Korea’s local news house Hankyung reported the names that should be included in the short list. They are Kakao, MBK Partners (with NetMarble), Tencent, Bain Capital and another foreign PE whose name isn’t disclosed. Apparently, Amazon, Comcast and EA, didn’t make the short list. Those in the short list now get a chance to do due diligence. They will then participate in the main bidding round that is scheduled for early April.
It is being reported that only Kakao and NetMarble (with MBK Partners) are truly interested in taking over Nexon’s management right. Tencent is expected to join either Kakao or NetMarble-led consortium in the end. Bain is looking into possible investment opportunities that may be created if this sale leads to a mandatory tender offer to Nexon minority shareholders. It seems safe to say that this comes down to a two-horse race: either Kakao or NetMarble.
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In my initial insight on China Power New Energy Development Co (735 HK, “CPNED”)‘s privatisation by China Power New Energy Limited (the Offeror) by way of a Scheme, I concluded China Three Gorges, CPNED’s largest shareholder with 27.10%, will likely be required to abstain at the Court Meeting as it is presumed to be a connected party to the Offeror as per the Takeovers Code.
But the announcement states that CTG has given an irrevocable undertaking to vote for the Scheme and to elect the share alternative.
It seems illogical to mention in the irrevocable CTG will vote for the Scheme when in actuality it cannot vote. So, which one is it?
The short answer is: CTG cannot currently vote.
But understanding this requires diving into the minutiae of Hong Kong’s Takeovers Code. So I do.
In the middle of last week, Russia’s largest chain of hypermarkets Lenta Ltd (LNTA LI)announced that it was aware that there were ongoing discussions between Luna (TPG’s holding entity, which owns 34.13% of Lenta’s capital) and Alexey Mordashov’s Severgroup, for Luna to sell its stake in Lenta to the Russian conglomerate. A day later, Lenta announced the company was aware of discussions between Severgroup and the EBRD (7.40% holder).
Reuters reported last night that Severgroup had reached an agreement to buy a 41.9% stake, excluding treasury shares, in Lenta from those two sellers, 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.
Later last night, Lenta announced on its website (full press release here) a cash offer for all the shares had been proposed. The Offer has a pre-condition dealing with the above-mentioned transactions being approved by those who need to approve.
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.
A conditional debt conversion agreement to capitalise all of the “relevant debt” of US$916mn via the allotment and issue of up to approximately 22,573,570,909 new ordinary shares of Ezion at an issue price of S$0.055/share (27.9% premium to last close).
A conditional option agreement for the proposed grant by Ezion of 3,360,495,867 non-listed and transferable share options to Yinson at the exercise price of S$0.0605 per option Share.
This shareholder structure will take the following shape, with Yinson holding 85.9% of shares out after the conversion and 87.5% after both the conversion and the exercise of the share options.
Current Holding
After Conversion
After Conversion & Options
Current shares out
3,728
100%
3,728
14%
3,728
13%
Debt conversion
0%
22,574
86%
22,574
76%
Option shares
0%
0%
3,360
11%
Total shares (mn)
3,728
26,302
29,662
However … as per the more detailed Bursa announcement:
It is the intention of YEPL (wholly-owned sub of Yinson) to acquire up to US$916mn of the Relevant Debts for a consideration to be agreed with the Designated Lenders. Tentatively, YHB (Yinson) expected its cash outlay shall be in the region of USD200mn and some EHL (Ezion) Shares that will give YEPL a shareholding of not less than 70% in EHL at the point of the completion of the Proposed Debt conversion and Subscription. In any event, assuming all convertible securities of EHL are converted, YHB expects its eventual shareholding in EHL shall be a controlling stake of at least 51%.
Ezion is also in negotiation with the major secured lenders to restructure its existing debts which would result in the conversion of certain debts to redeemable convertible preferences shares to be issued by Ezion.
As this is effectively a hybrid takeover, there exist a number of conditions required to complete this proposal. Of importance is the waiver from the Securities Industry Council of Singapore for Yinson not to make a mandatory general offer for Ezion under Rule 14.1 of the Takeover Code, as the share subscription takes Yinson’s stake >30%.
Conditions of the Debt Conversion/Proposed Subscription and Share Options
For the Debt Conversion & Subscription
Conditions
Satisfactory due diligence by Yinson.
Waiver from SIC not to make a MGO.
Independent shareholders of Ezion approving the whitewash waiver. Simple majority vote.
The approval by Ezion shareholders for the allotment and issue of the subscription shares. Simple majority vote.
Other
The long stop date is 6 months from the conditional debt conversion agreement (31 March 2019).
For the Share Options
Conditions
The approval by Ezion shareholders for the option shares. Simple majority vote.
Other
The long stop date is 6 months from the conditional option agreement (31 March 2019).
The exercise period is five years from the issuance of the options.
Gross proceeds will be S$203mn assuming full exercise. To be applied to business expansion or new business opportunities
Inter-conditionality
The grant of options is conditional upon and shall take place simultaneously with the debt conversion and subscription
On Ezion
Ezion develops, owns, and charters offshore assets to support offshore energy markets, via three key segments:
Lifeboats/liftboats – these are self-propelled rigs involved in the production and maintenance of the O&G and windfarm industry. This segment accounted for 57.9% of revenue in FY18.
Jack-up rigs – engaged in non-self propelled rigs involved in the production and maintenance of the O&G and windfarm industry. The segment accounted for 34.1% of revenue in FY18.
And offshore support logistic services, accounting for 7.5% of revenue in FYT18.
Ezion is primarily Asian focused with revenue split between Singapore, India, and the rest of Asia as to 8%, 5.3% and 54%. The Middle East and Africa account for 15.6% and 15.2% respectively.
Fundamentals
US$mn
FY16
FY17
FY18
Revenues
Liftboats
127
96
69
Jack-Up Rigs
158
76
41
Offshore Support Logistic Services
33
20
9
Others
1
1
1
Total Revenue
318
193
119
EBITDA
Liftboats
77
68
21
Jack-Up Rigs
112
60
16
Offshore Support Logistic Services
22
16
(1)
Others
1
1
1
Total EBITDA
212
144
37
NPBT
Liftboats
62
(16)
(54)
Jack-Up Rigs
(54)
(745)
(297)
Offshore Support Logistic Services
(13)
(156)
(53)
Others
1
1
7
Unallocated Expenses
(24)
(82)
94
Total NPBT
(29)
(999)
(303)
Assets
Liftboats
811
772
807
Jack-Up Rigs
1,382
556
226
Offshore Support Logistic Services
415
315
119
Others
79
81
32
Unallocated Assets
165
70
108
Total assets
2,851
1,794
1,291
Total equity
1,315
305
(255)
Net debt
1,282
1,358
1,358
Source: CapIQ
Revenue declined by US$125mn in FY17 due to a reduction in charter rates and delays in re-deployment of the Ezion’s liftboats due to working capital constraints. The loss before tax was exacerbated by impairment losses totalling US$897mn.
Revenue declined by US$74mn in FY17 due to a drop in the utilisation rates of liftboats and jack-up rigs. FY18 also saw an increase in impairments loses of US$84.5mn, while loses in associate and jointly controlled entities increased to US$39mn in FY18 from US$16mn in FY17.
Effect on NTA from the conversion/options
Assuming the subscription and options were completed on 31 December 2018, the effects of the Ezion’s NTL/NTA per share would be as follows:
This morning quite early we have an agreed deal and what had seemed a tough deal now seems easy.
According to a press release a short while ago.
DSV and Panalpina have reached an agreement on the terms and conditions of a combination by way of a Public Exchange Offer to all Panalpina shareholders. The board of directors of Panalpina recommends that Panalpina shareholders accept the Public Exchange Offer. The Public Exchange Offer already has the support of shareholders representing 69.9% of the registered shares of Panalpina, who have irrevocably agreed to tender their shares into the Public Exchange Offer. This includes Panalpina’s largest shareholder, Ernst Göhner Foundation and Cevian and Artisan*.
The deal is 2.375 shares of DSV for every share of Panalpina, which as of 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.
Exact terms of the Exchange Offer have not been disclosed but there will be an 80% acceptance condition (including the 69.9% who have already irrevocably agreed to accept the Offer), and other conditions will include “receipt of all necessary regulatory approvals, approval of a capital increase at an extraordinary general meeting in DSV, approval of a listing prospectus and admittance of the new DSV shares for trading at NASDAQ Copenhagen and effectiveness of a US Registration Statement.” (DSV press release)
In light of the Exchange Offer, the Ernst Göhner Foundation asked the board of Panalpina to postpone the April 5th EGM which was set to decide on the one-share one-vote.
Blackstone and Hellman & Friedman made a proposal for Scout24 AG (G24 GR) in mid-January – which was rejected by the board – and subsequently returned with an improved offer which was then supported. The deal was first written on after the Tender Offer was officially launched in March.
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%.
Brief Summary of News in March of Arb Situations On Smartkarma’s Radar
(again, click on the company names to take to you to the insights and/or discussion posts)
McMillan announced on 20th March 2019, that they will not be able to complete the proposed scheme. Eclipx said it would sell two divisions (Grays and Right2Drive) and use the proceeds to pay down corporate debt.
On 19th March 2019, Healthscope announced that they had received FIRB approval for the scheme. The Offer docs have been pushed out to the 24 April so as to incorporate the Scheme and Takeover Documents into a single integrated booklet
On 4th March 2019, Manikay Partners LLC and its affiliates filed a notice that they had increased their holding in MYOB to 9.99%, and submitted a letter that asserted that the board should reconsider their recommendation of the KKR offer. However, on 6th March MYOB’s Board, mentioned in their announcement, that they continue to recommend the offer. MYOB’s shareholders will be able to vote for the proposal at the Scheme meeting which will be held on 17th April 2019, as set out in the announcement on 14th March 2019. A Scheme Update on 20th March, stated that the all cash consideration of A$3.40/share, was KKR’s best and final offer.
On 8th March 2019, a letter was released to Ruralco’s shareholders that confirmed the details of the offer, and that the Board of Ruralco unanimously recommends the Scheme.
On 13th March 2019, the Board of Sigma announced that following their review of the proposal submitted by API, they conclude that it is not in the best interest of the shareholders.
It was announced on 5th March 2019, that permission has been granted to extend the time for the despatch of the Composite Document to 2nd April 2019, in order for the offeror to consider the 2018 annual results of Xingfa.
Faurecia announced on 1st March 2019, that they were able to successfully complete their Tender Offer for Clarion. 95.28% of Clarion shareholders had tendered their shares.
On 8th March 2019, Descente released an opinion on the Tender offer, which said they continue to oppose the offer. The results of the tender offer was released on 15th March 2019 – Itochu planned on buying 7.21million shares out of the 75.37mm shares which bear voting rights (as of the commencement of the Tender), and 15,115,148 shares were tendered, which led to a pro-ration rate of 47.7%. The president will be replaced with the president of Itochu Textile.
On 8th March 2019, an announcement was released, which stated that the offer was bumped up to ¥ 700/share, from ¥ 610/share, and the offer close date was extended to 25th March 2019, with the commencement of settlement being 29th March 2019. On 18th March, Yoshiaki Murakami-associated companies announced they had raised their stake above 10%, at a price higher than the ¥ 700/share final tender offer price. On 20th March, Minami Aoyama Fudosan – another Murakami-associated company – announced a Tender Offer for a minimum of 50.00% of Kosaido (and up to 100% of the shares out) at ¥750/share (and announced they had bought more bringing their stake to 13.47% in total). On 25th March 2019, Bain extended their tender offer from 25th March to April 8th.
A Reuters article on 3rd March 2019, mentioned that Tencent, Kakao Corp, Bain Capital, MBK Partners, and an unidentified private equity firm are the five bidders that have been shortlisted by Nexon, as reported by the Korea Economic Daily newspaper. Netmarble Corp was not offered a position among the bidders, but is said to have formed a consortium MBK Partners.
SCSK Corp announced on 19th March 2019, that they gained 94.76% of the shares of Veriserve Corp in the tender, which will mean an immediate push to squeeze out minorities.
On 7th March 2019, Trade Me announced that the high court had approved the special meeting for shareholders to vote on the Apax proposal. The Independent Advisers’ assessed a fair value between NZ$5.93 and NZ$6.39 per share, below Apax’s offer of NZ$6.45 per share. On 11th March the company announced that the special meeting for the shareholders to vote will be held on 3rd April 2019. The scheme booklet was released on the Trade Me website on 13th March 2019, which was ciculated among shareholders on 19th March.
The offer closed on 15th March 2019, with 95.83% of the issued share capital of Courts Asia. The remaining shares will be acquired through a compulsory acquisition at the final offer price of S$0.205/share. It was also announced that the last day of trading of the stock would be 15th March 2019, with the stock being suspended from 18th March 2019.
On 6th March 2019, it was announced that the offeror had acquired 72.89% of the total number of shares, and held 92.20% of the shares of M1 Ltd, and that Konnectivity launched an offer to acquire the remaining shares not tendered in by 18th March 2019. On 18th March 2019 at the close of the offer they had managed to acquire an aggregate of 94.55% of shares.
On 6th March 2019, Hitachi announced that they had decided to extend the period of the public tender offer (originally from January 17, 2019 to March 7, 2019) to April 22, 2019. There was news that there would be an EGM (called by a dissenting director) on April 18th designed to renew the board of directors. On 22nd March 2019, Hitachi had amended the Public Purchase statement by raising the Purchase Price to NT$65/share.
Delta published a document which included amendments to the Conditional Voluntary Tender Offer on 1st March 2019, which confirmed that the Bt 71.0/share, will be the final offer, and that the offer is expected to close on 1st April 2019. The independent financial advisers opinion was published on 14th March 2019, recommending the offer. 9.12% of shares out have tendered into Delta’s Offer, bringing the Offeror’s total holding to 30.05% as at 26 March.
The Mastercard offer for Earthport lapsed on 8th March 2019, as the acceptance condition was not satisfied. On 13th March 2019 Visa’s offer had been extended to 30th April 2019. As at 12th March 2019 Visa had 41.02% of the issued ordinary share capital of Earthport, which counted towards satisfaction of the acceptance condition to the Offer.
On 8th March 2019, the Bidder announced that the Competition Commission of South Africa had granted unconditional approval for the acquisition, thus satisfying one of the conditions of the Scheme.
The final results of the Tender Offer, which closed on 7th March 2019, was released on 12th March 2019, according to which the offeror had managed to acquire 94.98% of all the shares. The offeror then opened a subsequent offer from 13th to 27th March in order to allow the remaining shareholders to tender in their shares. On 28th March 2019, the offeror announced that according to the preliminary results of the Subsequent Offer Period, the shares tendered represent approximately 3.13% of all the shares in Amer Sports. Together with the shares tendered during the Offer Period, the total shares acquired represent approximately 98.10% of all the shares. The consideration for the shares tendered during the Subsequent Offer Period, will be paid on or about 2nd April 2019.
On 4th March 2019, Nasdaq raised their offer to NOK 158/share (from NOK 152/share) to match the Euronext offer, reduced the minimum acceptance requirement to at least two-thirds of the shares of Oslo Børs (from more than 90%), and extended the offer period expiry to 29th March 2019 (from 4th March 2019), as well as the drop dead date to the date which is the later of: (i) March 4, 2020; and (ii) the date which is sixty days after the Euronext Offer lapses, closes or is withdrawn. It was also announced that shareholders representing more than 1/3 if the shares in Oslo Børs have reaffirmed their support for Nasdaq’s offer.
On 14th March 2019, the provisional interim results of the tender offer was released. It stated that 78.69% of the CEVA Shares to which the Tender Offer relates were tendered in, which results in CMA CGA holding 89.47% of share capital. A subsequent offer was made to acquire the remaining shares, running from 20th March to 2nd April 2019.
On 5th March 2019, Panalpina announced that an extraordinary general meeting will be held on 5th April 2019 to vote on a “one share one vote” scheme to replace the current cap on holdings over 5%. All major shareholders who would see their voting rights increase have come out against it because they want to see the Ernst Gohner Foundation have their voting rights come down. ISS and Glass Lewis have both come out against the proposal. A couple of minor European proxy solicitors and agents have come out in favor.
Late Sunday night it was reported by Bloomberg that DSV had improved its offer once again and that the Foundation had agreed to the sweetened bid of 2.375 DSV shares per Panalpina share, worth CHF 195.8
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Korea’s local news house Hankyung reported the names that should be included in the short list. They are Kakao, MBK Partners (with NetMarble), Tencent, Bain Capital and another foreign PE whose name isn’t disclosed. Apparently, Amazon, Comcast and EA, didn’t make the short list. Those in the short list now get a chance to do due diligence. They will then participate in the main bidding round that is scheduled for early April.
It is being reported that only Kakao and NetMarble (with MBK Partners) are truly interested in taking over Nexon’s management right. Tencent is expected to join either Kakao or NetMarble-led consortium in the end. Bain is looking into possible investment opportunities that may be created if this sale leads to a mandatory tender offer to Nexon minority shareholders. It seems safe to say that this comes down to a two-horse race: either Kakao or NetMarble.
Lyft Inc (0812823D US) has kicked off its IPO by posting its S-1 filing last Friday. Rakuten Inc (4755 JP) is Lyft’s single largest shareholder with a 13.05% stake. Rakuten has invested around $700 million to acquire its current Lyft stake and stands to make 3-4 times its investment if Lyft achieves its rumoured IPO valuation range of $20-25 billion.
Lyft’s IPO valuation range was first reported by Reuters on 20 February 2019. On the back of the news, Rakuten’s shares have so far risen around 10%. Notably, at the IPO valuation range, the Lyft stake would account for 20-25% of Rakuten’s current market cap. While the Lyft IPO will prove to be a big winner for Rakuten from an ROI perspective, we believe that from a valuation perspective, the upside is modest.
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Lyft Inc (0812823D US) has kicked off its IPO by posting its S-1 filing last Friday. Rakuten Inc (4755 JP) is Lyft’s single largest shareholder with a 13.05% stake. Rakuten has invested around $700 million to acquire its current Lyft stake and stands to make 3-4 times its investment if Lyft achieves its rumoured IPO valuation range of $20-25 billion.
Lyft’s IPO valuation range was first reported by Reuters on 20 February 2019. On the back of the news, Rakuten’s shares have so far risen around 10%. Notably, at the IPO valuation range, the Lyft stake would account for 20-25% of Rakuten’s current market cap. While the Lyft IPO will prove to be a big winner for Rakuten from an ROI perspective, we believe that from a valuation perspective, the upside is modest.
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Lyft Inc (0812823D US) has kicked off its IPO by posting its S-1 filing last Friday. Rakuten Inc (4755 JP) is Lyft’s single largest shareholder with a 13.05% stake. Rakuten has invested around $700 million to acquire its current Lyft stake and stands to make 3-4 times its investment if Lyft achieves its rumoured IPO valuation range of $20-25 billion.
Lyft’s IPO valuation range was first reported by Reuters on 20 February 2019. On the back of the news, Rakuten’s shares have so far risen around 10%. Notably, at the IPO valuation range, the Lyft stake would account for 20-25% of Rakuten’s current market cap. While the Lyft IPO will prove to be a big winner for Rakuten from an ROI perspective, we believe that from a valuation perspective, the upside is modest.
Hopewell Holdings (54 HK), an infrastructure and property developer, is subject to a privatisation proposal from its Chairman, Sir Gordon Wu. The privatisation price of HK$38.80 cash per share is a 46.7% premium over the closing price on 30 November 2018, the day before the announcement of the privatisation proposal.
While predicting the success of Hong Kong privatisations is a challenge due to the high threshold of shareholder approval, we believe that the Hopewell privatisation proposal has a good chance of success as it offers a reasonable (but not great) exit for shareholders.
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Lyft Inc (0812823D US) has kicked off its IPO by posting its S-1 filing last Friday. Rakuten Inc (4755 JP) is Lyft’s single largest shareholder with a 13.05% stake. Rakuten has invested around $700 million to acquire its current Lyft stake and stands to make 3-4 times its investment if Lyft achieves its rumoured IPO valuation range of $20-25 billion.
Lyft’s IPO valuation range was first reported by Reuters on 20 February 2019. On the back of the news, Rakuten’s shares have so far risen around 10%. Notably, at the IPO valuation range, the Lyft stake would account for 20-25% of Rakuten’s current market cap. While the Lyft IPO will prove to be a big winner for Rakuten from an ROI perspective, we believe that from a valuation perspective, the upside is modest.
Hopewell Holdings (54 HK), an infrastructure and property developer, is subject to a privatisation proposal from its Chairman, Sir Gordon Wu. The privatisation price of HK$38.80 cash per share is a 46.7% premium over the closing price on 30 November 2018, the day before the announcement of the privatisation proposal.
While predicting the success of Hong Kong privatisations is a challenge due to the high threshold of shareholder approval, we believe that the Hopewell privatisation proposal has a good chance of success as it offers a reasonable (but not great) exit for shareholders.
HDC Holdco and its major Sub HDC-OP are now at 247% of σ on a 20D MA for the first time since mid Nov last year. On a 120D, their current price ratio is substantially higher than the mean. Holdco discount is now 40% to NAV. This is nearly a 10%p drop since early Jan.
My previous stub trade on the HDC duo again paid off very nicely. I went long Holdco and short Sub on Jan 11. This trade is now delivering a 15% return. During this period, Holdco climbed 23%. Sub went up 8%. They created a 15%p gap in price performance. Holdco’s 23% running was mainly attributable to re-rating of some of its major unlisted holdings.
Sub also has several key assets that could equally be re-rated. Much of Holdco’s assets that have presumably undergone re-ratings lately are business wise closely correlated with Sub. A 15%p price yield gap should be too harsh on Sub. I expect their price ratio will be challenged downwardly at this level on a short term time horizon.
I’d close my previous position. I’d initiate a new trade. I’d go long Sub and short Holdco. I’d close this trade at < 50% of σ. Given the fluctuation level of this duo, this’d give nearly a 8% yield.
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Hopewell Holdings (54 HK), an infrastructure and property developer, is subject to a privatisation proposal from its Chairman, Sir Gordon Wu. The privatisation price of HK$38.80 cash per share is a 46.7% premium over the closing price on 30 November 2018, the day before the announcement of the privatisation proposal.
While predicting the success of Hong Kong privatisations is a challenge due to the high threshold of shareholder approval, we believe that the Hopewell privatisation proposal has a good chance of success as it offers a reasonable (but not great) exit for shareholders.
HDC Holdco and its major Sub HDC-OP are now at 247% of σ on a 20D MA for the first time since mid Nov last year. On a 120D, their current price ratio is substantially higher than the mean. Holdco discount is now 40% to NAV. This is nearly a 10%p drop since early Jan.
My previous stub trade on the HDC duo again paid off very nicely. I went long Holdco and short Sub on Jan 11. This trade is now delivering a 15% return. During this period, Holdco climbed 23%. Sub went up 8%. They created a 15%p gap in price performance. Holdco’s 23% running was mainly attributable to re-rating of some of its major unlisted holdings.
Sub also has several key assets that could equally be re-rated. Much of Holdco’s assets that have presumably undergone re-ratings lately are business wise closely correlated with Sub. A 15%p price yield gap should be too harsh on Sub. I expect their price ratio will be challenged downwardly at this level on a short term time horizon.
I’d close my previous position. I’d initiate a new trade. I’d go long Sub and short Holdco. I’d close this trade at < 50% of σ. Given the fluctuation level of this duo, this’d give nearly a 8% yield.
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A conditional debt conversion agreement to capitalise all of the “relevant debt” of US$916mn via the allotment and issue of up to approximately 22,573,570,909 new ordinary shares of Ezion at an issue price of S$0.055/share (27.9% premium to last close).
A conditional option agreement for the proposed grant by Ezion of 3,360,495,867 non-listed and transferable share options to Yinson at the exercise price of S$0.0605 per option Share.
This shareholder structure will take the following shape, with Yinson holding 85.9% of shares out after the conversion and 87.5% after both the conversion and the exercise of the share options.
Current Holding
After Conversion
After Conversion & Options
Current shares out
3,728
100%
3,728
14%
3,728
13%
Debt conversion
0%
22,574
86%
22,574
76%
Option shares
0%
0%
3,360
11%
Total shares (mn)
3,728
26,302
29,662
However … as per the more detailed Bursa announcement:
It is the intention of YEPL (wholly-owned sub of Yinson) to acquire up to US$916mn of the Relevant Debts for a consideration to be agreed with the Designated Lenders. Tentatively, YHB (Yinson) expected its cash outlay shall be in the region of USD200mn and some EHL (Ezion) Shares that will give YEPL a shareholding of not less than 70% in EHL at the point of the completion of the Proposed Debt conversion and Subscription. In any event, assuming all convertible securities of EHL are converted, YHB expects its eventual shareholding in EHL shall be a controlling stake of at least 51%.
Ezion is also in negotiation with the major secured lenders to restructure its existing debts which would result in the conversion of certain debts to redeemable convertible preferences shares to be issued by Ezion.
As this is effectively a hybrid takeover, there exist a number of conditions required to complete this proposal. Of importance is the waiver from the Securities Industry Council of Singapore for Yinson not to make a mandatory general offer for Ezion under Rule 14.1 of the Takeover Code, as the share subscription takes Yinson’s stake >30%.
Conditions of the Debt Conversion/Proposed Subscription and Share Options
For the Debt Conversion & Subscription
Conditions
Satisfactory due diligence by Yinson.
Waiver from SIC not to make a MGO.
Independent shareholders of Ezion approving the whitewash waiver. Simple majority vote.
The approval by Ezion shareholders for the allotment and issue of the subscription shares. Simple majority vote.
Other
The long stop date is 6 months from the conditional debt conversion agreement (31 March 2019).
For the Share Options
Conditions
The approval by Ezion shareholders for the option shares. Simple majority vote.
Other
The long stop date is 6 months from the conditional option agreement (31 March 2019).
The exercise period is five years from the issuance of the options.
Gross proceeds will be S$203mn assuming full exercise. To be applied to business expansion or new business opportunities
Inter-conditionality
The grant of options is conditional upon and shall take place simultaneously with the debt conversion and subscription
On Ezion
Ezion develops, owns, and charters offshore assets to support offshore energy markets, via three key segments:
Lifeboats/liftboats – these are self-propelled rigs involved in the production and maintenance of the O&G and windfarm industry. This segment accounted for 57.9% of revenue in FY18.
Jack-up rigs – engaged in non-self propelled rigs involved in the production and maintenance of the O&G and windfarm industry. The segment accounted for 34.1% of revenue in FY18.
And offshore support logistic services, accounting for 7.5% of revenue in FYT18.
Ezion is primarily Asian focused with revenue split between Singapore, India, and the rest of Asia as to 8%, 5.3% and 54%. The Middle East and Africa account for 15.6% and 15.2% respectively.
Fundamentals
US$mn
FY16
FY17
FY18
Revenues
Liftboats
127
96
69
Jack-Up Rigs
158
76
41
Offshore Support Logistic Services
33
20
9
Others
1
1
1
Total Revenue
318
193
119
EBITDA
Liftboats
77
68
21
Jack-Up Rigs
112
60
16
Offshore Support Logistic Services
22
16
(1)
Others
1
1
1
Total EBITDA
212
144
37
NPBT
Liftboats
62
(16)
(54)
Jack-Up Rigs
(54)
(745)
(297)
Offshore Support Logistic Services
(13)
(156)
(53)
Others
1
1
7
Unallocated Expenses
(24)
(82)
94
Total NPBT
(29)
(999)
(303)
Assets
Liftboats
811
772
807
Jack-Up Rigs
1,382
556
226
Offshore Support Logistic Services
415
315
119
Others
79
81
32
Unallocated Assets
165
70
108
Total assets
2,851
1,794
1,291
Total equity
1,315
305
(255)
Net debt
1,282
1,358
1,358
Source: CapIQ
Revenue declined by US$125mn in FY17 due to a reduction in charter rates and delays in re-deployment of the Ezion’s liftboats due to working capital constraints. The loss before tax was exacerbated by impairment losses totalling US$897mn.
Revenue declined by US$74mn in FY17 due to a drop in the utilisation rates of liftboats and jack-up rigs. FY18 also saw an increase in impairments loses of US$84.5mn, while loses in associate and jointly controlled entities increased to US$39mn in FY18 from US$16mn in FY17.
Effect on NTA from the conversion/options
Assuming the subscription and options were completed on 31 December 2018, the effects of the Ezion’s NTL/NTA per share would be as follows:
This morning quite early we have an agreed deal and what had seemed a tough deal now seems easy.
According to a press release a short while ago.
DSV and Panalpina have reached an agreement on the terms and conditions of a combination by way of a Public Exchange Offer to all Panalpina shareholders. The board of directors of Panalpina recommends that Panalpina shareholders accept the Public Exchange Offer. The Public Exchange Offer already has the support of shareholders representing 69.9% of the registered shares of Panalpina, who have irrevocably agreed to tender their shares into the Public Exchange Offer. This includes Panalpina’s largest shareholder, Ernst Göhner Foundation and Cevian and Artisan*.
The deal is 2.375 shares of DSV for every share of Panalpina, which as of 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.
Exact terms of the Exchange Offer have not been disclosed but there will be an 80% acceptance condition (including the 69.9% who have already irrevocably agreed to accept the Offer), and other conditions will include “receipt of all necessary regulatory approvals, approval of a capital increase at an extraordinary general meeting in DSV, approval of a listing prospectus and admittance of the new DSV shares for trading at NASDAQ Copenhagen and effectiveness of a US Registration Statement.” (DSV press release)
In light of the Exchange Offer, the Ernst Göhner Foundation asked the board of Panalpina to postpone the April 5th EGM which was set to decide on the one-share one-vote.
Blackstone and Hellman & Friedman made a proposal for Scout24 AG (G24 GR) in mid-January – which was rejected by the board – and subsequently returned with an improved offer which was then supported. The deal was first written on after the Tender Offer was officially launched in March.
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%.
Brief Summary of News in March of Arb Situations On Smartkarma’s Radar
(again, click on the company names to take to you to the insights and/or discussion posts)
McMillan announced on 20th March 2019, that they will not be able to complete the proposed scheme. Eclipx said it would sell two divisions (Grays and Right2Drive) and use the proceeds to pay down corporate debt.
On 19th March 2019, Healthscope announced that they had received FIRB approval for the scheme. The Offer docs have been pushed out to the 24 April so as to incorporate the Scheme and Takeover Documents into a single integrated booklet
On 4th March 2019, Manikay Partners LLC and its affiliates filed a notice that they had increased their holding in MYOB to 9.99%, and submitted a letter that asserted that the board should reconsider their recommendation of the KKR offer. However, on 6th March MYOB’s Board, mentioned in their announcement, that they continue to recommend the offer. MYOB’s shareholders will be able to vote for the proposal at the Scheme meeting which will be held on 17th April 2019, as set out in the announcement on 14th March 2019. A Scheme Update on 20th March, stated that the all cash consideration of A$3.40/share, was KKR’s best and final offer.
On 8th March 2019, a letter was released to Ruralco’s shareholders that confirmed the details of the offer, and that the Board of Ruralco unanimously recommends the Scheme.
On 13th March 2019, the Board of Sigma announced that following their review of the proposal submitted by API, they conclude that it is not in the best interest of the shareholders.
It was announced on 5th March 2019, that permission has been granted to extend the time for the despatch of the Composite Document to 2nd April 2019, in order for the offeror to consider the 2018 annual results of Xingfa.
Faurecia announced on 1st March 2019, that they were able to successfully complete their Tender Offer for Clarion. 95.28% of Clarion shareholders had tendered their shares.
On 8th March 2019, Descente released an opinion on the Tender offer, which said they continue to oppose the offer. The results of the tender offer was released on 15th March 2019 – Itochu planned on buying 7.21million shares out of the 75.37mm shares which bear voting rights (as of the commencement of the Tender), and 15,115,148 shares were tendered, which led to a pro-ration rate of 47.7%. The president will be replaced with the president of Itochu Textile.
On 8th March 2019, an announcement was released, which stated that the offer was bumped up to ¥ 700/share, from ¥ 610/share, and the offer close date was extended to 25th March 2019, with the commencement of settlement being 29th March 2019. On 18th March, Yoshiaki Murakami-associated companies announced they had raised their stake above 10%, at a price higher than the ¥ 700/share final tender offer price. On 20th March, Minami Aoyama Fudosan – another Murakami-associated company – announced a Tender Offer for a minimum of 50.00% of Kosaido (and up to 100% of the shares out) at ¥750/share (and announced they had bought more bringing their stake to 13.47% in total). On 25th March 2019, Bain extended their tender offer from 25th March to April 8th.
A Reuters article on 3rd March 2019, mentioned that Tencent, Kakao Corp, Bain Capital, MBK Partners, and an unidentified private equity firm are the five bidders that have been shortlisted by Nexon, as reported by the Korea Economic Daily newspaper. Netmarble Corp was not offered a position among the bidders, but is said to have formed a consortium MBK Partners.
SCSK Corp announced on 19th March 2019, that they gained 94.76% of the shares of Veriserve Corp in the tender, which will mean an immediate push to squeeze out minorities.
On 7th March 2019, Trade Me announced that the high court had approved the special meeting for shareholders to vote on the Apax proposal. The Independent Advisers’ assessed a fair value between NZ$5.93 and NZ$6.39 per share, below Apax’s offer of NZ$6.45 per share. On 11th March the company announced that the special meeting for the shareholders to vote will be held on 3rd April 2019. The scheme booklet was released on the Trade Me website on 13th March 2019, which was ciculated among shareholders on 19th March.
The offer closed on 15th March 2019, with 95.83% of the issued share capital of Courts Asia. The remaining shares will be acquired through a compulsory acquisition at the final offer price of S$0.205/share. It was also announced that the last day of trading of the stock would be 15th March 2019, with the stock being suspended from 18th March 2019.
On 6th March 2019, it was announced that the offeror had acquired 72.89% of the total number of shares, and held 92.20% of the shares of M1 Ltd, and that Konnectivity launched an offer to acquire the remaining shares not tendered in by 18th March 2019. On 18th March 2019 at the close of the offer they had managed to acquire an aggregate of 94.55% of shares.
On 6th March 2019, Hitachi announced that they had decided to extend the period of the public tender offer (originally from January 17, 2019 to March 7, 2019) to April 22, 2019. There was news that there would be an EGM (called by a dissenting director) on April 18th designed to renew the board of directors. On 22nd March 2019, Hitachi had amended the Public Purchase statement by raising the Purchase Price to NT$65/share.
Delta published a document which included amendments to the Conditional Voluntary Tender Offer on 1st March 2019, which confirmed that the Bt 71.0/share, will be the final offer, and that the offer is expected to close on 1st April 2019. The independent financial advisers opinion was published on 14th March 2019, recommending the offer. 9.12% of shares out have tendered into Delta’s Offer, bringing the Offeror’s total holding to 30.05% as at 26 March.
The Mastercard offer for Earthport lapsed on 8th March 2019, as the acceptance condition was not satisfied. On 13th March 2019 Visa’s offer had been extended to 30th April 2019. As at 12th March 2019 Visa had 41.02% of the issued ordinary share capital of Earthport, which counted towards satisfaction of the acceptance condition to the Offer.
On 8th March 2019, the Bidder announced that the Competition Commission of South Africa had granted unconditional approval for the acquisition, thus satisfying one of the conditions of the Scheme.
The final results of the Tender Offer, which closed on 7th March 2019, was released on 12th March 2019, according to which the offeror had managed to acquire 94.98% of all the shares. The offeror then opened a subsequent offer from 13th to 27th March in order to allow the remaining shareholders to tender in their shares. On 28th March 2019, the offeror announced that according to the preliminary results of the Subsequent Offer Period, the shares tendered represent approximately 3.13% of all the shares in Amer Sports. Together with the shares tendered during the Offer Period, the total shares acquired represent approximately 98.10% of all the shares. The consideration for the shares tendered during the Subsequent Offer Period, will be paid on or about 2nd April 2019.
On 4th March 2019, Nasdaq raised their offer to NOK 158/share (from NOK 152/share) to match the Euronext offer, reduced the minimum acceptance requirement to at least two-thirds of the shares of Oslo Børs (from more than 90%), and extended the offer period expiry to 29th March 2019 (from 4th March 2019), as well as the drop dead date to the date which is the later of: (i) March 4, 2020; and (ii) the date which is sixty days after the Euronext Offer lapses, closes or is withdrawn. It was also announced that shareholders representing more than 1/3 if the shares in Oslo Børs have reaffirmed their support for Nasdaq’s offer.
On 14th March 2019, the provisional interim results of the tender offer was released. It stated that 78.69% of the CEVA Shares to which the Tender Offer relates were tendered in, which results in CMA CGA holding 89.47% of share capital. A subsequent offer was made to acquire the remaining shares, running from 20th March to 2nd April 2019.
On 5th March 2019, Panalpina announced that an extraordinary general meeting will be held on 5th April 2019 to vote on a “one share one vote” scheme to replace the current cap on holdings over 5%. All major shareholders who would see their voting rights increase have come out against it because they want to see the Ernst Gohner Foundation have their voting rights come down. ISS and Glass Lewis have both come out against the proposal. A couple of minor European proxy solicitors and agents have come out in favor.
Late Sunday night it was reported by Bloomberg that DSV had improved its offer once again and that the Foundation had agreed to the sweetened bid of 2.375 DSV shares per Panalpina share, worth CHF 195.8
This post looks at the tax situations that Nexon’s Kim may be facing for each of the two options and the signals that he may be sending with regard to his decision. Also, this post discusses how each option may impact on mandatory tender offer which is a crucial point for current massive short buildup on Nexon Japan shares.
The fog lifts, slowly, on Nissan Motor (7201 JP), but merger talks will have to wait until the company gets its governance in order, and a full-on merger seems remote at best.
Both Mio Kato, CFA and Travis Lundy tackled a report in the FT suggesting that Renault “aims to restart merger talks with Nissan within 12 months” and the long-awaited release of Nissan’s Special Committee for Improving Governance (SCIG) report.
Governance weakness under Ghosn was inexcusably bad. Worse than previously reported. Ghosn unilaterally decided the compensation of directors, top management and himself, while Kelly held broad sway over essentially everyone else, acting as a gatekeeper even against auditors and the accounting department. And it appears that there is zero understanding at Renault that Renault itself is not blameless for bad governance at Nissan over the years. The SCIG recommendations to the board now are, on the whole, pretty decent.
If France and Renault “push” for a merger, Nissan will continue to push back for the foreseeable future. As the governance report shows, the house is nowhere near being in order. All that has happened is that the steps which need to take place for it to be put in order have been identified.
Where Mio and Travis diverge – click to both insights below – is that Mio thinks a breakup of the alliance is more likely than a merger near term, especially if Paris continues to ignore Nissan’s priorities and constantly push for a merger ASAP. He does not feel scale is quite as necessary as people seem to assume, as long as you have access to a strong supply chain.
Travis thinks an outright merger is also unlikely, as the trust is not there, but is a big fan of the existing single platform design to lower costs and reduce parts count. There would be no need to replicate the R&D for parts and platforms across multiple marks, so he thinks the production alliance stays in place even if the capital alliance does not move further.
Sanghyun Park concluded the market had misinterpreted Amazon’s server DRAM demand cut in 4Q18. It wasn’t a sign of falling demand nor is there any convincing sign of server DRAM demand drop-off. It’s more a technical issue and by the time SamE gets the optimization issues right, server DRAM demand of Amazon and Google will return, stabilising DRAM prices.
And that demand may come sooner, potentially by the end of 2Q. This will lead to a ₩4tn quarterly addition to the current street consensus, which backs out a current PER of ~9x.
SamE is up since Micron announced it plans to reduce its output of DRAM and NAND by ~5% this year. From a Common-1P perspective, Sanghyun recommends going long the Common.
Aqila Ali discusses Denso Corp (6902 JP) investment in Airbiquity Inc, one of the leading companies in the connected vehicle services sector and one of the companies that has continuously developed automotive telematics technology. This proposal follows its investment in Quadric.io this year. Denso is in full swing in the development of its autonomous driving business and next-generation technologies development, and it wouldn’t be a surprise to see Denso emerge as the first mover in next-generation technologies such as AD and connectivity solutions. (link to Aqila’s insight: Denso Continues to Strengthen Its Investment CASE with Acquisitions)
Wesfarmers Ltd (WES AU) surprised the market and announced a non-binding proposal to acquire Lynas at A$2.25/share (cash) by way of a scheme. This is a 44.7% premium to the one-day price and a 36.4% premium to the 60-day price. However, it is a 0% premium to the price at which Lynas was trading on 3 December 2018, the day before the Malaysian government imposed two pre-conditions on the rolling over of the processing licence (later in 2019), and it is a 3.2% premium to the one-year average as of 4 December 2018. Lynas rejected the proposal the next day.
Lynas shares have, since mid-December, been trading as if there is significant risk to the renewal of their operating license in Malaysia.
This is a long-term bet by Wesfarmers. But seeing it through would require that Lynas shareholders decide once Malaysia has approved the renewal of their license that this business won’t be able to see better margins ahead the way there was a dream to see them a year ago. Travis did not think that the increased buying on the dip by Greencape Pty and FIL since the Dec 4th announcement are omens of a desire to sell at A$2.25.
A priori, the bid by Wesfarmers does not increase the likelihood of a good outcome on the Malaysian regulatory front. And it disappears if Lynas can’t sort its problems satisfactorily. Therefore, it is not clear what value the bid brings to Lynas shares today. If neither the outcome’s probabilities nor the outcome’s price levels change, the bid should have no material impact on Lynas shares.
At the time of his report, Travis thought this would be a short if the stock pops to the very high A$1 range or A$2.00 area. One caveat to shorting too low: if you think WES would conceivably bid quite a bit higher to enable Lynas to have a processing plant and battery plant at WES in Australia and maintain processing in Malaysia, that might be a different story.
The ACCC said will not oppose a tie in between IPH Ltd (IPH AU) and Xenith. Xenith acknowledged the ACCC decision resolves a major uncertainty, but stops short of supporting IPH’s offer as there still exist a number of concerns as detailed in its 19 March announcement.
None of these remaining concerns raised by Xenith appear deal-breakers, and Xenith’s general pushback fails to mention the benefits of leveraging off IPH’s Asia-based presence, IPH’s superior liquidity (versus QANTM limited liquidity), together with the certainty of value under IPH’s offer via the large cash portion.
With IPH’s 19.9% blocking stake, the QANTM/Xenith scheme is a non-starter. Xenith still should engage with IPH, whose offer provides a gross/annualised spread of 7.5%/24.5% – a decent risk/reward – assuming late July completion. The scheme meeting to decide on the QANTM Offer, scheduled for the 3 April, has now been postponed.
SOE State Power Investment Corporation (SPIC) is seeking to privatise China Power New Energy Development Co (735 HK) by way of a Scheme at $5.45/share, a 41.9% premium to last close and a 78.1% premium to the 30-day average. A scrip alternative (6 New shares for one Scheme shares) into an unlisted vehicle under SPIC is also available, but presumably just for SOE shareholders. China Three Gorges, CPNED’s largest shareholder with 27.10%, have given an irrevocable undertaking to vote for the Scheme and to elect the share alternative.
This looks like a pretty clean, straightforward privatization. It is priced above the highest close since its listing by way of introduction on the 18 July 2017, while the excitement over the potential injection of all nuclear power assets and businesses from State Nuclear Power Technology Company has been removed after the restructuring was cancelled in July last year.
Clarity is required as to whether China Three Gorges can vote at the court meeting. Based on the Code, it appears evident they cannot. In addition, the final dividend is expected to be added to the offer price, but again, the announcement is not explicit on this.
The stock is currently trading at an attractive gross/annualised spread of 7.5%/25.7% conservatively assuming a late July completion, and inclusive of the final dividend.
Merck KGaA (MRK GR) has launching an unsolicited, fully financed tender offer on VSM at $48/share cash, a 52% premium to VSM’s stock price on January 25, the day before it agreed to sell itself to Entegris Inc (ENTG US)‘s in an all-stock deal.
Conditions include a minimum acceptance threshold (a majority of shares), the rejection of ENTG’s offer, HSR/CFIUS clearance, plus the usual MACs. Merck does not rule out an increase in the Offer price.
The shareholder vote on the VSM/ENTG is scheduled for April 26th, 2019. The record date to vote is April 2, 2019. This means the last day to buy and participate was this past Friday.
Merck said “the Versum board’s hasty rejection of our proposal and unwillingness to engage in discussions with us has forced us to take this proposal directly to shareholders. … Tell the Versum board to start doing its job and put your interests first.”
A combination of Blackstone and Hellman & Friedman LLC launched an non-LBO LBO for Scout24 in mid-January at €43.50/share (€4.7bn), which was about an 8% premium to the then-current market price, which had already been juiced because of speculation starting after the FT article in late December. Scout24’s Board rejected the Offer. The two buyers came back in mid-February with a Takeover Offer priced at €46.00/share. Both Scout24’s Management Board and Supervisory Board agreed to support the offer. The BidCo has now officially launched its Tender Offer.
The unusual thing about this deal is that the two PE firms are looking to buy a minimum of 50% plus one share, and leave the company listed. The stock has been trading above terms since the new €46 bid. It appears the idea is that another bidder might come in over the top. Travis tends to think the occasional trading at just above €46 is due to arbitrageurs looking at this as a put option. Plus, the lack of additional noise means another bid may not be forthcoming.
Because Scout24 is basically a pure play inline classifieds business, it gets a decent multiple (17x 2019e EV/EBITDA). That said, it is not overwhelmingly expensive for a business which has strong network effects and significant ability to create niche marketplaces using existing technology/IP.
Travis would see nothing wrong with selling in the market here, but as an arb, he is still a buyer at €46.01/share.
Naspers announced 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. The Newco spin-off will include Naspers’ holdings in listcos Tencent and Mail.Ru (MAIL LI), together with ex-South African internet assets. Naspers will maintain a 75% stake in Newco plus Takealot, Media24, and net cash.
Newco’s discount is likely to be narrower than Naspers presently, on account of the smaller free float, and >$2.26bn of investment just from index funds. It will however, still be a Tencent holding vehicle, while Newco’s assets comprise ~94% of Nasper’s assets.
The remaining Naspers, post-spin off could have a wider discount – or “discounts on discounts”. It will be one layer removed from what investors are most interested in – the Tencent holding. As witnessed in other holdco restructurings, providing additional clarity on investments/holdings within a company via spin-offs does not necessarily translate to the parent company’s discount narrowing.
Assigning a 20-25% discount to the Newco and keeping the discount constant (optimistically) at Naspers, gives a negative ~7-13% return. I simply don’t see the value enhancement here, while there is no change in governance and no monetisation at the parent level.
Using a Sum of the Parts analysis, Curtis Lehnert calculated the current discount to NAV to be 37%, the widest level it has been since at least 2015, and approaching the -2 standard deviation level relative to its 6 month average.
The current dividend yield on PCCW was 6.62% vs. 5.55% for HKT. That 1% yield differential is also near the widest since HKT’s listing in 2011.
As Curtis notes, a catalyst for re-rating is hard to find. Still, he argues that the discount has widened out so much that the statistical advantages of mean reversion are in your favor.
Separately – and as expected – the composite document issuance for HKCIM has been delayed until (on or before) the 18 April.
Eclipx (ECX AU) has rallied after a market update confirming it will sell two divisions (Grays and Right2Drive) and use the proceeds to pay down corporate debt.
Ophir Energy (OPHR LN)‘s shareholders approvedMedco Energi Internasional T (MEDC IJ)‘s Offer. Completion of the Offer remains subject to the receipt of clearances from the relevant authorities in Tanzania and not losing all or substantially all of its Bualuang interests in Thailand.
The Offer docs for Healthscope Ltd (HSO AU) have been pushed out to the 24 April so as to incorporate the Scheme and Takeover Documents into a single integrated booklet.
CCASS
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.
Payment for shares tendered during Subsequent Offer Period
C
Switzerland
Panalpina
Off Mkt
5-Apr
EGM
C
US
Red Hat, Inc.
Scheme
March/April
Deal lodged for approval with EU Regulators
C
Source: Company announcements. E = my estimates; C =confirmed
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HDC Holdco and its major Sub HDC-OP are now at 247% of σ on a 20D MA for the first time since mid Nov last year. On a 120D, their current price ratio is substantially higher than the mean. Holdco discount is now 40% to NAV. This is nearly a 10%p drop since early Jan.
My previous stub trade on the HDC duo again paid off very nicely. I went long Holdco and short Sub on Jan 11. This trade is now delivering a 15% return. During this period, Holdco climbed 23%. Sub went up 8%. They created a 15%p gap in price performance. Holdco’s 23% running was mainly attributable to re-rating of some of its major unlisted holdings.
Sub also has several key assets that could equally be re-rated. Much of Holdco’s assets that have presumably undergone re-ratings lately are business wise closely correlated with Sub. A 15%p price yield gap should be too harsh on Sub. I expect their price ratio will be challenged downwardly at this level on a short term time horizon.
I’d close my previous position. I’d initiate a new trade. I’d go long Sub and short Holdco. I’d close this trade at < 50% of σ. Given the fluctuation level of this duo, this’d give nearly a 8% yield.
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HDC Holdco and its major Sub HDC-OP are now at 247% of σ on a 20D MA for the first time since mid Nov last year. On a 120D, their current price ratio is substantially higher than the mean. Holdco discount is now 40% to NAV. This is nearly a 10%p drop since early Jan.
My previous stub trade on the HDC duo again paid off very nicely. I went long Holdco and short Sub on Jan 11. This trade is now delivering a 15% return. During this period, Holdco climbed 23%. Sub went up 8%. They created a 15%p gap in price performance. Holdco’s 23% running was mainly attributable to re-rating of some of its major unlisted holdings.
Sub also has several key assets that could equally be re-rated. Much of Holdco’s assets that have presumably undergone re-ratings lately are business wise closely correlated with Sub. A 15%p price yield gap should be too harsh on Sub. I expect their price ratio will be challenged downwardly at this level on a short term time horizon.
I’d close my previous position. I’d initiate a new trade. I’d go long Sub and short Holdco. I’d close this trade at < 50% of σ. Given the fluctuation level of this duo, this’d give nearly a 8% yield.
Nintendo Co Ltd (7974 JP)‘s offering and the buyback are strong symbols and practical examples of what the Corporate Governance Code wants to accomplish.
With the combination of increased hostility leading to a greater likelihood of eventual private takeout, shorts will cover and foreigners may buy, squeezing existing Descente Ltd (8114 JP) minorities up and out.
Nintendo announced (J) a Secondary Share Uridashi Offering of 2,428,700 shares by five shareholder banks, with an overallotment of 364,300 shares. This will be a little bit over 2% of shares outstanding. Applying a hypothetical 4% discount to the then-last traded price of ¥30,030/share, this is an ¥80bn Offering including greenshoe. On the same day, Nintendo announced (E) a share buyback program to buy up to 1 million shares or up to ¥33bn worth (whichever is reached first) to be commenced the day after settlement of the Offering.
These banks (such as Bank of Kyoto) which have long-held policy cross-holdings in a Kyoto company with a diehard Kyoto cultural heritage (which can often include a diehard cross-holding culture) may have all succumbed to the new Corporate Governance Code. This is really important.
This deal is going to retail investors, quite specifically because Nintendo management and board view retail investors as both “sticky” investors and likely to largely follow management’s agenda in AGMs. Management might have misjudged how much this will get flipped.
The big question here is whether the reasoning for selling is really because of the new focus on policy cross-holdings, or it is just Bank of Kyoto and other banks trying to top up profit before the end of the fiscal year, using heretofore unrealised gains. Given the size, it looks like the former though it will be difficult to get confirmation. Travis Lundy would want to be long Bank of Kyoto both outright and against the cross-holding portfolio.
NTT Docomo announced (E) that it would cancel 447,067,906 shares (11.82% of issued shares before the cancellation) of Treasury shares on the 28th of February. The buyback has already occurred. However, by the vagaries of TSE-calculated indices, they lead to index down-weightings (unless otherwise offset).
This is a very large cancellation for a very large company, so it means a selldown of – by Travis’ estimate – 21.5-22.8mm shares at the close of trading March 28th. Traders looking to tilt short NTT Docomo or tilt long NTT short NTT Docomo will have that as a tailwind.
Panalpina’s largest shareholder with 45.9% of shares out, the Ernst Göhner Foundation (EGF), made a formal request to hold an EGM prior to the Annual General Meeting scheduled for early May 2019 so that the Articles of Association be changed – specifically Article 5 – such that the limit on transfer rights and voting rights be abolished and a “One Share One Vote” structure be adopted. The situation has been that Shareholders have their votes capped at 5% of shares outstanding EXCEPT FOR the votes of the EGF which were deemed “grandfathered” prior to the change.
EGF wants to pass this giving everyone their capital share percentage vote because the alternative is worse. Getting this passed would slightly change the outlook for a Panalpina/Agility deal or any deal which required significant issuance but it would mean that the EGF could continue to block any deal it did not like. The thing is, there is nothing in the Articles of Association which grants EGF that “grandfathered” exemption.
Cevian wants to block such this from going through, and to have the EGF capped at 5% like the Articles of Association suggest all should be. Cevian says that Panalpina has unlawfully maintained a grandfathering exemption from the 5% cap for the EGF. IF the EGF is capped, it means that effectively the EGF loses the ability to block deals they don’t like.
The situation is weird. It is possible that Panalpina is asking a convoluted and possibly unlawful voting structure with non-best-practice registration deadlines to vote on changing the vote structure. To Travis, this actually probably deserves a court challenge.
Merck KGaA (MRK GY), the German pharmaceutical and chemical company, gatecrashed the Entegris Inc (ENTG US) merger with Versum with the announcement of a $48/share (51.7% premium to the undisturbed) acquisition proposal. Late last month Versum and Entegris announced a $9bn (combined value) merger of equals whereby each VSM share would receive a fixed exchange ratio of 1.12 ENTG shares, resulting in VSM holders owning 47.5% of the combined company and ENTG holders owning the remaining 52.5%.
It’s now in VSM’s court. Should it opt to ditch Entegris’ merger-of-equals proposal and side with Merck, it would incur a US$140mn termination fee or $1.28/share.
John DeMasi reckons Merck’s proposal is superior, however a pure cash offer vs. stock swap are not directly comparable. The prospect of Entegris substantially increasing the exchange ratio or adding a chunk of cash to the merger consideration seems remote. John expects we will see a bump in Merck’s offer to make it friendly, and a recommended deal, in short order.
Brake supplier, Wabco confirmed that it is in takeover talks with ZF Friedrichshafen, one of the leading auto parts suppliers in Germany. ZF and Wabco jointly develop the Evasive Manoeuvre Assist system for trucks, combining Wabco’s braking and vehicle dynamics control systems alongside ZF’s active steering technology.
The pushback is the Zeppelin Foundation, ZF’s controlling shareholder, and its aversion to taking on excess debt. Management and the foundation previously clashed over the €13.5bn TRW transaction in 2015.
Back in October last year, Hanergy Mobile Energy Holdings Group Limited (HMEH), Hanergy Thin Film Power (566 HK)‘s majority shareholder, announced an intention to privatise the company at “no less than HK$5/share” via cash or scrip. Hanergy has now announced the intention of HMEH to privatise the company by way of a Scheme. The ultimate intention of HMEH still remains the listing of Hanergy’s business in China. The key issue, putting aside the fact Hanergy has been suspended for near-on four years, is that the scrip consideration has no assigned value.
Long-suffering shareholders, who comprise 32.49% of shares out, have the dubious honour of holding SPV shares (with an as yet undermined jurisdiction), which may remain in A-share pre-listing purgatory; or should the Scheme fail/lapse, they will hold unlisted shares if Hanergy fails to resume trading by end-July 2019, as would be the case per recently introduced HKEx guidelines. Such an outcome affords HMEH the flexibility to potentially squeeze out minorities at a bargain price.
It is not clear why the SFC is okay with this takeover proposal, apart from simply being open to any idea to remove Hanergy from the Exchange. At a guess, the SPV consideration structure (as opposed to a straightforward cash offer) is possibly geared to reduce shareholder rights compared to those available under Bermuda Companies Act, Bermuda being where Hanergy is incorporated.
The Scheme doc, due out later this month, or early next, requires sign-off from the SFC. Presumably the SPV jurisdiction should at least be known by then. It is hard to believe an official takeover document would be dispatched boasting no determinate offer value in addition to unknown shareholder protection rights attached to the unlisted scrip.
Descente said will release its Mid-Term Plan early in an effort to encourage shareholders to not tender. For its part, Itochu has released an amendment to its original doc, saying Descente has been naughty (bad-mouthing Itochu to the press while in negotiations), and that it will wait until after the Tender Offer is completed to re-engage. Itochu effectively reserves the right to go full hostile.
ANTA’s CEO was quoted in an interview saying ANTA supports Itochu’s tender offer and management restructuring and governance initiatives because they say they believe it will lift corporate value. That means Itochu+ANTA have a functional majority if not absolute.
This should raise back end values. Descente management is quite stuck here. To Travis, there is likely some upside optionality. Some may decide to stick with the company, raising pro-ration rates.
The Scheme Document for the privatisation of Hopewell Holdings (54 HK) has been dispatched. The court meeting will be held on the 21 March. The consideration will be paid (on or before) the 14 May.
The Offer Price representing a 43% discount to NAV, wider than the largest discount precedent in past nine years – the Glorious Property (845 HK) offer, which incidentally was voted down. The widest successful discount to NAV privatisation was 29.4% for New World China Land (917 HK)in 2016. And all precedent transactions (successful or otherwise) are PRC (mainly) property development related; except for Wheelock which operated property in Hong Kong (like Hopewell) and in Singapore, which was privatised at a 12.1% discount to NAV.
Therein lies the dilemma – what is a fair and reasonable discount to NAV for a Hong Kong investment property play? With limited precedents, it is challenging to categorically reach an opinion. Therefore, the IFA concluded the Offer is reasonable by referencing the premium to last close and historical pricing. I would argue the Wu family has made a low-ball offer for what is essentially an investment property play with quantifiable asset value.
A blocking sake is 5.9% or 51.6mn shares. First Eagle, which recently voted down the Guoco Group Ltd (53 HK)privatisation that was pitched at a ~25% discount to NAV, holds 2.7% (according to CapIQ). Trading at a wide gross/annualised return of 7.8%/45.4%, reflecting the risk to completion, and the significant downside should the scheme be voted down.
Taisho Pharmaceutical Holdings (4581 JP)announced it would launch another Tender Offer at VND 120,000 (3.5% premium to the previous close when the doc was prepared), this time to purchase up to 21.7% of the Vietnam-listed DHG, lifting its stake to 56.69%.
The State Capital Investment Corporation (SCIC) owns 43.31%. IF the SCIC tenders, the minimum proration is 33.38%. IF the SCIC does NOT tender their shares, this is effectively a full tender. All of your shares would be purchased.
The very recent performance has been most curious. The last 11 days – before the announcement – have seen the stock move 37.6% on 9x average volume, with little to no news to drive it as far as Travis can tell. Looks some leakage ahead of the partial offer announcement.
Travis thinks there is a non-negligible possibility that Taisho will have to bump their Tender Offer Price. And a non-negligible chance that SCIC tenders.
OYO, the largest budget hotel network in India, announced a JV with Yahoo Japan to expand its co-living rental service, “OYO Living”, to Japan. OYO will own 66.1% while YJ will own the remainder of the JV, named “Oyo Technology & Hospitality Japan”.
Rebranded as “OYO Life”, the service would be the first of its kind, in the virtually non-existent co-living market in Japan. In Japan, apartments are usually compact single-occupier units as opposed to shared spaces, which might pose a problem for OYO’s co-living model.
Assuming the model is a success and OYO Life could ramp up its capacity to around 150,000 beds in Tokyo, which is around 5% of the total apartment stock in central Tokyo, this would contribute around ¥3bn (2% of net income in FY03/18) to Yahoo Japan’s net income. There is potential for further gains, however, this would depend on how ready Tokyo is to move into a “Co-Living” culture en masse.
Ruralco has announced it has entered into a Scheme Implementation Deed in which Nutrien Ltd (NTR CN) has agreed to take Ruralco private at $4.40/share – a 44% premium to last close and the one-month VWAP. A fully franked special dividend of A$0.90 will reduce the Scheme consideration. An interim dividend of A$0.10 will be added.
Nutrien has first mover advantage, however a counter from Elders Ltd (ELD AU) is possible. The two companies have a history after Ruralco attempted to buy out Elders in 2012, but failed over a disagreement in pricing.
ACCC should not be issue to this transaction. A 2013 ruling did not oppose a Ruralco/Elders tie-up, and a similar conclusion is expected for Nutrien.
The gross/annualised spread of 0.2%/0.7% is unattractive. But at this deal price, Elders could still come over the top. Trading itself at 11.4x EV/EBITDA (according to CapIQ), upping the price by 10% would still be accretive to Elders.
Revealed in the release of notes about the Board approval of the Independent Review Committee’s review in late January was the news that Otis offered to buy the company for NT$63/share but it didn’t go anywhere. In addition, some directors – most likely the partisan ones installed in the failed board proxy fight last summer – objected to the lower minimum threshold, which is a sign they don’t want the deal to go through (because the lowering of that threshold is otherwise an unmitigated positive for minority investors).
Despite stories of a suit of breach of trust against six directors for not entertaining or pursuing offers at NT$63 by Otis and/or Schindler, the company had not received any notification from judicial authorities and has not updated the market about Tender-related matters in the last two weeks.
Travis thinks there is the small possibility of a bump to NT$63; but it is not a difficult deal to get done at the minimum threshold at NT$60.
Frasers Property (Thailand) Pcl (FPT TB)has announced a conditional voluntary tender offer for GOLD at Bt8.50/share, ~2.4% premium to last close. Frasers Property Ltd (FPL SP)owns 40.95% in FPT and also 39.92% in GOLD. FPT’s director Panote Sirivadhanabhakdi (the son of Charoen Sirivadhanabhakdi), via his majority-controlled vehicleUniventures Public (UV TB), holds 39.28% in GOLD. Panote is also the vice-chairman of GOLD.
This tender offer therefore has been initiated to consolidate the Sirivadhanabhakdi family’s holding into GOLD. Presumably, both FPL and Univentures will tender into the Offer giving FPT a minimum holding of 80.2%. The tender offer will be unconditional.
The intention to delist GOLD is evident although it will be challenging for FPT to secure 90%+ in the tender offer process, given the single-digit premium to last close, and the fact GOLD traded above the current terms as recently as early December. Getting to 90% requires almost 50% of the minority to submit their shares.
Currently trading at a gross/annualized spread of 2.4%/5.9% assuming early August payment. Very tight, suggesting investors are more likely angling for the back-end.
Diageo announced it had approached the board of directors of Sichuan Swellfun with a proposal to increase its stake from 60% to 70% at RMB 45.00/share. This was a 19.33% premium to the last close and a 40.05% premium to the 30-day average.
On a trading basis, this is somewhat interesting. If you are quite bullish the stock, you have a partial put (and you own it already). If you are tentatively bullish A-shares, this offers you a partial put, but there is a possibility that the RMB 45.00 price creates a kind of short-term cap just because it is a sticky price in peoples’ minds.
Travis is not particularly bearish the stock despite the fact that the earnings forecasts have dropped a fair bit since he looked at this six months ago. The consensus EPS forecasts for Dec 2020 today are roughly the same as they were for Dec 2019 six months ago.
The new news on Kosaido Co Ltd (7868 JP) is that the independent statutory auditor Nakatsuji-san has officially expressed his opposition to the Tender Offer. With the shares 19% through terms despite what appears to be no increase by the main activist in the last two weeks, the likelihood retail will tender at ¥610/share looks low, and this seems a situation where the deal may fail unless there is a bump. (link to Travis’ insight: Kosaido (7868 JP) TOB Extended)
On the 28 Feb, Bank Danamon Indonesia (BDMN IJ)‘s shares went ex-rights for shareholders looking to both vote on March 26th and, assuming the vote goes through, to elect to receive cash of IDR 9,590 instead of continuing to hold shares. BDMN shares are trading down, as expected, but Travis thinks they could fall further: there is no compelling reason to own the bank after it goes ex-rights to receive cash. (link to Travis’ insight: Bank Danamon Goes Ex-Rights)
FY18 results for PCCW, HKT, and PCPD are out. Plugging in the de-consolidated numbers, I estimate PCCW’s discount to NAV at ~37%, right on the 2 STD line. On a simple ratio (PCCW/HKT), it is again approaching an all-time low.
Still select media ops (Free TV and OTT), together with substantial losses booked to other businesses and eliminations, continue to weigh heavily on PCCW’s stub ops, recording negative EBITDA in FY18, reversing the positive figure recorded in FY17. FY16’s stub EBITDA was also negative.
One positive takeaway is that the dividend pass through is holding at around 90%.
Douglas provided the one-year share price comparisons of 30 Korean holdcos and the opcos as well as changes to the foreign ownership stakes of these companies YTD. Significant changes to the foreign shareholdings of these companies sometimes lead to opportunities in the holdco/opco pair trades.
Sanghyun Park points out that Hyundai Motor Co (005380 KS)‘s Common vs. pref ratio is getting out of whack, possibly because of Elliott’s ₩4.5tn dividend demand. Both 1P and 2PB are sufficiently undervalued relative to the Common. The div yield difference to Common is also at the highest levels for both pref types. Sanghyun suggests shorting the Common and being long 1P or 2PB now. 1P is probably a safer bet, but 2PB is more liquid. (link to Sanghyun’s insight: Hyundai Motor Share Class: Time to Short Common & Long Pref)
For the month of February, thirteen new deals were discussed on Smartkarma with a cumulative deal size of US$12.3bn. This overall number includes the “offer” for Hanergy Thin Film Power (566 HK) which has no value, as yet, attached to the scrip component. A firm number for Glow Energy Pcl (GLOW TB) has yet to be announced, which could result in a US$4bn+ deal. The average premium to last close for the new deals was 27.5%.
Pioneer Corp (6773 JP)announced that the deal had received all relevant anti-trust approvals, and payment for shares by the Acquirer (BPAE) of the Third Party Placement was now expected to take place on March 8th.
Glow Energy Pcl (GLOW TB)announced it has entered an S&P to sell Glow SPP1 to B. Grimm Power Service for Bt3.3bn. The P/B was not provided. This is equivalent to ~2.5% of Glow’s market cap.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Source: Company announcements. E = our estimates; C =confirmed
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