018, caused by heavy reserving in Q3 (October-December 2018) against the bank’s exposure to the troubled Akebono Brake Industry Co (7238 JP) . While the bank has slashed its full-year net profit guidance from ¥11.1 billion to ¥4.5 billion, this would still require an heroic level of profits in Q4 which the bank has never before achieved. The share price has fallen over 31% in the last twelve months. Valuations at current levels are still high (FY3/2019 PER is 17.6x) and we consider the share price to be vulnerable to further weakness. Caveat emptor (May the buyer beware) !
Softbank has announced a buyback of ¥600bn – its largest buyback ever. At ~¥10,500/share it is 57mm shares or 5.2% of shares out. At ¥12,000/share it is 50mm shares or 4.6%. The “official” float is about 68.7% or 750mm shares. However, by Travis’ estimate, only 44.5% of shares out or 488mm shares are Real World Float. 57mm shares out of 488mm shares is 11.7%. That is a non-negligible portion of float, and will mean significant reduction in foreign active management exposure to Softbank, or significant reduction in individual investor exposure to Softbank, or both.
Travis Lundy wrote the buyback will have further impact on the stock price simply because of flow dynamics. It isn’t easy to buy 10% of float. And we should remember that the BOJ is still buying ¥100bn+ of Softbank shares per year as it continues to buy ¥6trln of ETFs per year. And given the stock will be in the top momentum ranks of large cap Japan, Travis expects momentum flows will join the party adding more inflow.
For trading types, he thought Softbank was a buy, relatively and on an absolute basis. The Japan market is CHEAP on a current year and forecast year ahead, which suggests either the market is “wrong” or economic headwinds are picking up to a greater extent than pundits suggest.
The pre-conditons have been fulfilled and Delta Electronics (2308 TT)will now move to a tender offer. But there exist a number of unknowns for the transaction, which could delay the Offer timetable.
Although the initial wording in the August conditional voluntary tender offer announcement suggests the offer will be for ALL shares, there is talk there may be a maximum acceptance condition, therefore possible clawback for shareholders tendering. A rumoured 60% maximum translates to a minimum 50% pro-rata, potentially 67% if the family tenders 40% and the rest of holders tender half.
It is not clear whether the FY18 dividend will be netted. DELTA has announced two sets of quarterly results since the initial Offer announcement and it would be unjust for DEISG to net off any dividend. It would likely suit the family to receive the dividend. The Offer is pitched at a 1.79% premium to the then-current price. If the dividend is netted, then the Offer price will, in fact, be at a discount to last close as of announcement. DELTA will announce its full-year dividend tomorrow (18th February) and the terms of the deal may also be announced the same day. The AGM to ratify the dividend will take place around the 2 April.
Currently trading at terms or a gross/annualised spread of 4.6/21%, if including a Bt3.30 FY18 dividend and mid-May payment. That looks overly tight in the face of timing delays and actual consideration to be paid if indeed it comes out to be a partial offer.
Three months ago, Minebea Mitsumi (6479 JP) announced it would launch a Tender Offer for U Shin and it would take just under three months until the approvals were received and it could officially start the Tender Offer process. The background to the Tender Offer was discussed in Minebea Mitsumi Launches Offer for U-SHIN in early November. Travis first conclusion in November was that this was the “riskiest” straight-out non-hostile TOB he had seen in a while. Minebea Mitsumi has now announced the launch of its Tender Offer, at the same price as originally planned (¥985/share).
This deal is still perplexing to Travis. It’s easy enough from an industrial standpoint. Why not buy relatively cheap assets then see if you can cross-sell or assume some attrition? But for investors, he wonders why they put up with this. The process of reaching a “fair” valuation is, by definition, conflicted. It cannot NOT be conflicted. And just because some independent directors who don’t have skin in the game, and may have no clue about corporate valuation methodology, or fair market price, agree to a price that the acquiree’s managers, not wanting to lose their jobs, agree to doesn’t make this “fair.”
The tender offer period is QUITE long. Most tender offers are 30 days in order to give time for people to tender or “offer sufficient time for a rival bidder.” This time Travis thinks it is longer so people can take their time and get bored and tender.
Travis would sell shares now and use the balance sheet elsewhere until an activist shows his hand. If no activist, this deal is not an interesting one.
After multiple news outlets reported that LG Uplus Corp (032640 KS) will finalise a transaction with the CJ Hello, a deal was done at ₩800bn (instead of ₩1tn speculated), and only 50%+1 share instead of the full 53.92% stake held by CJ ENM (035760 KS). The acquisition price of ₩20,659 is a 107% premium to last price and translates to a EV/EBITDA multiple of 6.6x.
This is a straight stock acquisition deal. CJ Hello will be a subsidiary of LG Uplus and will continue to exist as a separate listed company. CJ ENM still owns nearly 4% CJH stake. SKT owns 8.61%.
LG Group is publicly saying that they have no plan of an immediate merger, which means neither party requires shareholder approval. But the transaction is subject to local regulator approval – MSIT and Korea FTC. MSIT approval is not an issue. FTC rejected the SKT-CJH deal last time. This time, the FTC’s head Kim Sang-jo is hinting that this deal will go through.
LG Uplus’ acquisition of CJ Hellovision is likely to further accelerate the consolidation of the Korean cable TV/media sector. KT Corp (030200 KS)is now likely to aggressively try to acquire cable-operator D’Live. SK Telecom (017670 KS) has shown some interests in acquiring Tbroad cable company.
Glow announced that the Energy Regulatory Commission (“ERC”) has resolved to approve the merger with GPSC, provided Glow sells its Glow SPP1 plant before or at the same time as the merger. A number of conditions were also attached to some of the remaining power plants. No price has been disclosed for the 69.11% stake in Glow, ex the SPP1 plant, but it will be in reference to the Bt94.892 Offer price previously announced, net of expenses with selling SPP1 and the reduced synergy thereon.
Given SPP1 is an immaterial contributor (~5%) to Glow, in terms of revenue, it can be argued that GPSC may make only a minimal change to the Offer price. Still, even a 5% downward adjustment would equate to a price below where Glow is trading.
The downside is ~8%, if using the closing price on the 11 October. Glow/GPSC/Engie want this deal to complete. I think the final Offer price will come in very close to that initially proposed. But I would not buy through Bt90, preferring to pick up shares at Bt89 or below. The merger is expected to be completed by next month, triggering a mandatory tender offer, which may take an additional 2 months or so to complete.
Sigma Healthcare released a 2-page Market Update saying the four month Business Review had identified A$100mm of annual cost savings, confirmed the FY19 EBIT guidance of A$75mn, and confirmed the FY20 EBITDA guidance of $55-60mm. The business review sees 10% underlying EBITDA growth from FY20 to FY23 so that after cost savings are included, FY23 sees the same EBITDA as FY19 [i.e. almost A$90mm].
On a standalone basis, at the end of FY22 looking towards FY23, at 8x EV/EBITDA, it looks like there is something like 60-80% upside. EBITDA might be worth even more than A$90mm in FY23 as long as the DCs can run at high capacity. And at mid-high teens PER that would be a pretty great result. They won’t get that 60-80% upside from now doing a deal with API, but they won’t have to wait for 4 years to get it either.
Travis expects another A$0.15 of value would do it. He doesn’t think they need A$0.20. The shares bounced and traded around A$0.80-1.00 from mid summer 2017 to mid-summer 2018. But that is when EBIT was supposed to fall to A$90mm. And that was nearer-term. Now we have a forecast of EBITDA of A$90mm and that is 3+ years out.
Travis thinks this could get done at 0.42-0.45 shares of API and A$0.23 of cash, given that would probably impact API shares a little bit, that would end up being a 10-15% bump vs original terms, but all told that would be pretty good – and almost a double from undisturbed.
KDDI Corp (9433 JP) announced its intention to conduct a Tender Offer for Kabu.com through a made-for-purpose SPC. The deal is not terribly different in scope than the one discussed in KDDI Deal for Kabu.com (8703 JP) Coming? about two weeks ago.
The Tender Offer is to purchase a minimum of 45,758,400 shares at ¥559/share, which is a 5.67% premium to last close and a 46.3% premium to the undisturbed price of 23 January 2019. Obtaining the minimum would get the combination of KDDI and MUFJ Securities (which currently holds 52.96% of the shares outstanding, and will not tender) to 66.67% which would allow the combination to do a Two Step Squeezeout, which KDDI states in the document that it intends to do.
Anti-trust and regulatory approvals are required (Travis can’t imagine any issues), and KDDI expects that the Tender Offer will commence in late April. This looks pretty easy as a deal, with few impediments. A rival bid is unlikely – KDDI has a headstart with the shares of MUFG Bank which have committed to the deal.
This is going to be boring. One can make markets, carry it, or allocate capital to something more interesting. However Kabu.com’s ¥6/share dividend for end March 2019 WILL BE PAID according to a press release by Kabu.com today after the close. That means there will be a down-shift in price on the ex-date of the dividend at end-March.
Via subsidiary NSITEXE, Inc, Denso has acquired a stake in Californian start-up quadric.io. NSITEXE was established to develop high performance, next generation semiconductor devices for automated driving solutions. quadric’s edge processing units compliment this technology push.
Xingfa announced its major shareholder, Guangxin Aluminium (a wholly-owned Guangdong SASAC vehicle), has acquired 5,000 shares, lifting its stake to 30.001%, triggering a mandatory general offer. The offer price is $5.60, a premium of just 2.94% to last close.
Guangxin, together with certain management of Xingfa, attempted to take Xingfa private at $3.70/share back in 1H17. That scheme failed comprehensively, which was a good outcome for minorities as FY17 net income increased 28%. 1H18 profit was also a 25% improvement over the corresponding period.
The offer price is in line with where Xingfa traded last October and is 23% below the recent peak back in mid-June 2018. It is also 37% below where China Lesso Group Holdings (2128 HK) acquired its 26.3% stake in April last year.
There has to be some behind the scenes play for Xingfa’s shares, and this potentially centres on China Lesso. While a look at CCASS shows Liao Yuqing (an ED in Xingfa) intriguingly moving his entire 48.2mn (11.5% of shares out) outside of CCASS in early December 2018.
OSLO NS is the target of competing tender offers from Euronext NV (ENX FP)andNasdaq Inc (NDAQ US). Euronext owns 5.3% and has irrevocables for 45.2% of OSLO NS shares, for 50.5% total. It launched an Offer to acquire all shares at NOK 145, and just raised that to NOK 158 on February 11, 2019. Nasdaq has irrevocables for 35.2% of OSLO NS shares and has launched an Offer to acquire all OSLO NS shares at NOK 152 per share. Nasdaq’s Offer received the unanimous recommendation of Oslo Børs VPS’s Board when it was announced. The IFA opined that NOK 152 per share is above the top end of what shareholders could expect.
Nasdaq’s undertakings are irrevocable and binding, including in the event of a higher offer. The pre-acceptances further include an obligation on the part of the pre-accepting shareholders not to accept the Euronext Offer. Irrevocables for both bidders have an end date of 31 December 2019, after which they are no longer binding.
Nasdaq, which is conditional on a 90% acceptance level, seems to have the weaker hand since its acceptance threshold condition won’t be met unless Euronext folds its cards and walks away; while Euronext (with a 50.01% acceptance condition) can keep its 50.5% “stake” as long as it gets regulatory approval. Therefore, Nasdaq would need to waive its 90% acceptance condition in order to stay in the game.
The Norwegian Ministry of Finance MoF may resolve this by approving both bidders, provided they reach a super majority acceptance threshold of two-thirds or 90% of shares outstanding (but not less). In this scenario, either party will have enough to block the other from reaching the threshold while the irrevocables are binding.
If the MoF says both parties have approval if they get to whatever super majority the MoF decides or is statutorily permitted to impose, and puts a deadline on getting there of some date after the irrevocable lock-up expiration (say, January 31, 2020), then the formerly locked-up shares are free to go to whichever bidder they chose.
I estimate HLG’s discount to NAV at 41% compared to its one-year average of 38%. The implied stub is right at the 2STD extreme and excluding a brief dip in late April 2018, is at the lowest level since June 2013.
What assets HLG does directly own at the stub level are intertwined with HLP’s own investments. There is therefore, very little to distinguish between the two companies. In addition, HLG has gradually offloaded its HK properties – to HLP no less – further increasing its exposure to China and blurring the lines between HLP and HLG’s business exposure.
HLG has also been increasing its stake in HLP since June 2011, from 48.96% to 57.62% as at 31 Dec 2018. It’s a pretty astute trade to sell a property at book to HLP, then “buy” it back indirectly via increasing its stake in HLP, which trades at 0.6x P/B.
There is no significant catalyst for the NAV discount to narrow. And liquidity does play a role, although HLG’s volume has narrowed the gap to HLP’s in recent years. Nevertheless, a ~40% discount to NAV is extreme for a straightforward, passive, single stock holdco structure.
Athaporn Arayasantiparb, CFA discussed his one-on-one with Intouch. Of interest is his discussions on the stub assets specifically InVent, a venture capital arm and considered the market leader in growth stage funding. In 2018, InVent invested Bt30m into ytm thailand, an end-to-end digital marketing and feedback platform, which used the proceeds to buy offline digital access; Bt40m into Choco CRM, a CRM and POS (point of sales) platform for SME; and Bt40m into E Studio, a B2C lifestyle portal.
Other investments discussed by Athaporn, at the stub level, include Wongnai and HSN. Wongnai is an online foodie guide and one of their largest investments to date, boasted 8m active users, 120m page views, 200,000 patron restaurants, and 10m pictures posted so far. Revenue grew 60% in 2018 to Bt250mn, and is expected to grow at 50%. HSN is an online shopping venture between Intuch and Hyundai, which managed to breakeven on a net basis.
The overall value of these investments, and the estimated 11 other start-up companies under InVent, is very much a “finger in the air” calculation. They may exceed the value of Intouch’s 41.1% stake in Thaicom Pcl (THCOM TB), but that still would be just 1% of NAV.
I estimate Intouch’s discount to NAV at ~21% (vs. the one-year average of 27%), having significantly narrowed in response to rumours of a purported sale of Thaicom (discussed in StubWorld: Intouch Gains On Possible Sale of Thaicom). At the time, I thought Intouch had run its course, noting Intouch had denied any definitive approach/agreement.
New Street Research also met with AIS and remains cautious on this telco in the current slowing environment ahead of delayed elections.
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.
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
It has been a fairly quiet week in the ECM space.
We are hearing that Douyu (game streaming like HUYA Inc (HUYA US), Tiger Brokers (backed by Jim Rogers), Genshuixue (education) have either filed confidentially or seeking to list in the US.
In Hong Kong, Bank of Guizhou is said to be planning for a US$1bn IPO and we heard that Zhejiang New Century Hotel Management is pre-marketing for its US$200m IPO. The PHIP has already been filed on the Hong Kong Exchange.
Our overall accuracy rate is 72.1% for IPOs and 63.8% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
Reliance General Insurance (re-filed, India)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
Rakuten (4755 JP) has been under pressure recently from Amazon (AMZN US) and other competitors in its core online mall business and now seems to be giving more attention once again to the original Rakuten Ichiba, including a plan to cut shipping fees, although this also looks like a face-saving way to cut merchant commissions.
Rakuten is also investing in new logistics infrastructure to try and match the customer services levels of Amazon and ZOZO (3092 JP).
As part of this effort, Rakuten just announced a 9.9% stake in a logistics firm called Kantsu. The deal is part of Rakuten’s strategy to accelerate the move towards consolidated shipments of orders on Rakuten Ichiba – one of the key weaknesses of the Rakuten model compared to Amazon and Zozo.
Rakuten also just announced its year-end results this week: Domestic GMVs rose 11.2% to ¥3.4 trillion for the year ending December 2018. While GMVs rose and revenue increased by 9.2% to ¥426 billion, operating income on domestic e-commerce fell 17.7% to ¥61.3 billion partly due to higher logistics costs. For 4Q2018, operating income fell 27.3%.
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Anheuser Busch Inbev Sa/Nv (ABI BB), the world’s largest brewer, is looking to list its Asian operations in order to lighten its debt burden. The listing will probably be in Hong Kong and the company could raise around US$5bn at a valuation of around US$70bn, as per media reports, which will make it one of the largest listings for 2019. Earlier this month, the company picked JPM and MS to lead the deal.
When listed, the company will be the third biggest brewer in China and the largest in South Korea and Australia.
While we have to wait for the application proof to be filed later this year to get more details on the operations, in this insight I’ll take a early look at the Asian operations using the data already available in the parent’s annual and quarterly reports. I’ll primarily address where the business is now and how it has shaped up over the past few years.
Three months ago, Minebea Mitsumi (6479 JP) announced that it would launch a Tender Offer for U Shin Ltd (6985 JP) and it would take just under three months until the approvals were received and it could officially start the Tender Offer process. It took a couple of weeks longer, as proposed by U Shin’s update on 30 January, which indicated anti-trust approvals had been received.
My first conclusion in November was that this was the “riskiest” straight-out non-hostile TOB I had seen in a while.
This is a wide-open deal. The buyer owns 1 round lot. The largest holder is an activist. The deal is being proposed at not such a super-high multiple (8x forecast FY earnings for the year ending 31 December 2018) and 4.9x EV/EBITDA. It is 3.7-4.0x when taking into account the 67 different equity positions they held at the end of last year, some of which they have recently liquidated.
In the interim, the activist dropped their position in half (necessitating a filing of a Large Shareholder Report for going below 5% – and they may have completely liquidated by now), and an investment bank has gone above 5% since then.
data source: investing.com
The financial advisory “valuations” at the time were more than questionable. A discussion of the valuation levels can be found in the previous insight (I don’t need to repeat them here, just go there).
Today, the company raised its OP and Ordinary Income forecasts for the year ended 31 December 2018, but lowered its Net Income forecast by 98.8% due to writeoffs at many overseas facilities. Then the promptly reported earnings (also only in Japanese) a few seconds later (only available in Japanese).
Op is now forecast to drop 2% in 2019 vs 2018, but the 2019 forecast is 11+% higher than the 2018 forecast was just yesterday. The forecast for Net Income is ¥99.35/share, putting the deal at <10x forecast PER. And even less if one considers that the cross-shareholdings could be reduced.
The New News
Today Minebea Mitsumi announced the launch of its Tender Offer, to commence tomorrow, at the same price as originally planned (¥985/share), and to run for 38 days.
This deal is still perplexing to me. It’s easy enough from an industrial standpoint. I mean, why not buy relatively cheap assets then see if you can cross-sell or assume some attrition. But for investors… I wonder why they put up with this.
LG Uplus’ acquisition of CJ Hellovision is likely to further accelerate the consolidation of the Korean cable TV/media sector. KT Corp (030200 KS) is now likely to aggressively try to acquire D’Live cable company. SK Telecom (017670 KS) has shown some interests in acquiring Tbroad cable company.
Potential M&A Valuation Price for Tbroad- If we assume our base case EV/EBITDA valuation multiple to be 5.5x for Tbroad and assume annualized EBITDA of 181.8 billion won in 2018, this would suggest an implied EV of 1.0 trillion won. After adjusting for net cash, the implied market cap would be 1.2 trillion won for Tbroad. Thus, if Taekwang Industrial decides to sell just over 50% stake in Tbroad, this could potentially be worth about 600 billion won. Taekwang Industrial currently has a market cap of 1.7 trillion won so its stake (53.9% stake in Tbroad) could be nearly 35% the value of its entire market cap.
The long battle to acquire CJ Hellovision has been completed (with the final stamp of approval from FTC). This move should help to consolidate the cable TV industry with SK Telecom and KT potentially battling out for either Tbroad or D’Live. In the midst of these uncertainties, there could be some further positive momentum for Taekwang Industrial (003240 KS), the majority owner of Tbroad.
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