Event-Driven

In this briefing:

1. GrainCorp: Demerger Underpins the Share Price but a Second-Best Option
2. APE-AHG Merger: Value Accretive but AHG Shareholders Need Improved Terms
3. Japan Post Insurance – The ToSTNeT-3 Buyback
4. Last Week in Event SPACE: Altaba, Nexon, MYOB, Panalpina, Ezion, Naspers, Melco
5. Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil

1. GrainCorp: Demerger Underpins the Share Price but a Second-Best Option

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).

2. APE-AHG Merger: Value Accretive but AHG Shareholders Need Improved Terms

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.

3. Japan Post Insurance – The ToSTNeT-3 Buyback

Japan Post Insurance (7181 JP)announced on April 4th after the close that Japan Post Holdings (6178 JP) would offer 168.1mm shares of Japan Post Insurance to the public, with another 16.9mm shares offered in an over-allotment. This is big news as it is almost 31% of the shares outstanding of Japan Post Insurance and will dramatically increase its float. 

One can say it is a big deal – ¥450bn (~US$4bn) of stock and at announcement it was equivalent to the last 477 days of traded volume. More importantly, this ALMOST like an IPO in that the placement is almost 3x the original IPO size (66mm shares) and will get a lot of foreign investor attention. 

In addition, JPI announced it would conduct a buyback for up to 50 million shares (with a spending limit of ¥100 billion) on the ToSTNeT-3 off-hours auction-like trading system on days between April 8th and April 12th. 

In its announcement of the decision to sell shares, Japan Post Holdings said that if JPI did indeed conduct the buyback, it might participate, in which case the size of the offering “may decrease.”

The stock rallied very sharply Friday, rising 3% at the open and ending the morning session up 3% but rising much further in the afternoon to end up 9.9%. 

After the close Friday, JPI announced it would spend ¥100bn to buy up to 37.411mm shares pre-open on ToSTNeT-3 on Monday morning. That is 6.2% of shares outstanding. 

Understanding the dynamics and the rules here AND about the offering may tell you something about how this will work. 

4. Last Week in Event SPACE: Altaba, Nexon, MYOB, Panalpina, Ezion, Naspers, Melco

Last Week in Event SPACE …

• Here it is. The end – the culmination of years of effort and high balance sheet usage by hedge funds. Altaba Inc (AABA US) is going out with a whimper plus a little upside.
• Reportedly plans for the sale of NHC have been abandoned with a focus on selling its Nexon Co Ltd (3659 JP)gaming unit.
• That’s a wrap, as Manikay blinks and concedes to KKR’s Offer for MYOB Group Ltd (MYO AU).
• Ezion Holdings (EZI SP) is tendered a necessary lifeboat from Yinson Holdings (YNS MK).
• We now have an agreed deal for Panalpina Welttransport Holding (PWTN SW) supported by the Ernst Göhner Foundation, the major activist shareholders, and Panalpina management.
• Naspers Ltd (NPN SJ)‘s discount to NAV narrows as it teases out more information on spinning-off and separately listing Tencent Holdings (700 HK).
• Melco International Development (200 HK) is potentially mispriced against Melco Resorts & Entertainment (MLCO US) after the release of FY18 earnings.

• Plus other events, CCASS movements and upcoming key dates for M&A transactions.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events – or SPACE – in the past week)

Altaba Inc (AABA US) (Mkt Cap: $42bn; Liquidity: $452mn)

Altaba will sell or distribute, in stages, its remaining net assets to shareholders, with a “pre-dissolution liquidating distribution to stockholders (in cash, Alibaba ADSs or a combination thereof), which Altaba currently expects will be made in the fourth quarter of 2019 and estimates will be in an amount between $52.12 and $59.63/share in cash and/or Alibaba ADSs (which estimates assume, among other things, an Alibaba Share price realized on sale and, if applicable, an Alibaba share value at the time of distribution, of $177.00/Alibaba share).”

• As p55 of the preliminary proxy makes clear, based on the same US$177/share assumption of value realized or distributed per Alibaba share held, the total distributed would be in a range of $76.72 and $79.72 based on some other assumptions.
• A larger portion of the remaining amount could take 12 months to arrive, and there could be other residual portions which will take longer (years), as discussed in the proxy and call transcript.
• It looks like there is upside as the stock closed at US$72.76 (at the time of the insight). But there is less than you think simply because it will take time to get out of it. And discount rates of the first portion may be low, but discount rates applied to the later payments post-delisting and post court workout for the Holdback Amount could be higher.
• Travis Lundy has opinions on what to do once you start getting into the arb risks. Do read his insight.

(link to Travis’ insight: ALTABA UNWINDING – Not Much Juice, and Considerably Different Skew)

Nexon Co Ltd (3659 JP) (Mkt Cap: $14bn; Liquidity: $50mn)

Sanghyun Park discussed Nexon sale after the FT reported bankers has stopped plans to sell the holding company NXC. The sale of NXC is probably the simplest exit path for Kim Jung-ju as it would be a more attractive tax outcome than selling Nexon Japan outright.

• But there’s a lot of other stuff in NXC that suitors don’t want to, which ideally should be sold before selling NXC. There’s also the issue of whether a tender offer would be required whether the sale of NXC or Nexon – Travis concludes an offer would be required while Sanghyun does not.

• Korean local news outlet reported that Tencent Holdings (700 HK)‘s US$6bn bond issuance may be a fund raising for a Nexon takeover. Still, South Korea would prefer keep Nexon’s ownership domestic, which may favour Kakao Games (1404796D KS) or PE outfit MBK.

(link to Sanghun’s insight: Nexon Sale: Key Questions at This Point & Most Realistic Answers)

Summit Ascent Holdings (102 HK) (Mkt Cap: $270mn; Liquidity: $1mn)

Summit Ascent announced that First Steamship (the major shareholder) and Kuo Jen Hao (chairman) are in talks to sell their entire shareholdings. No numbers were disclosed. This stake sale would not trigger an MGO and there was no reference to the release of an announcement pursuant to the Codes on Takeovers and Mergers and Share Buy-Backs in Hong Kong. Shares are up 35%.

• Summit is trading at a trailing PER of 267x. CapIQ forecasts point to a threefold increase in earnings in FY19, although I would advise caution on those numbers given the tight cluster of target prices; historically, target prices for Summit have been wide of the mark.
• First Steamship bought in at $1.06 in December 2017, around the same price when this announcement was made. Should this sale complete, this would result in the third time the shares of the major shareholder have changed hands. This looks like a great opportunity to exit.

(link to my insight: Summit Ascent’s Slippery Slope)

MYOB Group Ltd (MYO AU) (Mkt Cap: $1.4bn; Liquidity: $10mn)

On the 20th March, MYO announcing receipt of a letter from KKR saying that the A$3.40 price was their “best and final offer”, making it clear under Truth in Takeovers language that Manikay was not going to get a higher price out of them. Manikay continued to buy shares on the 20th and the 21st, getting to 16.16% of the company as filed on the 22nd.

• On Monday 1 April, MYOB announced a supplemental disclosure to the Scheme documents noting KKR’s final intention, and that the directors continued to unanimously recommend the Scheme.
• Mid-week, Manikay caved and said intends to vote all its shares for the upcoming Scheme, subject to there being no proposal that we consider to be superior prior to the vote. This is now MUCH closer to being a done deal. It will trade tight.

• Travis is a trifle surprised Manikay did not wait a little longer. They were able to increase their stake in the low A$3.30s because of the uncertainty of their intentions, and they could probably have gone close to 20% in the low 3.30s before saying “Yes.” That would have been a welcome extra profit.

(link to Travis’ insight: Manikay Caves and Accepts KKR’s Reduced (And Now Final) Offer)

Ezion Holdings (EZI SP) (Mkt Cap: $219mn; Liquidity: $2mn)

Lifeboat market play Ezion has received a bail-out from Malaysia’s Yinson Holdings (YNS MK) via a capitalisation of debt and option agreement. Ezion remains suspended.

• On the surface, this looks like a bargain for Yinson which is ostensibly taking over Ezion for US$200mn. However, Yinson said that it is still negotiating with the designated lenders of the US$916mn debt on the terms and conditions..
• Yinson’s business risks include contact risk, oil price fluctuations and the level of activities in the O&G industry. These risks do not change should the Ezion proposal complete.
• And offshore support companies face a raft of challenges: Ezra Holdings (EZRA SP) entered bankruptcy in 2017, Pacific Radiance (PACRA SP) has been voluntarily suspended since 28 Feb 2018 as it seeks a way to complete its debt restructuring; while Swiber Holdings (SWIB SP)recently announced its own US$200mn injection from Seaspan Corp. (SSW US), after the company had laboured in judicial management for the past two years.

(link to my insight: Yinson Tenders a Lifeboat for Ezion)

Kingboard Copper Foil Hldgs (KCF SP) (Mkt Cap: $320mn; Liquidity: <$100k)

For the second time in two years parent Kingboard Laminates Holdings (1888 HK) (ultimate parent being Kingboard Holdings (148 HK)) has launched an Offer to fully privatize KCF. This time at SGD 0.60/share vs SGD 0.40 two years ago.

• The last time came on the heels of a long independent review by EY which found KCF had given up profit to the parent through a series of relatively unfair interested party transaction agreements.
• At the end, the Bermudan Court of Appeals went against a Supreme Court decision which had decided that a replacement counterparty decision was prejudiced against minorities, and despite the April 2017 deal being not fair and not reasonable according to the IFA, the parent acquired ~10% (of the 28% it did not own) bringing their stake to 82.3%. A year later the parent acquired another 5.5% bringing them to almost 88%.
• Now an offer at SGD 0.60/share (compared to the Revalued NTA of SGD 0.7086/share from the IFA report (p36) of two years ago gets closer to the mark, but crucially, it is designed to squeeze out minorities with the threat of delisting. Kingboard Laminates only needs 2.05% to oblige a delisting from the SGX. As far as Travis can tell, it would require more – at least 95% of shares – to oblige a mandatory squeezeout of minorities according to Section 102-103 of Bermuda Companies Act.
• Travis thinks this one gets through.

(link to Travis’ insight: Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil)

Ying Li International Real Estate Ltd (YINGLI SP) (Mkt Cap: $260mn; Liquidity: truly tiny)

China Everbright (165 HK) has launched an MGO at SGD 0.14/share for the rest of Ying Li International Real Estate Ltd (YINGLI SP) after last week purchasing the 30.00% stake formerly held by the CEO, bringing its stake to 58.9%.

• The deal is at a negligible premium and is far, far below Tangible Book Value Per Share (which is almost three times the offer price). Given that the acquirer bought a large stake in the company and offered perpetual capital of almost the current market cap at a significant premium to the MGO price, Travis thinks it an unattractive offer.
• It is puzzling as to why the CEO would sell his shares at such a discount, especially when the company and Everbright co-own some of the assets.
• While the stated intention of the Offeror is to keep the stock listed, and the MGO is presented almost as “technical”, it would be enormously to Everbright’s benefit to buy as many shares as they could down at this price level. It will go from being underwater on an equity affiliate stake purchase to having a huge writeup in value if Everbright consolidates the asset post MGO.
• For that, Travis thinks there is a possibility of a bump just to make it more attractive, though the IFA report could come out with a not fair and reasonable result which shows NTA or NAV far, far higher than the Offer Price, which is not yet declared final.

(link to Travis’ insight: Everbright Mandatory Offer for Ying Li Intl Real Estate – Going Cheap)

Briefly …

In a mainly technical piece, I explained why China Three Gorges, China Power New Energy Development Co (735 HK)‘s largest shareholder with 27.1% is currently required to abstain from voting at the forthcoming court meeting, despite the misleading statement in the  announcement that China Three Gorges has given an irrevocable undertaking to vote for the Scheme. (link to my insight: China Three Gorges’ Rebuttable Presumption)

Panalpina Welttransport Holding (PWTN SW) (Mkt Cap: $4.8bn; Liquidity: $27mn)

What was once a tough deal is now an agreed deal. The deal is 2.375 shares of DSV for every share of Panalpina, which as of the previous Friday’s close had a value of CHF 195.80/share which is a 43% premium to the CHF 137/share, where Panalpina was trading the day before DSV’s first bid.

• Panalpina is getting taken out at 28.1x reported 2018 EV/EBITDA multiple (pre-IFRS 16) calculated at a CHF 195.8 price. Panalpina shareholders will own ~23% of DSV shares out if all shares are exchanged and the Ernst Göhner Foundation will be the largest shareholder at ~11%.
• 69.9% of shares have irrevocably agreed to support the Exchange Offer. The customary condition is 80% to make it go through, meaning DSV needs another 10.1% out of the 30% extant (or just over one-third).
• Travis expects there is another 10-15% held by arbitrageurs and 5-7% held by indexers already so this deal looks to me like it is done. He expects the Exchange Offer may settle as early as early-August. If it trades tight, he would get out because DSV is probably priced to a very good level. 

(link to Travis’ insight: DSV Improves Bid and Göhner Foundation and Panalpina Agree)

Lenta Ltd (LNTA LI) (Mkt Cap: $1.7bn; Liquidity: $2mn)

Reuters reported that Alexey Mordashov’s Severgroup had reached an agreement to buy a 41.9% stake, excluding treasury shares, in Lenta from those TPG and European Bank for Reconstruction and Development, for a total of US$721mm, or US$18 per share or US$3.60 per GDR. That implies a price of US$1.75bn for the whole company. This was followed by Lenta announced confirming the cash offer. The Offer Price is an 8.11% premium to the last trade on 26 March – the undisturbed price, and a premium of 9.76% to the 6mo average price of US$3.28 for the GDRs. 

• The first 41.9% are sold conditional on FAS Clearance (presumably Mordashov has cleared this transaction with “the right people”) expected in May 2019, a few easily achieved conditions, and the condition of no sanctions being in play for any of the selling or buying parties. 
• Once cleared – expected in May 2019 – this becomes a straightforward offer with no minimum acceptances meaning that investors can sell shares into the deal or decide not to do so.
• It’s not an attractive offer price, with the possibility of a bump if enough people complain.  If you want to buy and hold, this deal is a put option.

(link to Travis’ insight: Severgroup Puts in a Cheeky Bid for Lenta – TPG and EBRD Bail)

Naspers Ltd (NPN SJ) / Tencent Holdings (700 HK)

Since announcing the intended listing of its international internet assets on Euronext Amsterdam “no earlier than H2 2019” – together with a secondary, inward listing on the Johannesburg Stock Exchange – I calculate Naspers discount to NAV has narrowed to 34.4% from 37.1%, the day before the announcement, placing the current discount a shade below the 12-month average.

• The likelihood of NewCo trading at a tighter discount to where Naspers’ previously (& currently trades) is universally accepted. Naspers will benefit from that reduced discount via its 75% stake; but it is not known where Naspers’ own discount will trade after the spin-off.
• There are indications the management want to see the group discount narrow to 30%, possibly down to the 20% level, which implies a significantly lower discount for Naspers, potentially around 10%. That would seem optimistic as investors focus more on the directly-held Tencent vehicle, and the fact Naspers is a holding company, holding a stake in another holding company.
• Naspers’ discount may drift narrower on the expectation Naspers’ spin-off works its magic. Greater clarity on the option into Naspers or NewCo may provide an additional boost; but conversely, if such an option is limited, there is likely to be disappointment.

(link to my insight: StubWorld: Naspers’ Restructuring Update)

Melco International Development (200 HK) / Melco Resorts & Entertainment (MLCO US)

With Melco trading at a (then) 32% discount to NAV, Curtis Lehnert recommends a set-up trade on a dollar for dollar basis. The current level, as I write, is statistically the most attractive according to the Smartkarma Holdco Tool, sitting at -1.8 standard deviations from the 180 DMA.

• Stub assets are minimal – around 8% of GAV – if excluding gaming licenses, goodwill and trademarks. Net cash is $6.4bn or $4.27/share.
• Those stub assets are still loss-making, after deconsolidating out MLCO, to the tune of $386mn in EBITDA, but that was an improvement on (HK$682mn) figure in FY17.
• Still, Curtis thinks now is the time to enter the trade to take advantage of both the statistical and fundamental supports to the trade. 

(link to Curtis’ insight: TRADE IDEA – Melco (200 HK) Stub: Lose a Little Sleep in Macau)

For the month of March, ten new deals were discussed on Smartkarma with a cumulative deal size of US$22.3bn. This overall number includes Blackstone and Hellman & Friedman’s proposal for Scout24 AG (G24 GR) after the Tender Offer was officially launched in March. This deal was first proposed in mid-January – which was rejected by the board – and subsequently an improved offer was tabled, which was then supported.

The average premium to last close for the new deals announced in March was 18%, while the average for the first quarter of 2019 is 33%.

(link to my insight: M&A: A Round-Up of Deals in March 2019)

• Delta Electronics Thai (DELTA TB)‘s results of the CVTO have been announced.  42.85% of shares tendered, therefore the offeror held 63.78% of shares at the close of the offer. The MSCI downweight occurred at the close Thursday, however shares popped 17.5%.

• Hanergy Thin Film Power (566 HK)‘s Scheme document has been delayed until the 25 April, from the 2 April.

• The Dairy Crest (DCG LN) takeover by Saputo was approved at the Court Meeting and Scheme Meeting yesterday.

• Ap Eagers Ltd (APE AU), Automotive Holdings (AHG AU)‘s largest shareholder, has proposed an all-scrip merger offer. AHG recommends shareholders take no action at this time.

• Glow Energy Pcl (GLOW TB)‘s IFA recommends shareholders tender into Global Power Synergy Company Ltd (GPSC TB)‘s offer.

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.   

5. Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil

April 4th after the close, a wholly-owned subsidiary of Hong Kong-listed Kingboard Laminates Holdings (1888 HK) (which itself is 70.93% owned by Kingboard Holdings (148 HK) (formerly known as “Kingboard Chemical“)) launched a VOLUNTARY UNCONDITIONAL CASH OFFER for Kingboard Copper Foil Hldgs (KCF SP). 

This is a “clean-up” as Kingboard Laminates owns 87.96% of Kingboard Copper Foil already. 

It is unconditional in all respects and the Offeror owns 87.96%. The goal is delisting. If they get 17.03% of the minority, they will be able to engineer a delisting. Squeezeout is a bit further out but is far from impossible. 

This looks like a done deal. This one should trade at shouldn’t trade at a premium UNLESS…

Quiddity’s new Quiddity Singapore M&A Guide 2019 is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Watch for more in the series to be published shortly.

In this briefing:

1. Omron into the Nikkei 225, Pioneer Out
2. Another MGO For HKICIM As HNA Sells Stake Back To Blackstone
3. Last Week in Event SPACE: MYOB, Lynas, Versum, Jardines

1. Omron into the Nikkei 225, Pioneer Out

Friday 8 March after the close, the Nikkei announced that because the third party share sale of Pioneer Corp (6773 JP)  had been completed, it would be deleted from the Nikkei 225 Average (and the Nikkei 500 Index). Omron Corp (6645 JP) will replace Pioneer in the Nikkei 225 Average, with a deemed par value of 50 yen per share.

The date for this index deletion and inclusion event is the 15th of March, as per the schedule of the February 19th announcement as to how the Pioneer event would be treated. 

This affords special sits/events followers a couple of different events to look at. 

2. Another MGO For HKICIM As HNA Sells Stake Back To Blackstone

Late Friday night, Hong Kong International Construction Investment Management Group Co., (687 HK) (“HKICIM”) announced HNA Finance had entered into a SPA in which Times Holdings, a Blackstone-controlled vehicle, had conditionally agreed to buy 69.54% of HKICIM’s issued shares for HK$3/share in an HK$7bn transaction. Should the SPA complete, Times will make a mandatory unconditional offer – also at $3.00/share (14.5% premium to last close) – for the remaining 30.46% of shares out.

This proposal arrives nearly three years after HNA bought a 66% in Tysan Holdings  – as HKICIM was previously known – from Blackstone for HK$4.53 per share, triggering an MGO.

This share sale underlines HNA Group’s ongoing strategy to ease its debt burden and align its core business focus towards aviation, not construction and property.

HKICIM made headlines in the past not just for its eye-watering property acquisitions at Kai Tak (up to HK$13.5k/sqft in March 2017), the former site of Hong Kong’s international airport; but that HNA was also oddly motivated to acquire these parcels of land at record breaking prices to “snatch land and pricing power from the city’s real estate cartel“.

HKICIM sold its last Kai Tak site to Wheelock & (20 HK) last month (for a loss of $740mn), leaving the company with an estimated net cash position of ~$6.0bn (using FY18 interim numbers) or ~$1.80/share, it’s foundation piling operations, a development site in Hong Kong and a residential and commercial property development project in Shenyang.

The closing of the SPA is subject to the satisfaction or waiver of various conditions. However, the short time frame (13 business days from this announcement) in which to secure, fulfill or waive these conditions suggest minimal deal risk.

This will trade tight to, if not through terms, with an anticipated completion late April. There will be no bump to the Offer. Times does not intend to avail itself to compulsory acquisition and intends to maintain HKICIM’s listing; while both Times and HKICIM will take appropriate steps to maintain a sufficient public float after the close of the Offer.

3. Last Week in Event SPACE: MYOB, Lynas, Versum, Jardines

Last Week in Event SPACE …

• Not a bad reward/risk as Manikay greenmails KKR’s MYOB Group Ltd (MYO AU) offer.
• If the Malaysian government impasse cannot be resolved, Lynas Corp Ltd (LYC AU) will be left holding just a bunch of rocks.
• Antitrust issues are not deal breakers, while the strategic logic of the Versum Materials (VSM US) acquisition for Merck KGaA (MRK GY) is compelling.
• The ongoing circularity creep as Jardine Matheson Hldgs (JM SP) increases its stake in Jardine Strategic Hldgs (JS SP).
• Plus other events, CCASS movements and upcoming key dates for M&A transactions.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events – or SPACE – in the past week)

MYOB Group Ltd (MYO AU) (Mkt Cap: $1.4bn; Liquidity: $10mn)

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. 

(link to Travis’ insight: MYOB Setting Up As A Riskier Trade)

Lynas Corp Ltd (LYC AU) (Mkt Cap: $758mn; Liquidity: $6mn)

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.

(link to my insight: Lynas: Between a Hard Place and Just Rock)

POSCO Chemtech (003670 KS) (Mkt Cap: $758mn; Liquidity: $6mn)

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.

(link to Sanghyun Park‘s insight: POSCO Chemtech: Merger, Renaming, KOSPI Move & Joining KOSPI 200)

Versum Materials (VSM US) (Mkt Cap: $5.3bn; Liquidity: $75mn)

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. 

(link to John’s insight: Versum Materials – Merck KGaA Not Going Away (Part II))

Briefly …

Bristol Myers Squibb Co (BMY US) has responded to Starboard Value’s (& other critics) opposition of its perceived overpaying for Celgene Corp (CELG US) with a comprehensive and substantive presentation, increasing the likelihood this deal gets up. (link to ANTYA Investments Inc.‘s insight: Bristol Myers Squib & Celgene–Starboard Objections Addressed Today- Successful Deal Closure Probable)

Jardine Matheson Hldgs (JM SP) / Jardine Strategic Hldgs (JS SP)

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.

(link to my insight: StubWorld: Matheson’s Strategic Buying of Strategic)

Briefly …

• Sanghyun estimates HDC Holdings (012630 KS) and its major sub HDC Engineering & Construction (294870 KS) are at 247% of σ on a 20D MA for the first time since mid Nov last year, and recommends to go long the Sub and short Holdco. (link to Sanghyun’s insight: HDC Holdco Trade: Holdco Re-Rating Should Be Transferred to Sub, Time to Long Sub/Short Holdco)
• Orion Holdings (001800 KS) /Orion Corp (271560 KS) is now above +2σ on a 20D MA and is currently at a 120D high. Sanghyun recommends it is time to go long Sub and short Holdco. Plugging in Sanghyun’s numbers, I back out a discount to NAV of 46% compared to a the 12-year average of 48%. The parent is, though, very illiquid. (link to Sanghyun’s insight: Orion Holdco/Sub Trade: Holdco’s Price Catching up Was Overworked, Time for Sub to Catch Up)
• 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)

• ISS and Glass Lewis are understood to have recommended the offer for Hopewell Holdings (54 HK).

• 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%.

• The circular for China Goldjoy (1282 HK) has been delayed to the 26 March from 5 March.
• The Yungtay Engineering (1507 TT) Tender close has been extended to April 22 – big extension. Hmmm….
• 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.
• Panalpina Welttransport Holding (PWTN SW) has decided to call an EGM for April 5th, and approves the One Share One Vote amendment to the Articles of Association.
• Anta-Led Group Says 94.38% of Amer Sports Oyj (AMEAS FH) shares tendered.
• Hong Kong International Construction Investment Management Group Co., (687 HK)‘s possible MGO at $3.00/share.
• Michelin has acquired a 88% stake in Multistrada Arah Sarana Tbk (MASA IJ) and will make a mandatory offer for remaining shares.

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.   

In this briefing:

1. APE-AHG Merger: Value Accretive but AHG Shareholders Need Improved Terms
2. Japan Post Insurance – The ToSTNeT-3 Buyback
3. Last Week in Event SPACE: Altaba, Nexon, MYOB, Panalpina, Ezion, Naspers, Melco
4. Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil
5. Everbright Mandatory Offer for Ying Li Intl Real Estate – Going Cheap

1. APE-AHG Merger: Value Accretive but AHG Shareholders Need Improved Terms

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.

2. Japan Post Insurance – The ToSTNeT-3 Buyback

Japan Post Insurance (7181 JP)announced on April 4th after the close that Japan Post Holdings (6178 JP) would offer 168.1mm shares of Japan Post Insurance to the public, with another 16.9mm shares offered in an over-allotment. This is big news as it is almost 31% of the shares outstanding of Japan Post Insurance and will dramatically increase its float. 

One can say it is a big deal – ¥450bn (~US$4bn) of stock and at announcement it was equivalent to the last 477 days of traded volume. More importantly, this ALMOST like an IPO in that the placement is almost 3x the original IPO size (66mm shares) and will get a lot of foreign investor attention. 

In addition, JPI announced it would conduct a buyback for up to 50 million shares (with a spending limit of ¥100 billion) on the ToSTNeT-3 off-hours auction-like trading system on days between April 8th and April 12th. 

In its announcement of the decision to sell shares, Japan Post Holdings said that if JPI did indeed conduct the buyback, it might participate, in which case the size of the offering “may decrease.”

The stock rallied very sharply Friday, rising 3% at the open and ending the morning session up 3% but rising much further in the afternoon to end up 9.9%. 

After the close Friday, JPI announced it would spend ¥100bn to buy up to 37.411mm shares pre-open on ToSTNeT-3 on Monday morning. That is 6.2% of shares outstanding. 

Understanding the dynamics and the rules here AND about the offering may tell you something about how this will work. 

3. Last Week in Event SPACE: Altaba, Nexon, MYOB, Panalpina, Ezion, Naspers, Melco

Last Week in Event SPACE …

• Here it is. The end – the culmination of years of effort and high balance sheet usage by hedge funds. Altaba Inc (AABA US) is going out with a whimper plus a little upside.
• Reportedly plans for the sale of NHC have been abandoned with a focus on selling its Nexon Co Ltd (3659 JP)gaming unit.
• That’s a wrap, as Manikay blinks and concedes to KKR’s Offer for MYOB Group Ltd (MYO AU).
• Ezion Holdings (EZI SP) is tendered a necessary lifeboat from Yinson Holdings (YNS MK).
• We now have an agreed deal for Panalpina Welttransport Holding (PWTN SW) supported by the Ernst Göhner Foundation, the major activist shareholders, and Panalpina management.
• Naspers Ltd (NPN SJ)‘s discount to NAV narrows as it teases out more information on spinning-off and separately listing Tencent Holdings (700 HK).
• Melco International Development (200 HK) is potentially mispriced against Melco Resorts & Entertainment (MLCO US) after the release of FY18 earnings.

• Plus other events, CCASS movements and upcoming key dates for M&A transactions.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events – or SPACE – in the past week)

Altaba Inc (AABA US) (Mkt Cap: $42bn; Liquidity: $452mn)

Altaba will sell or distribute, in stages, its remaining net assets to shareholders, with a “pre-dissolution liquidating distribution to stockholders (in cash, Alibaba ADSs or a combination thereof), which Altaba currently expects will be made in the fourth quarter of 2019 and estimates will be in an amount between $52.12 and $59.63/share in cash and/or Alibaba ADSs (which estimates assume, among other things, an Alibaba Share price realized on sale and, if applicable, an Alibaba share value at the time of distribution, of $177.00/Alibaba share).”

• As p55 of the preliminary proxy makes clear, based on the same US$177/share assumption of value realized or distributed per Alibaba share held, the total distributed would be in a range of $76.72 and $79.72 based on some other assumptions.
• A larger portion of the remaining amount could take 12 months to arrive, and there could be other residual portions which will take longer (years), as discussed in the proxy and call transcript.
• It looks like there is upside as the stock closed at US$72.76 (at the time of the insight). But there is less than you think simply because it will take time to get out of it. And discount rates of the first portion may be low, but discount rates applied to the later payments post-delisting and post court workout for the Holdback Amount could be higher.
• Travis Lundy has opinions on what to do once you start getting into the arb risks. Do read his insight.

(link to Travis’ insight: ALTABA UNWINDING – Not Much Juice, and Considerably Different Skew)

Nexon Co Ltd (3659 JP) (Mkt Cap: $14bn; Liquidity: $50mn)

Sanghyun Park discussed Nexon sale after the FT reported bankers has stopped plans to sell the holding company NXC. The sale of NXC is probably the simplest exit path for Kim Jung-ju as it would be a more attractive tax outcome than selling Nexon Japan outright.

• But there’s a lot of other stuff in NXC that suitors don’t want to, which ideally should be sold before selling NXC. There’s also the issue of whether a tender offer would be required whether the sale of NXC or Nexon – Travis concludes an offer would be required while Sanghyun does not.

• Korean local news outlet reported that Tencent Holdings (700 HK)‘s US$6bn bond issuance may be a fund raising for a Nexon takeover. Still, South Korea would prefer keep Nexon’s ownership domestic, which may favour Kakao Games (1404796D KS) or PE outfit MBK.

(link to Sanghun’s insight: Nexon Sale: Key Questions at This Point & Most Realistic Answers)

Summit Ascent Holdings (102 HK) (Mkt Cap: $270mn; Liquidity: $1mn)

Summit Ascent announced that First Steamship (the major shareholder) and Kuo Jen Hao (chairman) are in talks to sell their entire shareholdings. No numbers were disclosed. This stake sale would not trigger an MGO and there was no reference to the release of an announcement pursuant to the Codes on Takeovers and Mergers and Share Buy-Backs in Hong Kong. Shares are up 35%.

• Summit is trading at a trailing PER of 267x. CapIQ forecasts point to a threefold increase in earnings in FY19, although I would advise caution on those numbers given the tight cluster of target prices; historically, target prices for Summit have been wide of the mark.
• First Steamship bought in at $1.06 in December 2017, around the same price when this announcement was made. Should this sale complete, this would result in the third time the shares of the major shareholder have changed hands. This looks like a great opportunity to exit.

(link to my insight: Summit Ascent’s Slippery Slope)

MYOB Group Ltd (MYO AU) (Mkt Cap: $1.4bn; Liquidity: $10mn)

On the 20th March, MYO announcing receipt of a letter from KKR saying that the A$3.40 price was their “best and final offer”, making it clear under Truth in Takeovers language that Manikay was not going to get a higher price out of them. Manikay continued to buy shares on the 20th and the 21st, getting to 16.16% of the company as filed on the 22nd.

• On Monday 1 April, MYOB announced a supplemental disclosure to the Scheme documents noting KKR’s final intention, and that the directors continued to unanimously recommend the Scheme.
• Mid-week, Manikay caved and said intends to vote all its shares for the upcoming Scheme, subject to there being no proposal that we consider to be superior prior to the vote. This is now MUCH closer to being a done deal. It will trade tight.

• Travis is a trifle surprised Manikay did not wait a little longer. They were able to increase their stake in the low A$3.30s because of the uncertainty of their intentions, and they could probably have gone close to 20% in the low 3.30s before saying “Yes.” That would have been a welcome extra profit.

(link to Travis’ insight: Manikay Caves and Accepts KKR’s Reduced (And Now Final) Offer)

Ezion Holdings (EZI SP) (Mkt Cap: $219mn; Liquidity: $2mn)

Lifeboat market play Ezion has received a bail-out from Malaysia’s Yinson Holdings (YNS MK) via a capitalisation of debt and option agreement. Ezion remains suspended.

• On the surface, this looks like a bargain for Yinson which is ostensibly taking over Ezion for US$200mn. However, Yinson said that it is still negotiating with the designated lenders of the US$916mn debt on the terms and conditions..
• Yinson’s business risks include contact risk, oil price fluctuations and the level of activities in the O&G industry. These risks do not change should the Ezion proposal complete.
• And offshore support companies face a raft of challenges: Ezra Holdings (EZRA SP) entered bankruptcy in 2017, Pacific Radiance (PACRA SP) has been voluntarily suspended since 28 Feb 2018 as it seeks a way to complete its debt restructuring; while Swiber Holdings (SWIB SP)recently announced its own US$200mn injection from Seaspan Corp. (SSW US), after the company had laboured in judicial management for the past two years.

(link to my insight: Yinson Tenders a Lifeboat for Ezion)

Kingboard Copper Foil Hldgs (KCF SP) (Mkt Cap: $320mn; Liquidity: <$100k)

For the second time in two years parent Kingboard Laminates Holdings (1888 HK) (ultimate parent being Kingboard Holdings (148 HK)) has launched an Offer to fully privatize KCF. This time at SGD 0.60/share vs SGD 0.40 two years ago.

• The last time came on the heels of a long independent review by EY which found KCF had given up profit to the parent through a series of relatively unfair interested party transaction agreements.
• At the end, the Bermudan Court of Appeals went against a Supreme Court decision which had decided that a replacement counterparty decision was prejudiced against minorities, and despite the April 2017 deal being not fair and not reasonable according to the IFA, the parent acquired ~10% (of the 28% it did not own) bringing their stake to 82.3%. A year later the parent acquired another 5.5% bringing them to almost 88%.
• Now an offer at SGD 0.60/share (compared to the Revalued NTA of SGD 0.7086/share from the IFA report (p36) of two years ago gets closer to the mark, but crucially, it is designed to squeeze out minorities with the threat of delisting. Kingboard Laminates only needs 2.05% to oblige a delisting from the SGX. As far as Travis can tell, it would require more – at least 95% of shares – to oblige a mandatory squeezeout of minorities according to Section 102-103 of Bermuda Companies Act.
• Travis thinks this one gets through.

(link to Travis’ insight: Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil)

Ying Li International Real Estate Ltd (YINGLI SP) (Mkt Cap: $260mn; Liquidity: truly tiny)

China Everbright (165 HK) has launched an MGO at SGD 0.14/share for the rest of Ying Li International Real Estate Ltd (YINGLI SP) after last week purchasing the 30.00% stake formerly held by the CEO, bringing its stake to 58.9%.

• The deal is at a negligible premium and is far, far below Tangible Book Value Per Share (which is almost three times the offer price). Given that the acquirer bought a large stake in the company and offered perpetual capital of almost the current market cap at a significant premium to the MGO price, Travis thinks it an unattractive offer.
• It is puzzling as to why the CEO would sell his shares at such a discount, especially when the company and Everbright co-own some of the assets.
• While the stated intention of the Offeror is to keep the stock listed, and the MGO is presented almost as “technical”, it would be enormously to Everbright’s benefit to buy as many shares as they could down at this price level. It will go from being underwater on an equity affiliate stake purchase to having a huge writeup in value if Everbright consolidates the asset post MGO.
• For that, Travis thinks there is a possibility of a bump just to make it more attractive, though the IFA report could come out with a not fair and reasonable result which shows NTA or NAV far, far higher than the Offer Price, which is not yet declared final.

(link to Travis’ insight: Everbright Mandatory Offer for Ying Li Intl Real Estate – Going Cheap)

Briefly …

In a mainly technical piece, I explained why China Three Gorges, China Power New Energy Development Co (735 HK)‘s largest shareholder with 27.1% is currently required to abstain from voting at the forthcoming court meeting, despite the misleading statement in the  announcement that China Three Gorges has given an irrevocable undertaking to vote for the Scheme. (link to my insight: China Three Gorges’ Rebuttable Presumption)

Panalpina Welttransport Holding (PWTN SW) (Mkt Cap: $4.8bn; Liquidity: $27mn)

What was once a tough deal is now an agreed deal. The deal is 2.375 shares of DSV for every share of Panalpina, which as of the previous Friday’s close had a value of CHF 195.80/share which is a 43% premium to the CHF 137/share, where Panalpina was trading the day before DSV’s first bid.

• Panalpina is getting taken out at 28.1x reported 2018 EV/EBITDA multiple (pre-IFRS 16) calculated at a CHF 195.8 price. Panalpina shareholders will own ~23% of DSV shares out if all shares are exchanged and the Ernst Göhner Foundation will be the largest shareholder at ~11%.
• 69.9% of shares have irrevocably agreed to support the Exchange Offer. The customary condition is 80% to make it go through, meaning DSV needs another 10.1% out of the 30% extant (or just over one-third).
• Travis expects there is another 10-15% held by arbitrageurs and 5-7% held by indexers already so this deal looks to me like it is done. He expects the Exchange Offer may settle as early as early-August. If it trades tight, he would get out because DSV is probably priced to a very good level. 

(link to Travis’ insight: DSV Improves Bid and Göhner Foundation and Panalpina Agree)

Lenta Ltd (LNTA LI) (Mkt Cap: $1.7bn; Liquidity: $2mn)

Reuters reported that Alexey Mordashov’s Severgroup had reached an agreement to buy a 41.9% stake, excluding treasury shares, in Lenta from those TPG and European Bank for Reconstruction and Development, for a total of US$721mm, or US$18 per share or US$3.60 per GDR. That implies a price of US$1.75bn for the whole company. This was followed by Lenta announced confirming the cash offer. The Offer Price is an 8.11% premium to the last trade on 26 March – the undisturbed price, and a premium of 9.76% to the 6mo average price of US$3.28 for the GDRs. 

• The first 41.9% are sold conditional on FAS Clearance (presumably Mordashov has cleared this transaction with “the right people”) expected in May 2019, a few easily achieved conditions, and the condition of no sanctions being in play for any of the selling or buying parties. 
• Once cleared – expected in May 2019 – this becomes a straightforward offer with no minimum acceptances meaning that investors can sell shares into the deal or decide not to do so.
• It’s not an attractive offer price, with the possibility of a bump if enough people complain.  If you want to buy and hold, this deal is a put option.

(link to Travis’ insight: Severgroup Puts in a Cheeky Bid for Lenta – TPG and EBRD Bail)

Naspers Ltd (NPN SJ) / Tencent Holdings (700 HK)

Since announcing the intended listing of its international internet assets on Euronext Amsterdam “no earlier than H2 2019” – together with a secondary, inward listing on the Johannesburg Stock Exchange – I calculate Naspers discount to NAV has narrowed to 34.4% from 37.1%, the day before the announcement, placing the current discount a shade below the 12-month average.

• The likelihood of NewCo trading at a tighter discount to where Naspers’ previously (& currently trades) is universally accepted. Naspers will benefit from that reduced discount via its 75% stake; but it is not known where Naspers’ own discount will trade after the spin-off.
• There are indications the management want to see the group discount narrow to 30%, possibly down to the 20% level, which implies a significantly lower discount for Naspers, potentially around 10%. That would seem optimistic as investors focus more on the directly-held Tencent vehicle, and the fact Naspers is a holding company, holding a stake in another holding company.
• Naspers’ discount may drift narrower on the expectation Naspers’ spin-off works its magic. Greater clarity on the option into Naspers or NewCo may provide an additional boost; but conversely, if such an option is limited, there is likely to be disappointment.

(link to my insight: StubWorld: Naspers’ Restructuring Update)

Melco International Development (200 HK) / Melco Resorts & Entertainment (MLCO US)

With Melco trading at a (then) 32% discount to NAV, Curtis Lehnert recommends a set-up trade on a dollar for dollar basis. The current level, as I write, is statistically the most attractive according to the Smartkarma Holdco Tool, sitting at -1.8 standard deviations from the 180 DMA.

• Stub assets are minimal – around 8% of GAV – if excluding gaming licenses, goodwill and trademarks. Net cash is $6.4bn or $4.27/share.
• Those stub assets are still loss-making, after deconsolidating out MLCO, to the tune of $386mn in EBITDA, but that was an improvement on (HK$682mn) figure in FY17.
• Still, Curtis thinks now is the time to enter the trade to take advantage of both the statistical and fundamental supports to the trade. 

(link to Curtis’ insight: TRADE IDEA – Melco (200 HK) Stub: Lose a Little Sleep in Macau)

For the month of March, ten new deals were discussed on Smartkarma with a cumulative deal size of US$22.3bn. This overall number includes Blackstone and Hellman & Friedman’s proposal for Scout24 AG (G24 GR) after the Tender Offer was officially launched in March. This deal was first proposed in mid-January – which was rejected by the board – and subsequently an improved offer was tabled, which was then supported.

The average premium to last close for the new deals announced in March was 18%, while the average for the first quarter of 2019 is 33%.

(link to my insight: M&A: A Round-Up of Deals in March 2019)

• Delta Electronics Thai (DELTA TB)‘s results of the CVTO have been announced.  42.85% of shares tendered, therefore the offeror held 63.78% of shares at the close of the offer. The MSCI downweight occurred at the close Thursday, however shares popped 17.5%.

• Hanergy Thin Film Power (566 HK)‘s Scheme document has been delayed until the 25 April, from the 2 April.

• The Dairy Crest (DCG LN) takeover by Saputo was approved at the Court Meeting and Scheme Meeting yesterday.

• Ap Eagers Ltd (APE AU), Automotive Holdings (AHG AU)‘s largest shareholder, has proposed an all-scrip merger offer. AHG recommends shareholders take no action at this time.

• Glow Energy Pcl (GLOW TB)‘s IFA recommends shareholders tender into Global Power Synergy Company Ltd (GPSC TB)‘s offer.

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.   

4. Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil

April 4th after the close, a wholly-owned subsidiary of Hong Kong-listed Kingboard Laminates Holdings (1888 HK) (which itself is 70.93% owned by Kingboard Holdings (148 HK) (formerly known as “Kingboard Chemical“)) launched a VOLUNTARY UNCONDITIONAL CASH OFFER for Kingboard Copper Foil Hldgs (KCF SP). 

This is a “clean-up” as Kingboard Laminates owns 87.96% of Kingboard Copper Foil already. 

It is unconditional in all respects and the Offeror owns 87.96%. The goal is delisting. If they get 17.03% of the minority, they will be able to engineer a delisting. Squeezeout is a bit further out but is far from impossible. 

This looks like a done deal. This one should trade at shouldn’t trade at a premium UNLESS…

Quiddity’s new Quiddity Singapore M&A Guide 2019 is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Watch for more in the series to be published shortly.

5. Everbright Mandatory Offer for Ying Li Intl Real Estate – Going Cheap

On 3 April 2019, China Everbright (165 HK)‘s wholly owned subsidiary, State Alpha Limited, purchased 767,052,161 shares representing approximately 30.00% of the Shares in Singapore-listed property developer, Ying Li International Real Estate Ltd (YINGLI SP), from Newest Luck Holdings Limited (the vehicle of Executive Chairman and CEO Mr. Fang Ming) at a share price of SGD 0.140.

Following this transaction, the combined stake of China Everbright and parties acting in concert with it reached 58.91% triggering an obligation to make a mandatory offer for all the shares of Ying Li, a transaction which was announced after the close.

The offer price of SGD 0.140 translates to a premium of 5.9% and 10.9% to Ying Li’s 1-month and 3-month VWAP, respectively but less than a 1% premium to last trade – the company’s shares closed at SGD 0.139 on 3rd April before the announcement. The company asked for a trading halt the next morning and the shares have not traded yet as the large shareholder disclosures have come trickling in on the 4th and the 5th.

The acquirer has stated that it is their present intention to maintain the listing status of the company. However, the acquirer also reserves the right to reevaluate this position if the free float falls below the 10% requirement specified in the listing rules following the completion of the offer. 

This is something like a free put for investors and a very low-priced call option for Everbright. The situation raises obvious questions, and despite the “intention” to maintain the listing status, there are reasons why they would not want to. The details are worth a look.

Quiddity’s new Quiddity Singapore M&A Guide 2019 is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Watch for more in the series to be published shortly.

In this briefing:

1. Japan Post Insurance – The ToSTNeT-3 Buyback
2. Last Week in Event SPACE: Altaba, Nexon, MYOB, Panalpina, Ezion, Naspers, Melco
3. Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil
4. Everbright Mandatory Offer for Ying Li Intl Real Estate – Going Cheap
5. Nexon Sale: Key Questions at This Point & Most Realistic Answers

1. Japan Post Insurance – The ToSTNeT-3 Buyback

Japan Post Insurance (7181 JP)announced on April 4th after the close that Japan Post Holdings (6178 JP) would offer 168.1mm shares of Japan Post Insurance to the public, with another 16.9mm shares offered in an over-allotment. This is big news as it is almost 31% of the shares outstanding of Japan Post Insurance and will dramatically increase its float. 

One can say it is a big deal – ¥450bn (~US$4bn) of stock and at announcement it was equivalent to the last 477 days of traded volume. More importantly, this ALMOST like an IPO in that the placement is almost 3x the original IPO size (66mm shares) and will get a lot of foreign investor attention. 

In addition, JPI announced it would conduct a buyback for up to 50 million shares (with a spending limit of ¥100 billion) on the ToSTNeT-3 off-hours auction-like trading system on days between April 8th and April 12th. 

In its announcement of the decision to sell shares, Japan Post Holdings said that if JPI did indeed conduct the buyback, it might participate, in which case the size of the offering “may decrease.”

The stock rallied very sharply Friday, rising 3% at the open and ending the morning session up 3% but rising much further in the afternoon to end up 9.9%. 

After the close Friday, JPI announced it would spend ¥100bn to buy up to 37.411mm shares pre-open on ToSTNeT-3 on Monday morning. That is 6.2% of shares outstanding. 

Understanding the dynamics and the rules here AND about the offering may tell you something about how this will work. 

2. Last Week in Event SPACE: Altaba, Nexon, MYOB, Panalpina, Ezion, Naspers, Melco

Last Week in Event SPACE …

• Here it is. The end – the culmination of years of effort and high balance sheet usage by hedge funds. Altaba Inc (AABA US) is going out with a whimper plus a little upside.
• Reportedly plans for the sale of NHC have been abandoned with a focus on selling its Nexon Co Ltd (3659 JP)gaming unit.
• That’s a wrap, as Manikay blinks and concedes to KKR’s Offer for MYOB Group Ltd (MYO AU).
• Ezion Holdings (EZI SP) is tendered a necessary lifeboat from Yinson Holdings (YNS MK).
• We now have an agreed deal for Panalpina Welttransport Holding (PWTN SW) supported by the Ernst Göhner Foundation, the major activist shareholders, and Panalpina management.
• Naspers Ltd (NPN SJ)‘s discount to NAV narrows as it teases out more information on spinning-off and separately listing Tencent Holdings (700 HK).
• Melco International Development (200 HK) is potentially mispriced against Melco Resorts & Entertainment (MLCO US) after the release of FY18 earnings.

• Plus other events, CCASS movements and upcoming key dates for M&A transactions.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events – or SPACE – in the past week)

Altaba Inc (AABA US) (Mkt Cap: $42bn; Liquidity: $452mn)

Altaba will sell or distribute, in stages, its remaining net assets to shareholders, with a “pre-dissolution liquidating distribution to stockholders (in cash, Alibaba ADSs or a combination thereof), which Altaba currently expects will be made in the fourth quarter of 2019 and estimates will be in an amount between $52.12 and $59.63/share in cash and/or Alibaba ADSs (which estimates assume, among other things, an Alibaba Share price realized on sale and, if applicable, an Alibaba share value at the time of distribution, of $177.00/Alibaba share).”

• As p55 of the preliminary proxy makes clear, based on the same US$177/share assumption of value realized or distributed per Alibaba share held, the total distributed would be in a range of $76.72 and $79.72 based on some other assumptions.
• A larger portion of the remaining amount could take 12 months to arrive, and there could be other residual portions which will take longer (years), as discussed in the proxy and call transcript.
• It looks like there is upside as the stock closed at US$72.76 (at the time of the insight). But there is less than you think simply because it will take time to get out of it. And discount rates of the first portion may be low, but discount rates applied to the later payments post-delisting and post court workout for the Holdback Amount could be higher.
• Travis Lundy has opinions on what to do once you start getting into the arb risks. Do read his insight.

(link to Travis’ insight: ALTABA UNWINDING – Not Much Juice, and Considerably Different Skew)

Nexon Co Ltd (3659 JP) (Mkt Cap: $14bn; Liquidity: $50mn)

Sanghyun Park discussed Nexon sale after the FT reported bankers has stopped plans to sell the holding company NXC. The sale of NXC is probably the simplest exit path for Kim Jung-ju as it would be a more attractive tax outcome than selling Nexon Japan outright.

• But there’s a lot of other stuff in NXC that suitors don’t want to, which ideally should be sold before selling NXC. There’s also the issue of whether a tender offer would be required whether the sale of NXC or Nexon – Travis concludes an offer would be required while Sanghyun does not.

• Korean local news outlet reported that Tencent Holdings (700 HK)‘s US$6bn bond issuance may be a fund raising for a Nexon takeover. Still, South Korea would prefer keep Nexon’s ownership domestic, which may favour Kakao Games (1404796D KS) or PE outfit MBK.

(link to Sanghun’s insight: Nexon Sale: Key Questions at This Point & Most Realistic Answers)

Summit Ascent Holdings (102 HK) (Mkt Cap: $270mn; Liquidity: $1mn)

Summit Ascent announced that First Steamship (the major shareholder) and Kuo Jen Hao (chairman) are in talks to sell their entire shareholdings. No numbers were disclosed. This stake sale would not trigger an MGO and there was no reference to the release of an announcement pursuant to the Codes on Takeovers and Mergers and Share Buy-Backs in Hong Kong. Shares are up 35%.

• Summit is trading at a trailing PER of 267x. CapIQ forecasts point to a threefold increase in earnings in FY19, although I would advise caution on those numbers given the tight cluster of target prices; historically, target prices for Summit have been wide of the mark.
• First Steamship bought in at $1.06 in December 2017, around the same price when this announcement was made. Should this sale complete, this would result in the third time the shares of the major shareholder have changed hands. This looks like a great opportunity to exit.

(link to my insight: Summit Ascent’s Slippery Slope)

MYOB Group Ltd (MYO AU) (Mkt Cap: $1.4bn; Liquidity: $10mn)

On the 20th March, MYO announcing receipt of a letter from KKR saying that the A$3.40 price was their “best and final offer”, making it clear under Truth in Takeovers language that Manikay was not going to get a higher price out of them. Manikay continued to buy shares on the 20th and the 21st, getting to 16.16% of the company as filed on the 22nd.

• On Monday 1 April, MYOB announced a supplemental disclosure to the Scheme documents noting KKR’s final intention, and that the directors continued to unanimously recommend the Scheme.
• Mid-week, Manikay caved and said intends to vote all its shares for the upcoming Scheme, subject to there being no proposal that we consider to be superior prior to the vote. This is now MUCH closer to being a done deal. It will trade tight.

• Travis is a trifle surprised Manikay did not wait a little longer. They were able to increase their stake in the low A$3.30s because of the uncertainty of their intentions, and they could probably have gone close to 20% in the low 3.30s before saying “Yes.” That would have been a welcome extra profit.

(link to Travis’ insight: Manikay Caves and Accepts KKR’s Reduced (And Now Final) Offer)

Ezion Holdings (EZI SP) (Mkt Cap: $219mn; Liquidity: $2mn)

Lifeboat market play Ezion has received a bail-out from Malaysia’s Yinson Holdings (YNS MK) via a capitalisation of debt and option agreement. Ezion remains suspended.

• On the surface, this looks like a bargain for Yinson which is ostensibly taking over Ezion for US$200mn. However, Yinson said that it is still negotiating with the designated lenders of the US$916mn debt on the terms and conditions..
• Yinson’s business risks include contact risk, oil price fluctuations and the level of activities in the O&G industry. These risks do not change should the Ezion proposal complete.
• And offshore support companies face a raft of challenges: Ezra Holdings (EZRA SP) entered bankruptcy in 2017, Pacific Radiance (PACRA SP) has been voluntarily suspended since 28 Feb 2018 as it seeks a way to complete its debt restructuring; while Swiber Holdings (SWIB SP)recently announced its own US$200mn injection from Seaspan Corp. (SSW US), after the company had laboured in judicial management for the past two years.

(link to my insight: Yinson Tenders a Lifeboat for Ezion)

Kingboard Copper Foil Hldgs (KCF SP) (Mkt Cap: $320mn; Liquidity: <$100k)

For the second time in two years parent Kingboard Laminates Holdings (1888 HK) (ultimate parent being Kingboard Holdings (148 HK)) has launched an Offer to fully privatize KCF. This time at SGD 0.60/share vs SGD 0.40 two years ago.

• The last time came on the heels of a long independent review by EY which found KCF had given up profit to the parent through a series of relatively unfair interested party transaction agreements.
• At the end, the Bermudan Court of Appeals went against a Supreme Court decision which had decided that a replacement counterparty decision was prejudiced against minorities, and despite the April 2017 deal being not fair and not reasonable according to the IFA, the parent acquired ~10% (of the 28% it did not own) bringing their stake to 82.3%. A year later the parent acquired another 5.5% bringing them to almost 88%.
• Now an offer at SGD 0.60/share (compared to the Revalued NTA of SGD 0.7086/share from the IFA report (p36) of two years ago gets closer to the mark, but crucially, it is designed to squeeze out minorities with the threat of delisting. Kingboard Laminates only needs 2.05% to oblige a delisting from the SGX. As far as Travis can tell, it would require more – at least 95% of shares – to oblige a mandatory squeezeout of minorities according to Section 102-103 of Bermuda Companies Act.
• Travis thinks this one gets through.

(link to Travis’ insight: Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil)

Ying Li International Real Estate Ltd (YINGLI SP) (Mkt Cap: $260mn; Liquidity: truly tiny)

China Everbright (165 HK) has launched an MGO at SGD 0.14/share for the rest of Ying Li International Real Estate Ltd (YINGLI SP) after last week purchasing the 30.00% stake formerly held by the CEO, bringing its stake to 58.9%.

• The deal is at a negligible premium and is far, far below Tangible Book Value Per Share (which is almost three times the offer price). Given that the acquirer bought a large stake in the company and offered perpetual capital of almost the current market cap at a significant premium to the MGO price, Travis thinks it an unattractive offer.
• It is puzzling as to why the CEO would sell his shares at such a discount, especially when the company and Everbright co-own some of the assets.
• While the stated intention of the Offeror is to keep the stock listed, and the MGO is presented almost as “technical”, it would be enormously to Everbright’s benefit to buy as many shares as they could down at this price level. It will go from being underwater on an equity affiliate stake purchase to having a huge writeup in value if Everbright consolidates the asset post MGO.
• For that, Travis thinks there is a possibility of a bump just to make it more attractive, though the IFA report could come out with a not fair and reasonable result which shows NTA or NAV far, far higher than the Offer Price, which is not yet declared final.

(link to Travis’ insight: Everbright Mandatory Offer for Ying Li Intl Real Estate – Going Cheap)

Briefly …

In a mainly technical piece, I explained why China Three Gorges, China Power New Energy Development Co (735 HK)‘s largest shareholder with 27.1% is currently required to abstain from voting at the forthcoming court meeting, despite the misleading statement in the  announcement that China Three Gorges has given an irrevocable undertaking to vote for the Scheme. (link to my insight: China Three Gorges’ Rebuttable Presumption)

Panalpina Welttransport Holding (PWTN SW) (Mkt Cap: $4.8bn; Liquidity: $27mn)

What was once a tough deal is now an agreed deal. The deal is 2.375 shares of DSV for every share of Panalpina, which as of the previous Friday’s close had a value of CHF 195.80/share which is a 43% premium to the CHF 137/share, where Panalpina was trading the day before DSV’s first bid.

• Panalpina is getting taken out at 28.1x reported 2018 EV/EBITDA multiple (pre-IFRS 16) calculated at a CHF 195.8 price. Panalpina shareholders will own ~23% of DSV shares out if all shares are exchanged and the Ernst Göhner Foundation will be the largest shareholder at ~11%.
• 69.9% of shares have irrevocably agreed to support the Exchange Offer. The customary condition is 80% to make it go through, meaning DSV needs another 10.1% out of the 30% extant (or just over one-third).
• Travis expects there is another 10-15% held by arbitrageurs and 5-7% held by indexers already so this deal looks to me like it is done. He expects the Exchange Offer may settle as early as early-August. If it trades tight, he would get out because DSV is probably priced to a very good level. 

(link to Travis’ insight: DSV Improves Bid and Göhner Foundation and Panalpina Agree)

Lenta Ltd (LNTA LI) (Mkt Cap: $1.7bn; Liquidity: $2mn)

Reuters reported that Alexey Mordashov’s Severgroup had reached an agreement to buy a 41.9% stake, excluding treasury shares, in Lenta from those TPG and European Bank for Reconstruction and Development, for a total of US$721mm, or US$18 per share or US$3.60 per GDR. That implies a price of US$1.75bn for the whole company. This was followed by Lenta announced confirming the cash offer. The Offer Price is an 8.11% premium to the last trade on 26 March – the undisturbed price, and a premium of 9.76% to the 6mo average price of US$3.28 for the GDRs. 

• The first 41.9% are sold conditional on FAS Clearance (presumably Mordashov has cleared this transaction with “the right people”) expected in May 2019, a few easily achieved conditions, and the condition of no sanctions being in play for any of the selling or buying parties. 
• Once cleared – expected in May 2019 – this becomes a straightforward offer with no minimum acceptances meaning that investors can sell shares into the deal or decide not to do so.
• It’s not an attractive offer price, with the possibility of a bump if enough people complain.  If you want to buy and hold, this deal is a put option.

(link to Travis’ insight: Severgroup Puts in a Cheeky Bid for Lenta – TPG and EBRD Bail)

Naspers Ltd (NPN SJ) / Tencent Holdings (700 HK)

Since announcing the intended listing of its international internet assets on Euronext Amsterdam “no earlier than H2 2019” – together with a secondary, inward listing on the Johannesburg Stock Exchange – I calculate Naspers discount to NAV has narrowed to 34.4% from 37.1%, the day before the announcement, placing the current discount a shade below the 12-month average.

• The likelihood of NewCo trading at a tighter discount to where Naspers’ previously (& currently trades) is universally accepted. Naspers will benefit from that reduced discount via its 75% stake; but it is not known where Naspers’ own discount will trade after the spin-off.
• There are indications the management want to see the group discount narrow to 30%, possibly down to the 20% level, which implies a significantly lower discount for Naspers, potentially around 10%. That would seem optimistic as investors focus more on the directly-held Tencent vehicle, and the fact Naspers is a holding company, holding a stake in another holding company.
• Naspers’ discount may drift narrower on the expectation Naspers’ spin-off works its magic. Greater clarity on the option into Naspers or NewCo may provide an additional boost; but conversely, if such an option is limited, there is likely to be disappointment.

(link to my insight: StubWorld: Naspers’ Restructuring Update)

Melco International Development (200 HK) / Melco Resorts & Entertainment (MLCO US)

With Melco trading at a (then) 32% discount to NAV, Curtis Lehnert recommends a set-up trade on a dollar for dollar basis. The current level, as I write, is statistically the most attractive according to the Smartkarma Holdco Tool, sitting at -1.8 standard deviations from the 180 DMA.

• Stub assets are minimal – around 8% of GAV – if excluding gaming licenses, goodwill and trademarks. Net cash is $6.4bn or $4.27/share.
• Those stub assets are still loss-making, after deconsolidating out MLCO, to the tune of $386mn in EBITDA, but that was an improvement on (HK$682mn) figure in FY17.
• Still, Curtis thinks now is the time to enter the trade to take advantage of both the statistical and fundamental supports to the trade. 

(link to Curtis’ insight: TRADE IDEA – Melco (200 HK) Stub: Lose a Little Sleep in Macau)

For the month of March, ten new deals were discussed on Smartkarma with a cumulative deal size of US$22.3bn. This overall number includes Blackstone and Hellman & Friedman’s proposal for Scout24 AG (G24 GR) after the Tender Offer was officially launched in March. This deal was first proposed in mid-January – which was rejected by the board – and subsequently an improved offer was tabled, which was then supported.

The average premium to last close for the new deals announced in March was 18%, while the average for the first quarter of 2019 is 33%.

(link to my insight: M&A: A Round-Up of Deals in March 2019)

• Delta Electronics Thai (DELTA TB)‘s results of the CVTO have been announced.  42.85% of shares tendered, therefore the offeror held 63.78% of shares at the close of the offer. The MSCI downweight occurred at the close Thursday, however shares popped 17.5%.

• Hanergy Thin Film Power (566 HK)‘s Scheme document has been delayed until the 25 April, from the 2 April.

• The Dairy Crest (DCG LN) takeover by Saputo was approved at the Court Meeting and Scheme Meeting yesterday.

• Ap Eagers Ltd (APE AU), Automotive Holdings (AHG AU)‘s largest shareholder, has proposed an all-scrip merger offer. AHG recommends shareholders take no action at this time.

• Glow Energy Pcl (GLOW TB)‘s IFA recommends shareholders tender into Global Power Synergy Company Ltd (GPSC TB)‘s offer.

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.   

3. Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil

April 4th after the close, a wholly-owned subsidiary of Hong Kong-listed Kingboard Laminates Holdings (1888 HK) (which itself is 70.93% owned by Kingboard Holdings (148 HK) (formerly known as “Kingboard Chemical“)) launched a VOLUNTARY UNCONDITIONAL CASH OFFER for Kingboard Copper Foil Hldgs (KCF SP). 

This is a “clean-up” as Kingboard Laminates owns 87.96% of Kingboard Copper Foil already. 

It is unconditional in all respects and the Offeror owns 87.96%. The goal is delisting. If they get 17.03% of the minority, they will be able to engineer a delisting. Squeezeout is a bit further out but is far from impossible. 

This looks like a done deal. This one should trade at shouldn’t trade at a premium UNLESS…

Quiddity’s new Quiddity Singapore M&A Guide 2019 is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Watch for more in the series to be published shortly.

4. Everbright Mandatory Offer for Ying Li Intl Real Estate – Going Cheap

On 3 April 2019, China Everbright (165 HK)‘s wholly owned subsidiary, State Alpha Limited, purchased 767,052,161 shares representing approximately 30.00% of the Shares in Singapore-listed property developer, Ying Li International Real Estate Ltd (YINGLI SP), from Newest Luck Holdings Limited (the vehicle of Executive Chairman and CEO Mr. Fang Ming) at a share price of SGD 0.140.

Following this transaction, the combined stake of China Everbright and parties acting in concert with it reached 58.91% triggering an obligation to make a mandatory offer for all the shares of Ying Li, a transaction which was announced after the close.

The offer price of SGD 0.140 translates to a premium of 5.9% and 10.9% to Ying Li’s 1-month and 3-month VWAP, respectively but less than a 1% premium to last trade – the company’s shares closed at SGD 0.139 on 3rd April before the announcement. The company asked for a trading halt the next morning and the shares have not traded yet as the large shareholder disclosures have come trickling in on the 4th and the 5th.

The acquirer has stated that it is their present intention to maintain the listing status of the company. However, the acquirer also reserves the right to reevaluate this position if the free float falls below the 10% requirement specified in the listing rules following the completion of the offer. 

This is something like a free put for investors and a very low-priced call option for Everbright. The situation raises obvious questions, and despite the “intention” to maintain the listing status, there are reasons why they would not want to. The details are worth a look.

Quiddity’s new Quiddity Singapore M&A Guide 2019 is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Watch for more in the series to be published shortly.

5. Nexon Sale: Key Questions at This Point & Most Realistic Answers

This post discusses the key questions on Nexon sale at this point. It then provides the most realistic answers to these questions from various circumstantial aspects. This post is based on the recent news reports and also various local sources.

In this briefing:

1. Another MGO For HKICIM As HNA Sells Stake Back To Blackstone
2. Last Week in Event SPACE: MYOB, Lynas, Versum, Jardines

1. Another MGO For HKICIM As HNA Sells Stake Back To Blackstone

Late Friday night, Hong Kong International Construction Investment Management Group Co., (687 HK) (“HKICIM”) announced HNA Finance had entered into a SPA in which Times Holdings, a Blackstone-controlled vehicle, had conditionally agreed to buy 69.54% of HKICIM’s issued shares for HK$3/share in an HK$7bn transaction. Should the SPA complete, Times will make a mandatory unconditional offer – also at $3.00/share (14.5% premium to last close) – for the remaining 30.46% of shares out.

This proposal arrives nearly three years after HNA bought a 66% in Tysan Holdings  – as HKICIM was previously known – from Blackstone for HK$4.53 per share, triggering an MGO.

This share sale underlines HNA Group’s ongoing strategy to ease its debt burden and align its core business focus towards aviation, not construction and property.

HKICIM made headlines in the past not just for its eye-watering property acquisitions at Kai Tak (up to HK$13.5k/sqft in March 2017), the former site of Hong Kong’s international airport; but that HNA was also oddly motivated to acquire these parcels of land at record breaking prices to “snatch land and pricing power from the city’s real estate cartel“.

HKICIM sold its last Kai Tak site to Wheelock & (20 HK) last month (for a loss of $740mn), leaving the company with an estimated net cash position of ~$6.0bn (using FY18 interim numbers) or ~$1.80/share, it’s foundation piling operations, a development site in Hong Kong and a residential and commercial property development project in Shenyang.

The closing of the SPA is subject to the satisfaction or waiver of various conditions. However, the short time frame (13 business days from this announcement) in which to secure, fulfill or waive these conditions suggest minimal deal risk.

This will trade tight to, if not through terms, with an anticipated completion late April. There will be no bump to the Offer. Times does not intend to avail itself to compulsory acquisition and intends to maintain HKICIM’s listing; while both Times and HKICIM will take appropriate steps to maintain a sufficient public float after the close of the Offer.

2. Last Week in Event SPACE: MYOB, Lynas, Versum, Jardines

Last Week in Event SPACE …

• Not a bad reward/risk as Manikay greenmails KKR’s MYOB Group Ltd (MYO AU) offer.
• If the Malaysian government impasse cannot be resolved, Lynas Corp Ltd (LYC AU) will be left holding just a bunch of rocks.
• Antitrust issues are not deal breakers, while the strategic logic of the Versum Materials (VSM US) acquisition for Merck KGaA (MRK GY) is compelling.
• The ongoing circularity creep as Jardine Matheson Hldgs (JM SP) increases its stake in Jardine Strategic Hldgs (JS SP).
• Plus other events, CCASS movements and upcoming key dates for M&A transactions.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events – or SPACE – in the past week)

MYOB Group Ltd (MYO AU) (Mkt Cap: $1.4bn; Liquidity: $10mn)

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. 

(link to Travis’ insight: MYOB Setting Up As A Riskier Trade)

Lynas Corp Ltd (LYC AU) (Mkt Cap: $758mn; Liquidity: $6mn)

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.

(link to my insight: Lynas: Between a Hard Place and Just Rock)

POSCO Chemtech (003670 KS) (Mkt Cap: $758mn; Liquidity: $6mn)

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.

(link to Sanghyun Park‘s insight: POSCO Chemtech: Merger, Renaming, KOSPI Move & Joining KOSPI 200)

Versum Materials (VSM US) (Mkt Cap: $5.3bn; Liquidity: $75mn)

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. 

(link to John’s insight: Versum Materials – Merck KGaA Not Going Away (Part II))

Briefly …

Bristol Myers Squibb Co (BMY US) has responded to Starboard Value’s (& other critics) opposition of its perceived overpaying for Celgene Corp (CELG US) with a comprehensive and substantive presentation, increasing the likelihood this deal gets up. (link to ANTYA Investments Inc.‘s insight: Bristol Myers Squib & Celgene–Starboard Objections Addressed Today- Successful Deal Closure Probable)

Jardine Matheson Hldgs (JM SP) / Jardine Strategic Hldgs (JS SP)

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.

(link to my insight: StubWorld: Matheson’s Strategic Buying of Strategic)

Briefly …

• Sanghyun estimates HDC Holdings (012630 KS) and its major sub HDC Engineering & Construction (294870 KS) are at 247% of σ on a 20D MA for the first time since mid Nov last year, and recommends to go long the Sub and short Holdco. (link to Sanghyun’s insight: HDC Holdco Trade: Holdco Re-Rating Should Be Transferred to Sub, Time to Long Sub/Short Holdco)
• Orion Holdings (001800 KS) /Orion Corp (271560 KS) is now above +2σ on a 20D MA and is currently at a 120D high. Sanghyun recommends it is time to go long Sub and short Holdco. Plugging in Sanghyun’s numbers, I back out a discount to NAV of 46% compared to a the 12-year average of 48%. The parent is, though, very illiquid. (link to Sanghyun’s insight: Orion Holdco/Sub Trade: Holdco’s Price Catching up Was Overworked, Time for Sub to Catch Up)
• 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)

• ISS and Glass Lewis are understood to have recommended the offer for Hopewell Holdings (54 HK).

• 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%.

• The circular for China Goldjoy (1282 HK) has been delayed to the 26 March from 5 March.
• The Yungtay Engineering (1507 TT) Tender close has been extended to April 22 – big extension. Hmmm….
• 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.
• Panalpina Welttransport Holding (PWTN SW) has decided to call an EGM for April 5th, and approves the One Share One Vote amendment to the Articles of Association.
• Anta-Led Group Says 94.38% of Amer Sports Oyj (AMEAS FH) shares tendered.
• Hong Kong International Construction Investment Management Group Co., (687 HK)‘s possible MGO at $3.00/share.
• Michelin has acquired a 88% stake in Multistrada Arah Sarana Tbk (MASA IJ) and will make a mandatory offer for remaining shares.

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.   

In this briefing:

1. Last Week in Event SPACE: MYOB, Lynas, Versum, Jardines

1. Last Week in Event SPACE: MYOB, Lynas, Versum, Jardines

Last Week in Event SPACE …

• Not a bad reward/risk as Manikay greenmails KKR’s MYOB Group Ltd (MYO AU) offer.
• If the Malaysian government impasse cannot be resolved, Lynas Corp Ltd (LYC AU) will be left holding just a bunch of rocks.
• Antitrust issues are not deal breakers, while the strategic logic of the Versum Materials (VSM US) acquisition for Merck KGaA (MRK GY) is compelling.
• The ongoing circularity creep as Jardine Matheson Hldgs (JM SP) increases its stake in Jardine Strategic Hldgs (JS SP).
• Plus other events, CCASS movements and upcoming key dates for M&A transactions.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events – or SPACE – in the past week)

MYOB Group Ltd (MYO AU) (Mkt Cap: $1.4bn; Liquidity: $10mn)

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. 

(link to Travis’ insight: MYOB Setting Up As A Riskier Trade)

Lynas Corp Ltd (LYC AU) (Mkt Cap: $758mn; Liquidity: $6mn)

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.

(link to my insight: Lynas: Between a Hard Place and Just Rock)

POSCO Chemtech (003670 KS) (Mkt Cap: $758mn; Liquidity: $6mn)

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.

(link to Sanghyun Park‘s insight: POSCO Chemtech: Merger, Renaming, KOSPI Move & Joining KOSPI 200)

Versum Materials (VSM US) (Mkt Cap: $5.3bn; Liquidity: $75mn)

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. 

(link to John’s insight: Versum Materials – Merck KGaA Not Going Away (Part II))

Briefly …

Bristol Myers Squibb Co (BMY US) has responded to Starboard Value’s (& other critics) opposition of its perceived overpaying for Celgene Corp (CELG US) with a comprehensive and substantive presentation, increasing the likelihood this deal gets up. (link to ANTYA Investments Inc.‘s insight: Bristol Myers Squib & Celgene–Starboard Objections Addressed Today- Successful Deal Closure Probable)

Jardine Matheson Hldgs (JM SP) / Jardine Strategic Hldgs (JS SP)

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.

(link to my insight: StubWorld: Matheson’s Strategic Buying of Strategic)

Briefly …

• Sanghyun estimates HDC Holdings (012630 KS) and its major sub HDC Engineering & Construction (294870 KS) are at 247% of σ on a 20D MA for the first time since mid Nov last year, and recommends to go long the Sub and short Holdco. (link to Sanghyun’s insight: HDC Holdco Trade: Holdco Re-Rating Should Be Transferred to Sub, Time to Long Sub/Short Holdco)
• Orion Holdings (001800 KS) /Orion Corp (271560 KS) is now above +2σ on a 20D MA and is currently at a 120D high. Sanghyun recommends it is time to go long Sub and short Holdco. Plugging in Sanghyun’s numbers, I back out a discount to NAV of 46% compared to a the 12-year average of 48%. The parent is, though, very illiquid. (link to Sanghyun’s insight: Orion Holdco/Sub Trade: Holdco’s Price Catching up Was Overworked, Time for Sub to Catch Up)
• 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)

• ISS and Glass Lewis are understood to have recommended the offer for Hopewell Holdings (54 HK).

• 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%.

• The circular for China Goldjoy (1282 HK) has been delayed to the 26 March from 5 March.
• The Yungtay Engineering (1507 TT) Tender close has been extended to April 22 – big extension. Hmmm….
• 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.
• Panalpina Welttransport Holding (PWTN SW) has decided to call an EGM for April 5th, and approves the One Share One Vote amendment to the Articles of Association.
• Anta-Led Group Says 94.38% of Amer Sports Oyj (AMEAS FH) shares tendered.
• Hong Kong International Construction Investment Management Group Co., (687 HK)‘s possible MGO at $3.00/share.
• Michelin has acquired a 88% stake in Multistrada Arah Sarana Tbk (MASA IJ) and will make a mandatory offer for remaining shares.

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.   

In this briefing:

1. Last Week in Event SPACE: Altaba, Nexon, MYOB, Panalpina, Ezion, Naspers, Melco
2. Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil
3. Everbright Mandatory Offer for Ying Li Intl Real Estate – Going Cheap
4. Nexon Sale: Key Questions at This Point & Most Realistic Answers
5. Newmark Group Inc (NMRK US): Valuation/Fundamentals Mismatch, Stock Trades At Bargain Levels

1. Last Week in Event SPACE: Altaba, Nexon, MYOB, Panalpina, Ezion, Naspers, Melco

Last Week in Event SPACE …

• Here it is. The end – the culmination of years of effort and high balance sheet usage by hedge funds. Altaba Inc (AABA US) is going out with a whimper plus a little upside.
• Reportedly plans for the sale of NHC have been abandoned with a focus on selling its Nexon Co Ltd (3659 JP)gaming unit.
• That’s a wrap, as Manikay blinks and concedes to KKR’s Offer for MYOB Group Ltd (MYO AU).
• Ezion Holdings (EZI SP) is tendered a necessary lifeboat from Yinson Holdings (YNS MK).
• We now have an agreed deal for Panalpina Welttransport Holding (PWTN SW) supported by the Ernst Göhner Foundation, the major activist shareholders, and Panalpina management.
• Naspers Ltd (NPN SJ)‘s discount to NAV narrows as it teases out more information on spinning-off and separately listing Tencent Holdings (700 HK).
• Melco International Development (200 HK) is potentially mispriced against Melco Resorts & Entertainment (MLCO US) after the release of FY18 earnings.

• Plus other events, CCASS movements and upcoming key dates for M&A transactions.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events – or SPACE – in the past week)

Altaba Inc (AABA US) (Mkt Cap: $42bn; Liquidity: $452mn)

Altaba will sell or distribute, in stages, its remaining net assets to shareholders, with a “pre-dissolution liquidating distribution to stockholders (in cash, Alibaba ADSs or a combination thereof), which Altaba currently expects will be made in the fourth quarter of 2019 and estimates will be in an amount between $52.12 and $59.63/share in cash and/or Alibaba ADSs (which estimates assume, among other things, an Alibaba Share price realized on sale and, if applicable, an Alibaba share value at the time of distribution, of $177.00/Alibaba share).”

• As p55 of the preliminary proxy makes clear, based on the same US$177/share assumption of value realized or distributed per Alibaba share held, the total distributed would be in a range of $76.72 and $79.72 based on some other assumptions.
• A larger portion of the remaining amount could take 12 months to arrive, and there could be other residual portions which will take longer (years), as discussed in the proxy and call transcript.
• It looks like there is upside as the stock closed at US$72.76 (at the time of the insight). But there is less than you think simply because it will take time to get out of it. And discount rates of the first portion may be low, but discount rates applied to the later payments post-delisting and post court workout for the Holdback Amount could be higher.
• Travis Lundy has opinions on what to do once you start getting into the arb risks. Do read his insight.

(link to Travis’ insight: ALTABA UNWINDING – Not Much Juice, and Considerably Different Skew)

Nexon Co Ltd (3659 JP) (Mkt Cap: $14bn; Liquidity: $50mn)

Sanghyun Park discussed Nexon sale after the FT reported bankers has stopped plans to sell the holding company NXC. The sale of NXC is probably the simplest exit path for Kim Jung-ju as it would be a more attractive tax outcome than selling Nexon Japan outright.

• But there’s a lot of other stuff in NXC that suitors don’t want to, which ideally should be sold before selling NXC. There’s also the issue of whether a tender offer would be required whether the sale of NXC or Nexon – Travis concludes an offer would be required while Sanghyun does not.

• Korean local news outlet reported that Tencent Holdings (700 HK)‘s US$6bn bond issuance may be a fund raising for a Nexon takeover. Still, South Korea would prefer keep Nexon’s ownership domestic, which may favour Kakao Games (1404796D KS) or PE outfit MBK.

(link to Sanghun’s insight: Nexon Sale: Key Questions at This Point & Most Realistic Answers)

Summit Ascent Holdings (102 HK) (Mkt Cap: $270mn; Liquidity: $1mn)

Summit Ascent announced that First Steamship (the major shareholder) and Kuo Jen Hao (chairman) are in talks to sell their entire shareholdings. No numbers were disclosed. This stake sale would not trigger an MGO and there was no reference to the release of an announcement pursuant to the Codes on Takeovers and Mergers and Share Buy-Backs in Hong Kong. Shares are up 35%.

• Summit is trading at a trailing PER of 267x. CapIQ forecasts point to a threefold increase in earnings in FY19, although I would advise caution on those numbers given the tight cluster of target prices; historically, target prices for Summit have been wide of the mark.
• First Steamship bought in at $1.06 in December 2017, around the same price when this announcement was made. Should this sale complete, this would result in the third time the shares of the major shareholder have changed hands. This looks like a great opportunity to exit.

(link to my insight: Summit Ascent’s Slippery Slope)

MYOB Group Ltd (MYO AU) (Mkt Cap: $1.4bn; Liquidity: $10mn)

On the 20th March, MYO announcing receipt of a letter from KKR saying that the A$3.40 price was their “best and final offer”, making it clear under Truth in Takeovers language that Manikay was not going to get a higher price out of them. Manikay continued to buy shares on the 20th and the 21st, getting to 16.16% of the company as filed on the 22nd.

• On Monday 1 April, MYOB announced a supplemental disclosure to the Scheme documents noting KKR’s final intention, and that the directors continued to unanimously recommend the Scheme.
• Mid-week, Manikay caved and said intends to vote all its shares for the upcoming Scheme, subject to there being no proposal that we consider to be superior prior to the vote. This is now MUCH closer to being a done deal. It will trade tight.

• Travis is a trifle surprised Manikay did not wait a little longer. They were able to increase their stake in the low A$3.30s because of the uncertainty of their intentions, and they could probably have gone close to 20% in the low 3.30s before saying “Yes.” That would have been a welcome extra profit.

(link to Travis’ insight: Manikay Caves and Accepts KKR’s Reduced (And Now Final) Offer)

Ezion Holdings (EZI SP) (Mkt Cap: $219mn; Liquidity: $2mn)

Lifeboat market play Ezion has received a bail-out from Malaysia’s Yinson Holdings (YNS MK) via a capitalisation of debt and option agreement. Ezion remains suspended.

• On the surface, this looks like a bargain for Yinson which is ostensibly taking over Ezion for US$200mn. However, Yinson said that it is still negotiating with the designated lenders of the US$916mn debt on the terms and conditions..
• Yinson’s business risks include contact risk, oil price fluctuations and the level of activities in the O&G industry. These risks do not change should the Ezion proposal complete.
• And offshore support companies face a raft of challenges: Ezra Holdings (EZRA SP) entered bankruptcy in 2017, Pacific Radiance (PACRA SP) has been voluntarily suspended since 28 Feb 2018 as it seeks a way to complete its debt restructuring; while Swiber Holdings (SWIB SP)recently announced its own US$200mn injection from Seaspan Corp. (SSW US), after the company had laboured in judicial management for the past two years.

(link to my insight: Yinson Tenders a Lifeboat for Ezion)

Kingboard Copper Foil Hldgs (KCF SP) (Mkt Cap: $320mn; Liquidity: <$100k)

For the second time in two years parent Kingboard Laminates Holdings (1888 HK) (ultimate parent being Kingboard Holdings (148 HK)) has launched an Offer to fully privatize KCF. This time at SGD 0.60/share vs SGD 0.40 two years ago.

• The last time came on the heels of a long independent review by EY which found KCF had given up profit to the parent through a series of relatively unfair interested party transaction agreements.
• At the end, the Bermudan Court of Appeals went against a Supreme Court decision which had decided that a replacement counterparty decision was prejudiced against minorities, and despite the April 2017 deal being not fair and not reasonable according to the IFA, the parent acquired ~10% (of the 28% it did not own) bringing their stake to 82.3%. A year later the parent acquired another 5.5% bringing them to almost 88%.
• Now an offer at SGD 0.60/share (compared to the Revalued NTA of SGD 0.7086/share from the IFA report (p36) of two years ago gets closer to the mark, but crucially, it is designed to squeeze out minorities with the threat of delisting. Kingboard Laminates only needs 2.05% to oblige a delisting from the SGX. As far as Travis can tell, it would require more – at least 95% of shares – to oblige a mandatory squeezeout of minorities according to Section 102-103 of Bermuda Companies Act.
• Travis thinks this one gets through.

(link to Travis’ insight: Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil)

Ying Li International Real Estate Ltd (YINGLI SP) (Mkt Cap: $260mn; Liquidity: truly tiny)

China Everbright (165 HK) has launched an MGO at SGD 0.14/share for the rest of Ying Li International Real Estate Ltd (YINGLI SP) after last week purchasing the 30.00% stake formerly held by the CEO, bringing its stake to 58.9%.

• The deal is at a negligible premium and is far, far below Tangible Book Value Per Share (which is almost three times the offer price). Given that the acquirer bought a large stake in the company and offered perpetual capital of almost the current market cap at a significant premium to the MGO price, Travis thinks it an unattractive offer.
• It is puzzling as to why the CEO would sell his shares at such a discount, especially when the company and Everbright co-own some of the assets.
• While the stated intention of the Offeror is to keep the stock listed, and the MGO is presented almost as “technical”, it would be enormously to Everbright’s benefit to buy as many shares as they could down at this price level. It will go from being underwater on an equity affiliate stake purchase to having a huge writeup in value if Everbright consolidates the asset post MGO.
• For that, Travis thinks there is a possibility of a bump just to make it more attractive, though the IFA report could come out with a not fair and reasonable result which shows NTA or NAV far, far higher than the Offer Price, which is not yet declared final.

(link to Travis’ insight: Everbright Mandatory Offer for Ying Li Intl Real Estate – Going Cheap)

Briefly …

In a mainly technical piece, I explained why China Three Gorges, China Power New Energy Development Co (735 HK)‘s largest shareholder with 27.1% is currently required to abstain from voting at the forthcoming court meeting, despite the misleading statement in the  announcement that China Three Gorges has given an irrevocable undertaking to vote for the Scheme. (link to my insight: China Three Gorges’ Rebuttable Presumption)

Panalpina Welttransport Holding (PWTN SW) (Mkt Cap: $4.8bn; Liquidity: $27mn)

What was once a tough deal is now an agreed deal. The deal is 2.375 shares of DSV for every share of Panalpina, which as of the previous Friday’s close had a value of CHF 195.80/share which is a 43% premium to the CHF 137/share, where Panalpina was trading the day before DSV’s first bid.

• Panalpina is getting taken out at 28.1x reported 2018 EV/EBITDA multiple (pre-IFRS 16) calculated at a CHF 195.8 price. Panalpina shareholders will own ~23% of DSV shares out if all shares are exchanged and the Ernst Göhner Foundation will be the largest shareholder at ~11%.
• 69.9% of shares have irrevocably agreed to support the Exchange Offer. The customary condition is 80% to make it go through, meaning DSV needs another 10.1% out of the 30% extant (or just over one-third).
• Travis expects there is another 10-15% held by arbitrageurs and 5-7% held by indexers already so this deal looks to me like it is done. He expects the Exchange Offer may settle as early as early-August. If it trades tight, he would get out because DSV is probably priced to a very good level. 

(link to Travis’ insight: DSV Improves Bid and Göhner Foundation and Panalpina Agree)

Lenta Ltd (LNTA LI) (Mkt Cap: $1.7bn; Liquidity: $2mn)

Reuters reported that Alexey Mordashov’s Severgroup had reached an agreement to buy a 41.9% stake, excluding treasury shares, in Lenta from those TPG and European Bank for Reconstruction and Development, for a total of US$721mm, or US$18 per share or US$3.60 per GDR. That implies a price of US$1.75bn for the whole company. This was followed by Lenta announced confirming the cash offer. The Offer Price is an 8.11% premium to the last trade on 26 March – the undisturbed price, and a premium of 9.76% to the 6mo average price of US$3.28 for the GDRs. 

• The first 41.9% are sold conditional on FAS Clearance (presumably Mordashov has cleared this transaction with “the right people”) expected in May 2019, a few easily achieved conditions, and the condition of no sanctions being in play for any of the selling or buying parties. 
• Once cleared – expected in May 2019 – this becomes a straightforward offer with no minimum acceptances meaning that investors can sell shares into the deal or decide not to do so.
• It’s not an attractive offer price, with the possibility of a bump if enough people complain.  If you want to buy and hold, this deal is a put option.

(link to Travis’ insight: Severgroup Puts in a Cheeky Bid for Lenta – TPG and EBRD Bail)

Naspers Ltd (NPN SJ) / Tencent Holdings (700 HK)

Since announcing the intended listing of its international internet assets on Euronext Amsterdam “no earlier than H2 2019” – together with a secondary, inward listing on the Johannesburg Stock Exchange – I calculate Naspers discount to NAV has narrowed to 34.4% from 37.1%, the day before the announcement, placing the current discount a shade below the 12-month average.

• The likelihood of NewCo trading at a tighter discount to where Naspers’ previously (& currently trades) is universally accepted. Naspers will benefit from that reduced discount via its 75% stake; but it is not known where Naspers’ own discount will trade after the spin-off.
• There are indications the management want to see the group discount narrow to 30%, possibly down to the 20% level, which implies a significantly lower discount for Naspers, potentially around 10%. That would seem optimistic as investors focus more on the directly-held Tencent vehicle, and the fact Naspers is a holding company, holding a stake in another holding company.
• Naspers’ discount may drift narrower on the expectation Naspers’ spin-off works its magic. Greater clarity on the option into Naspers or NewCo may provide an additional boost; but conversely, if such an option is limited, there is likely to be disappointment.

(link to my insight: StubWorld: Naspers’ Restructuring Update)

Melco International Development (200 HK) / Melco Resorts & Entertainment (MLCO US)

With Melco trading at a (then) 32% discount to NAV, Curtis Lehnert recommends a set-up trade on a dollar for dollar basis. The current level, as I write, is statistically the most attractive according to the Smartkarma Holdco Tool, sitting at -1.8 standard deviations from the 180 DMA.

• Stub assets are minimal – around 8% of GAV – if excluding gaming licenses, goodwill and trademarks. Net cash is $6.4bn or $4.27/share.
• Those stub assets are still loss-making, after deconsolidating out MLCO, to the tune of $386mn in EBITDA, but that was an improvement on (HK$682mn) figure in FY17.
• Still, Curtis thinks now is the time to enter the trade to take advantage of both the statistical and fundamental supports to the trade. 

(link to Curtis’ insight: TRADE IDEA – Melco (200 HK) Stub: Lose a Little Sleep in Macau)

For the month of March, ten new deals were discussed on Smartkarma with a cumulative deal size of US$22.3bn. This overall number includes Blackstone and Hellman & Friedman’s proposal for Scout24 AG (G24 GR) after the Tender Offer was officially launched in March. This deal was first proposed in mid-January – which was rejected by the board – and subsequently an improved offer was tabled, which was then supported.

The average premium to last close for the new deals announced in March was 18%, while the average for the first quarter of 2019 is 33%.

(link to my insight: M&A: A Round-Up of Deals in March 2019)

• Delta Electronics Thai (DELTA TB)‘s results of the CVTO have been announced.  42.85% of shares tendered, therefore the offeror held 63.78% of shares at the close of the offer. The MSCI downweight occurred at the close Thursday, however shares popped 17.5%.

• Hanergy Thin Film Power (566 HK)‘s Scheme document has been delayed until the 25 April, from the 2 April.

• The Dairy Crest (DCG LN) takeover by Saputo was approved at the Court Meeting and Scheme Meeting yesterday.

• Ap Eagers Ltd (APE AU), Automotive Holdings (AHG AU)‘s largest shareholder, has proposed an all-scrip merger offer. AHG recommends shareholders take no action at this time.

• Glow Energy Pcl (GLOW TB)‘s IFA recommends shareholders tender into Global Power Synergy Company Ltd (GPSC TB)‘s offer.

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.   

2. Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil

April 4th after the close, a wholly-owned subsidiary of Hong Kong-listed Kingboard Laminates Holdings (1888 HK) (which itself is 70.93% owned by Kingboard Holdings (148 HK) (formerly known as “Kingboard Chemical“)) launched a VOLUNTARY UNCONDITIONAL CASH OFFER for Kingboard Copper Foil Hldgs (KCF SP). 

This is a “clean-up” as Kingboard Laminates owns 87.96% of Kingboard Copper Foil already. 

It is unconditional in all respects and the Offeror owns 87.96%. The goal is delisting. If they get 17.03% of the minority, they will be able to engineer a delisting. Squeezeout is a bit further out but is far from impossible. 

This looks like a done deal. This one should trade at shouldn’t trade at a premium UNLESS…

Quiddity’s new Quiddity Singapore M&A Guide 2019 is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Watch for more in the series to be published shortly.

3. Everbright Mandatory Offer for Ying Li Intl Real Estate – Going Cheap

On 3 April 2019, China Everbright (165 HK)‘s wholly owned subsidiary, State Alpha Limited, purchased 767,052,161 shares representing approximately 30.00% of the Shares in Singapore-listed property developer, Ying Li International Real Estate Ltd (YINGLI SP), from Newest Luck Holdings Limited (the vehicle of Executive Chairman and CEO Mr. Fang Ming) at a share price of SGD 0.140.

Following this transaction, the combined stake of China Everbright and parties acting in concert with it reached 58.91% triggering an obligation to make a mandatory offer for all the shares of Ying Li, a transaction which was announced after the close.

The offer price of SGD 0.140 translates to a premium of 5.9% and 10.9% to Ying Li’s 1-month and 3-month VWAP, respectively but less than a 1% premium to last trade – the company’s shares closed at SGD 0.139 on 3rd April before the announcement. The company asked for a trading halt the next morning and the shares have not traded yet as the large shareholder disclosures have come trickling in on the 4th and the 5th.

The acquirer has stated that it is their present intention to maintain the listing status of the company. However, the acquirer also reserves the right to reevaluate this position if the free float falls below the 10% requirement specified in the listing rules following the completion of the offer. 

This is something like a free put for investors and a very low-priced call option for Everbright. The situation raises obvious questions, and despite the “intention” to maintain the listing status, there are reasons why they would not want to. The details are worth a look.

Quiddity’s new Quiddity Singapore M&A Guide 2019 is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Watch for more in the series to be published shortly.

4. Nexon Sale: Key Questions at This Point & Most Realistic Answers

This post discusses the key questions on Nexon sale at this point. It then provides the most realistic answers to these questions from various circumstantial aspects. This post is based on the recent news reports and also various local sources.

5. Newmark Group Inc (NMRK US): Valuation/Fundamentals Mismatch, Stock Trades At Bargain Levels

Having gained ~30% in a little more than two months following its full separation from BGC Partners (BGCP US) at the end of November 2018 after a dismal share price performance since coming to the market in a partial IPO at the end of December 2017,  the shares of commercial real estate services company, Newmark Group (NMRK US)  have experienced another slide over the past several weeks despite its cheap valuation which belies its positive fundanmental drivers and peer group comparisons.

Notwithstanding its robust fundamentals, notice of alterations it plans to make to its Non-GAAP earnings presentations to bring them more into line with many other US-listed companies, has brought the company into the headlights of the ongoing controversy caused by this topic,  and in particular with respect to the treatement of stock-based compensation in Non-GAAP earnings. While Newmark follows many other companies by excluding it from Adjusted Earnings, its heavy use of stock-based compensation, which it intends to lessen going forward, makes it an easy target for critique of its earnings presentations. Nevertheless, we assess that Newmark is at least 35%  undervalued relative to its peers after incorparting stock compensation expenses in its earnings-based valuation metrics. It is also noteworthy that Newmark is currently paying shareholders a yield of ~4% against barely any dividend being paid out by peers

In this briefing:

1. Last Week in Event SPACE: MYOB, Lynas, Versum, Jardines
2. Versum Materials – Merck KGaA Not Going Away (Part II)

1. Last Week in Event SPACE: MYOB, Lynas, Versum, Jardines

Last Week in Event SPACE …

• Not a bad reward/risk as Manikay greenmails KKR’s MYOB Group Ltd (MYO AU) offer.
• If the Malaysian government impasse cannot be resolved, Lynas Corp Ltd (LYC AU) will be left holding just a bunch of rocks.
• Antitrust issues are not deal breakers, while the strategic logic of the Versum Materials (VSM US) acquisition for Merck KGaA (MRK GY) is compelling.
• The ongoing circularity creep as Jardine Matheson Hldgs (JM SP) increases its stake in Jardine Strategic Hldgs (JS SP).
• Plus other events, CCASS movements and upcoming key dates for M&A transactions.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events – or SPACE – in the past week)

MYOB Group Ltd (MYO AU) (Mkt Cap: $1.4bn; Liquidity: $10mn)

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. 

(link to Travis’ insight: MYOB Setting Up As A Riskier Trade)

Lynas Corp Ltd (LYC AU) (Mkt Cap: $758mn; Liquidity: $6mn)

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.

(link to my insight: Lynas: Between a Hard Place and Just Rock)

POSCO Chemtech (003670 KS) (Mkt Cap: $758mn; Liquidity: $6mn)

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.

(link to Sanghyun Park‘s insight: POSCO Chemtech: Merger, Renaming, KOSPI Move & Joining KOSPI 200)

Versum Materials (VSM US) (Mkt Cap: $5.3bn; Liquidity: $75mn)

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. 

(link to John’s insight: Versum Materials – Merck KGaA Not Going Away (Part II))

Briefly …

Bristol Myers Squibb Co (BMY US) has responded to Starboard Value’s (& other critics) opposition of its perceived overpaying for Celgene Corp (CELG US) with a comprehensive and substantive presentation, increasing the likelihood this deal gets up. (link to ANTYA Investments Inc.‘s insight: Bristol Myers Squib & Celgene–Starboard Objections Addressed Today- Successful Deal Closure Probable)

Jardine Matheson Hldgs (JM SP) / Jardine Strategic Hldgs (JS SP)

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.

(link to my insight: StubWorld: Matheson’s Strategic Buying of Strategic)

Briefly …

• Sanghyun estimates HDC Holdings (012630 KS) and its major sub HDC Engineering & Construction (294870 KS) are at 247% of σ on a 20D MA for the first time since mid Nov last year, and recommends to go long the Sub and short Holdco. (link to Sanghyun’s insight: HDC Holdco Trade: Holdco Re-Rating Should Be Transferred to Sub, Time to Long Sub/Short Holdco)
• Orion Holdings (001800 KS) /Orion Corp (271560 KS) is now above +2σ on a 20D MA and is currently at a 120D high. Sanghyun recommends it is time to go long Sub and short Holdco. Plugging in Sanghyun’s numbers, I back out a discount to NAV of 46% compared to a the 12-year average of 48%. The parent is, though, very illiquid. (link to Sanghyun’s insight: Orion Holdco/Sub Trade: Holdco’s Price Catching up Was Overworked, Time for Sub to Catch Up)
• 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)

• ISS and Glass Lewis are understood to have recommended the offer for Hopewell Holdings (54 HK).

• 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%.

• The circular for China Goldjoy (1282 HK) has been delayed to the 26 March from 5 March.
• The Yungtay Engineering (1507 TT) Tender close has been extended to April 22 – big extension. Hmmm….
• 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.
• Panalpina Welttransport Holding (PWTN SW) has decided to call an EGM for April 5th, and approves the One Share One Vote amendment to the Articles of Association.
• Anta-Led Group Says 94.38% of Amer Sports Oyj (AMEAS FH) shares tendered.
• Hong Kong International Construction Investment Management Group Co., (687 HK)‘s possible MGO at $3.00/share.
• Michelin has acquired a 88% stake in Multistrada Arah Sarana Tbk (MASA IJ) and will make a mandatory offer for remaining shares.

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.   

2. Versum Materials – Merck KGaA Not Going Away (Part II)

Since my initial report on Versum Materials (VSM US)  last week, Versum Materials – Entegris Beaten to the Punch by Merck KGaA , I’ve dug deeper and feel even more confident that Merck KGaA (MRK GR) is intent on seeing its proposal to acquire Versum to a successful conclusion, with or without a recommendation from the Versum board.

In this follow-up note I provide an update of events since last week, look at VSM’s corporate governance documents, review relevant landmark Delaware takeover case law, and elaborate on a possible path to control of Versum for Merck KGaA.

In this briefing:

1. Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil
2. Everbright Mandatory Offer for Ying Li Intl Real Estate – Going Cheap
3. Nexon Sale: Key Questions at This Point & Most Realistic Answers
4. Newmark Group Inc (NMRK US): Valuation/Fundamentals Mismatch, Stock Trades At Bargain Levels
5. ALTABA UNWINDING – Not Much Juice, and Considerably Different Skew

1. Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil

April 4th after the close, a wholly-owned subsidiary of Hong Kong-listed Kingboard Laminates Holdings (1888 HK) (which itself is 70.93% owned by Kingboard Holdings (148 HK) (formerly known as “Kingboard Chemical“)) launched a VOLUNTARY UNCONDITIONAL CASH OFFER for Kingboard Copper Foil Hldgs (KCF SP). 

This is a “clean-up” as Kingboard Laminates owns 87.96% of Kingboard Copper Foil already. 

It is unconditional in all respects and the Offeror owns 87.96%. The goal is delisting. If they get 17.03% of the minority, they will be able to engineer a delisting. Squeezeout is a bit further out but is far from impossible. 

This looks like a done deal. This one should trade at shouldn’t trade at a premium UNLESS…

Quiddity’s new Quiddity Singapore M&A Guide 2019 is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Watch for more in the series to be published shortly.

2. Everbright Mandatory Offer for Ying Li Intl Real Estate – Going Cheap

On 3 April 2019, China Everbright (165 HK)‘s wholly owned subsidiary, State Alpha Limited, purchased 767,052,161 shares representing approximately 30.00% of the Shares in Singapore-listed property developer, Ying Li International Real Estate Ltd (YINGLI SP), from Newest Luck Holdings Limited (the vehicle of Executive Chairman and CEO Mr. Fang Ming) at a share price of SGD 0.140.

Following this transaction, the combined stake of China Everbright and parties acting in concert with it reached 58.91% triggering an obligation to make a mandatory offer for all the shares of Ying Li, a transaction which was announced after the close.

The offer price of SGD 0.140 translates to a premium of 5.9% and 10.9% to Ying Li’s 1-month and 3-month VWAP, respectively but less than a 1% premium to last trade – the company’s shares closed at SGD 0.139 on 3rd April before the announcement. The company asked for a trading halt the next morning and the shares have not traded yet as the large shareholder disclosures have come trickling in on the 4th and the 5th.

The acquirer has stated that it is their present intention to maintain the listing status of the company. However, the acquirer also reserves the right to reevaluate this position if the free float falls below the 10% requirement specified in the listing rules following the completion of the offer. 

This is something like a free put for investors and a very low-priced call option for Everbright. The situation raises obvious questions, and despite the “intention” to maintain the listing status, there are reasons why they would not want to. The details are worth a look.

Quiddity’s new Quiddity Singapore M&A Guide 2019 is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Watch for more in the series to be published shortly.

3. Nexon Sale: Key Questions at This Point & Most Realistic Answers

This post discusses the key questions on Nexon sale at this point. It then provides the most realistic answers to these questions from various circumstantial aspects. This post is based on the recent news reports and also various local sources.

4. Newmark Group Inc (NMRK US): Valuation/Fundamentals Mismatch, Stock Trades At Bargain Levels

Having gained ~30% in a little more than two months following its full separation from BGC Partners (BGCP US) at the end of November 2018 after a dismal share price performance since coming to the market in a partial IPO at the end of December 2017,  the shares of commercial real estate services company, Newmark Group (NMRK US)  have experienced another slide over the past several weeks despite its cheap valuation which belies its positive fundanmental drivers and peer group comparisons.

Notwithstanding its robust fundamentals, notice of alterations it plans to make to its Non-GAAP earnings presentations to bring them more into line with many other US-listed companies, has brought the company into the headlights of the ongoing controversy caused by this topic,  and in particular with respect to the treatement of stock-based compensation in Non-GAAP earnings. While Newmark follows many other companies by excluding it from Adjusted Earnings, its heavy use of stock-based compensation, which it intends to lessen going forward, makes it an easy target for critique of its earnings presentations. Nevertheless, we assess that Newmark is at least 35%  undervalued relative to its peers after incorparting stock compensation expenses in its earnings-based valuation metrics. It is also noteworthy that Newmark is currently paying shareholders a yield of ~4% against barely any dividend being paid out by peers

5. ALTABA UNWINDING – Not Much Juice, and Considerably Different Skew

On February 27th of this year, Altaba Inc (AABA US) held a “Strategic and Financial Update Conference Call.” In that call the company led by CEO Thomas McInerney said that effectively it was going to deal with its two major remaining assets (2.03bn shares of Yahoo Japan Corp (4689 JP) and 383.56mm shares of Alibaba Group Holding Ltd (BABA US)) in two stages, saying at the time they were “moving to an active monetization mode on [our] Yahoo Japan stake.”

That Yahoo Japan stake took longer, but the company worked to sell $20+bn of Alibaba last summer through a tender offer and selldown to generate cash for corporate liabilities and taxes, and then the company sold its Yahoo Japan stake in early September. 

Since then, there has been a period of watchful waiting. Some have been expecting a period with an acceptable amount of carry and then possible significant upside. I haven’t seen the upside but agree there has been some baseline carry. And if you can get lots of leverage on this and ride the volatility, it could produce an OK return from A to Z if you ignore the indignities and volatility of passing through stops B to Y.

The New News

Yesterday, Altaba and CEO McInerney held a conference call after filing a PRE 14A preliminary proxy statement related to the selldown/unwinding of its entire Alibaba stake and the proposed windup/dissolution of Altaba as an entity. 

The company will sell or distribute, in stages, its remaining net assets to shareholders, with a “pre-dissolution liquidating distribution to stockholders (in cash, Alibaba ADSs or a combination thereof), which the Fund currently expects will be made in the fourth quarter of 2019 and estimates will be in an amount between $52.12 and $59.63 per Share in cash and/or Alibaba ADSs (which estimates assume, among other things, an Alibaba Share price realized on sale and, if applicable, an Alibaba Share value at the time of distribution, of $177.00 per Alibaba Share).”

As p55 of the preliminary proxy makes clear (and as discussed in the transcript linked above, which is short and worth reading), based on the same US$177/share assumption of value realized or distributed per Alibaba share held, the total distributed would be in a range of $76.72 and $79.72 based on some other assumptions. A larger portion of the remaining amount could take 12 months to arrive, and there could be other residual portions which will take longer (years), as discussed in the proxy and call transcript.

The figure of $76.72 – $79.72 represents a 5.44-9.56% premium to yesterday’s close of $72.76/share and represents the total of the Pre-Dissolution Liquidating Distribution in Q4 2019, a second distribution in Q4 2020, then residuals thereafter after the court-mandated holdback in the dissolution process pays its claims.

Fair value calculations, parameters, and risk discussion below.

Elaborate fair value calculations using different assumptions of appropriate discount rates for each payment, and exactly how much is in the last bit (and how long it takes to pay out) suggest a group of ranges of fair value, from about 3-4% below the last-traded price, to about 4-5% above. However, for a hedge fund to earn a 10% net return for investors from owning the trade at the close of yesterday, getting there requires a fair bit of leverage and the resulting information ratio may be lower than desirable.

Assuming the approximate time to payment as described in the proxy statement, and amount of payment in the first distribution as described, and a multi-year residual of US$5/share, current borrow rates and an assumption of slightly higher discount rate required for the portion of time the stock is unlisted and even higher when one is receiving residual claims, the current fair value of the stock ranges from about 2% below current price and 4% higher. If you assume a higher Holdback Amount, the range of outcomes shifts lower.

In this briefing:

1. Versum Materials – Merck KGaA Not Going Away (Part II)

1. Versum Materials – Merck KGaA Not Going Away (Part II)

Since my initial report on Versum Materials (VSM US)  last week, Versum Materials – Entegris Beaten to the Punch by Merck KGaA , I’ve dug deeper and feel even more confident that Merck KGaA (MRK GR) is intent on seeing its proposal to acquire Versum to a successful conclusion, with or without a recommendation from the Versum board.

In this follow-up note I provide an update of events since last week, look at VSM’s corporate governance documents, review relevant landmark Delaware takeover case law, and elaborate on a possible path to control of Versum for Merck KGaA.