There are still two schools of thought on the HMG restructuring. Glovis/Mobis merged entity as a holdco is the one. Only Glovis as a holdco with Mobis→HM→Kia below is the other. Since late 3Q last year, the local street started speculating on the latter.
This has pushed up Glovis price relative to Mobis. They are now near 200% of σ in favor of Glovis on a 20D MA. Glovis made a 2+σ jump upwardly just in 4 trading days. On a 120D horizon, they are almost at the 120D high.
At this point, neither is a hassle free way. In the latter, Glovis has to come up with nearly ₩2tril to buy Kia’s Mobis stake, highly likely through new debts. This financial burden wouldn’t be light on Glovis. Glovis may also be facing a risk of forceful holdco conversion. This will create a serious headache with Kia as a grand grand son subsidiary.
The current speculation pushing up Glovis relative to Mobis has yet to be sufficiently substantiated/justified. This suggests Glovis is being overbought on a speculation that will very likely be short-lived. I expect there will soon be a mean reversion for Mobis. I’d go long Mobis and short Glovis at this point.
Preceding my comments on Can One/Kian Joo, Mahindra and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.
The return on this pair trade was 7.5%. (Thisassumes no commission costs, pricing spreads, taxes, or borrowing cost) using closing share price as of January 8th to February 19th, 2019. This trade was made over a period of 42 days so the annualized returns would be nearly 65%.
It appears that many traders and investors agreed that BGF was excessively undervalued versus BGF Retail early in 2019. Among the factors cited above, the excessive NAV discount to its intrinsic value as well as the market’s overt concerns about the size of the tender offer between BGF and BGF Retail in 2018 appear to be the key factors that drove the share prices of these two firms diverging excessively in 2H 2018 but then converging back to their norms so far in 2019.
The company that brought the off-road vehicle to post-war India in the 1940s has grown into a leading personal vehicle manufacturer covering land, air and sea. Merely making cars, planes and boats wasn’t ambitious enough for this company though, the conglomerate wouldn’t be complete without a financial services and tech consulting business under the corporate umbrella.
Indian holding companies typically trade a wider discount to NAV than their East Asian counterparts, however the 42% discount to NAV that Mahindra & Mahindra (MM IN) currently trades at, is a trough level historically for the company. In the body of this insight I will present my case for a stub trade on the company, detailing the business structure, performance and the unlisted stub businesses.
When the Tender Offer / MBO for Kosaido Co Ltd (7868 JP) was announced last month, my first reaction was that this was wrong. It was couched as being management-supportive, had one large independent shareholder agreeing to tender, and the it was touted as an effort to improve the printing and other “info” businesses such as staffing, and similar.
There was no mention of the fact that 94+% of the profits the last few years came from a majority stake in an external company which conducted funeral rites and services across a well-known chain of six large funeral parlours in Tokyo. Neither that company’s name nor the business segment it operates in were mentioned in the document (Japanese only) announcing the intention to conduct the MBO and if you look on the Kosaido website, you have to dig somewhat deeply to figure out that it is even a thing. In the company’s quarterly statements and semi-annual presentations of earnings, there is one line with revenues. One has to go into the fine print of the yukashoken hokokusho to discover more, and if one does, one sees that it is the profitable funeral parlour business which is effectively being purchased at 0.5x book and the rest of the company is being purchased at 1x book.
This is a virtual asset strip in progress. It is the kind of thing which gives activist hedge funds a bad name, but when cloaked in the finery of “Private Equity”, it looks like renewal of a business.
This company is an example of why investors should be spending more time on their stewardship and the governance of their portfolio companies.
It is also why investors should be taking a very close look at the METI request for public comment on what constitutes “Fair M&A.”
It is a decent premium but an underwhelming valuation. Because of the premium, and its smallcap nature, I expect this gets done.
If deals like this start to not get done, that would be a bullish sign. Investors will finally be taking the blinders off to unfair M&A practices.
Shortly afterwards, an activist did come forward. Long-time Japan activist Yoshiaki Murakami bought 5% through his entity Reno KK, and later lifted his stake (combined with affiliates) to 9.55%. I thought the stock had run too far at that point (¥775/share). While still cheap, I did not expect Bain to lift its price by 30+% and I did not expect a white knight to arrive quickly enough. This was discussed in Kosaido: Activism Drives Price 30+% Through Terms.
The New News
In the wee hours of Monday 18 February, with 11 days left to the Tender Offer, toyokeizai.net published an article (partially paywalled) suggesting that the longstanding external auditor Mr. Nakatsuji and lead shareholder Sakurai Mie (descendent of the founder of Kosaido, who originally founded a company called 桜井謄写堂 (Sakurai Transcription) in 1949, which later became Sakurai Kosaido, then just Kosaido) were against the takeover.
THAT is interesting. And the backstory here is even more interesting.
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Preceding my comments on Can One/Kian Joo, Mahindra and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.
The return on this pair trade was 7.5%. (Thisassumes no commission costs, pricing spreads, taxes, or borrowing cost) using closing share price as of January 8th to February 19th, 2019. This trade was made over a period of 42 days so the annualized returns would be nearly 65%.
It appears that many traders and investors agreed that BGF was excessively undervalued versus BGF Retail early in 2019. Among the factors cited above, the excessive NAV discount to its intrinsic value as well as the market’s overt concerns about the size of the tender offer between BGF and BGF Retail in 2018 appear to be the key factors that drove the share prices of these two firms diverging excessively in 2H 2018 but then converging back to their norms so far in 2019.
The company that brought the off-road vehicle to post-war India in the 1940s has grown into a leading personal vehicle manufacturer covering land, air and sea. Merely making cars, planes and boats wasn’t ambitious enough for this company though, the conglomerate wouldn’t be complete without a financial services and tech consulting business under the corporate umbrella.
Indian holding companies typically trade a wider discount to NAV than their East Asian counterparts, however the 42% discount to NAV that Mahindra & Mahindra (MM IN) currently trades at, is a trough level historically for the company. In the body of this insight I will present my case for a stub trade on the company, detailing the business structure, performance and the unlisted stub businesses.
When the Tender Offer / MBO for Kosaido Co Ltd (7868 JP) was announced last month, my first reaction was that this was wrong. It was couched as being management-supportive, had one large independent shareholder agreeing to tender, and the it was touted as an effort to improve the printing and other “info” businesses such as staffing, and similar.
There was no mention of the fact that 94+% of the profits the last few years came from a majority stake in an external company which conducted funeral rites and services across a well-known chain of six large funeral parlours in Tokyo. Neither that company’s name nor the business segment it operates in were mentioned in the document (Japanese only) announcing the intention to conduct the MBO and if you look on the Kosaido website, you have to dig somewhat deeply to figure out that it is even a thing. In the company’s quarterly statements and semi-annual presentations of earnings, there is one line with revenues. One has to go into the fine print of the yukashoken hokokusho to discover more, and if one does, one sees that it is the profitable funeral parlour business which is effectively being purchased at 0.5x book and the rest of the company is being purchased at 1x book.
This is a virtual asset strip in progress. It is the kind of thing which gives activist hedge funds a bad name, but when cloaked in the finery of “Private Equity”, it looks like renewal of a business.
This company is an example of why investors should be spending more time on their stewardship and the governance of their portfolio companies.
It is also why investors should be taking a very close look at the METI request for public comment on what constitutes “Fair M&A.”
It is a decent premium but an underwhelming valuation. Because of the premium, and its smallcap nature, I expect this gets done.
If deals like this start to not get done, that would be a bullish sign. Investors will finally be taking the blinders off to unfair M&A practices.
Shortly afterwards, an activist did come forward. Long-time Japan activist Yoshiaki Murakami bought 5% through his entity Reno KK, and later lifted his stake (combined with affiliates) to 9.55%. I thought the stock had run too far at that point (¥775/share). While still cheap, I did not expect Bain to lift its price by 30+% and I did not expect a white knight to arrive quickly enough. This was discussed in Kosaido: Activism Drives Price 30+% Through Terms.
The New News
In the wee hours of Monday 18 February, with 11 days left to the Tender Offer, toyokeizai.net published an article (partially paywalled) suggesting that the longstanding external auditor Mr. Nakatsuji and lead shareholder Sakurai Mie (descendent of the founder of Kosaido, who originally founded a company called 桜井謄写堂 (Sakurai Transcription) in 1949, which later became Sakurai Kosaido, then just Kosaido) were against the takeover.
THAT is interesting. And the backstory here is even more interesting.
Best World International (BEST SP) is a direct-selling company that distributes premium skincare and wellness products. On Monday, The Business Times claimed that it is difficult to verify Best World’s strong sales in China based on “an unimpressive online and offline footprint.” On the back of the Business Times article, Best World shares slid 17% before the company was granted a trading halt pending a clarification announcement.
Checking the accuracy of the Business Times’ facts and figures is beyond the scope of this note. Instead, the aim is to analyse alternative financial metrics to judge if Business Times’ allegations have some substance. Overall, our analysis suggests that Business Times’ claims have some substance and investors should not be so quick to dismiss it.
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Hansae Holdco/Sub duo is giving a very wide price divergence right now. They are now at -227% of σ. This is a 120D low. Holdco discount is 50% to NAV. Sub is 55% of the sub holdings and 60% of Holdco NAV. Sub has made a run lately mainly on improving outlook. Local long-term funds have led the recent Sub buying. They like Sub’s 4Q results. They also expect this trend to continue at least for this year.
Valuation wise, Sub price is at a little over 17x PER on already adjusted FY19 earnings. This is pretty much in line with the yearly average in the past 3 years. Sub price rally should be resisted at this point. Holdco/Sub price ratio is at the lowest in 120D on a 20D MA. It has also fallen to near 2 year low.
Local short-term money managers do not seem to be joining the current Sub buying. Shorting on Sub is still at a significant level (nearly 10%). I’d make a trade at this point. I’d go long Holdco and short Sub for a short-term mean reversion. Again, Holdco liquidity can be an issue to some of us.
For years, Panalpina Welttransport Holding (PWTN SW) has underperformed expectations, and investors such as Artisan and Franklin Templeton have held stakes of a few percent to more (Artisan now owns 12%) and have complained more or less publicly. Swedish activist investor Cevian has also owned shares for years (now at 12.3% approximately) and complained quite publicly last October about the governance structure and management and suggested that management be open to a takeover. The company pooh-poohed that, but a week later announced that Chairman Peter Ulber – one of Cevian’s governance targets – would not stand for re-election in May 2019 at the AGM.
A week after that, Kuehne + Nagel International A (KNIN VX) CEO Detlef Trefzger said in Swiss finance magazine Finanz und Wirtschaft (German) it would be happy to open talks with Panalpina but would not pursue a hostile merger. Fast forward less than 8 weeks and DSV A/S (DSV DC) made a public proposal of a takeover for cash and scrip valued at CHF 170/share, which came at a 24% premium to last and +31% vs 1-month VWAP but was even better by day end and by Friday’s close was 8.5% higher.
A couple of weeks after Panalpina shares spiked, the Chairman of K&N Klaus-Michael Kühne was quoted in the press saying Panalpina was “hopelessly overvalued” and the company did not want to either overpay, or undertake a “megafusion” (large M&A) because of the difficulty in integrating companies. He IS chairman, AND his name is on the door, AND he indirectly controls 53% of the stock so his word carries weight.
A body of Panalpina workers came out against the idea of a DSV acquisition, and the board of major shareholder The Ernst Göhner Foundation apparently told Panalpina it supported Panalpina management’s model of growing by its own consolidator strategy, which Panalpina CEO Stefan Karlen said on the 13th in a phone interview with Bloomberg could involve taking on debt.
A day later, interviews with the Thomas Gutzwiller, chairman of the Göhner Foundation’s Panalpina committee, said the Foundation doesn’t fundamentally oppose a takeover of Panalpina and would be prepared to reduce its stake in “any transactions within the scope of implementing the strategy,” (Luzerner Zeitung). He also said that the foundation had supported the company’s major investments (in IT) in recent years and wanted to reap the benefits.
It wasn’t clear whether which approach takes priority. Does the foundation want to wait? Is it just looking for a higher price? I think the two are not incompatible.
Frustrated by the lack of transparency on whether Panalpina was considering DSV’s approach or not, major shareholder Artisan Partners earlier this week wrote an open letter to Panalpina’s board explicitly asking Panalpina to entertain the bid and open negotiations, and to ensure that conflicted members of the board recuse themselves.
This puts the #2, #3, and long-time #4 shareholders (Franklin Templeton was a long-time #4) firmly and publicly in the camp of trying to get something done. In fact, a fund manager at Franklin Templeton was quoted in a Bloomberg article recently saying the Foundation was perhaps the only shareholder against the deal. There is an enormous amount of frustration at these holders who have held for years (9, 10+, and several) have not seen margins improve. Since the deal was announced, two major risk arb funds have purchased a combined 5+%, and others appear to be in as well.
The New News
On Friday, Panalpina confirmed media scuttlebutt that it was in preliminary talks with Kuwait-listed logistics company Agility Public Warehouse which has a market cap of about US$3.7bn. A Bloomberg report suggested a deal could be reached as early as this week for its logistics business (presumably leaving the infrastructure business in Agility’s hands. The same article suggested the Göhner Foundation is supportive of the new talks.
Also on Friday, DSV announced a new all cash CHF 180/share offer for Panalpina, and Panalpina shares rebounded from CHF 149.00 to CHF 156.10/share that day. That leaves 15.3% to the cash offer, though the original cash and scrip offer is now worth CHF 184.5/share, which is an even better premium to pre-offer terms.
It’s all still in play, but for the moment, EVERYTHING comes down to the Foundation – for one simple reason embedded in the Panalpina Articles of Association.
MYOB Group Ltd (MYO AU)‘s shares are trading A$3.42, marginally above KKR & Co Inc (KKR US)‘s revised lower offer of A$3.40 cash per share, due to the expectation of a bidder trumping KKR. The optimism has also been stoked by the sharp market rally since MYOB agreed to recommend KKR’s revised lower offer on 24 December 2018. The ASX 200 and ASX 300 Information Technology Index has rallied 10% and 20% respectively from 24 December 2018 to 15 February 2019.
While shareholders may feel like KKR is acquiring MYOB at a knockdown price, the market could quickly revert to a downward trend. We believe that shareholders hoping for a white knight to ride to the rescue will be disappointed.
KCL-SPH again extended the closing date of the offer from 18 February to 4 March 2019. M1’s shares are trading at S$2.04 per share, marginally below the VGO price of S$2.06 per share. We believe that the KCL-SPH should get the valid acceptances to complete the delisting and wholly own M1.
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The return on this pair trade was 7.5%. (Thisassumes no commission costs, pricing spreads, taxes, or borrowing cost) using closing share price as of January 8th to February 19th, 2019. This trade was made over a period of 42 days so the annualized returns would be nearly 65%.
It appears that many traders and investors agreed that BGF was excessively undervalued versus BGF Retail early in 2019. Among the factors cited above, the excessive NAV discount to its intrinsic value as well as the market’s overt concerns about the size of the tender offer between BGF and BGF Retail in 2018 appear to be the key factors that drove the share prices of these two firms diverging excessively in 2H 2018 but then converging back to their norms so far in 2019.
The company that brought the off-road vehicle to post-war India in the 1940s has grown into a leading personal vehicle manufacturer covering land, air and sea. Merely making cars, planes and boats wasn’t ambitious enough for this company though, the conglomerate wouldn’t be complete without a financial services and tech consulting business under the corporate umbrella.
Indian holding companies typically trade a wider discount to NAV than their East Asian counterparts, however the 42% discount to NAV that Mahindra & Mahindra (MM IN) currently trades at, is a trough level historically for the company. In the body of this insight I will present my case for a stub trade on the company, detailing the business structure, performance and the unlisted stub businesses.
When the Tender Offer / MBO for Kosaido Co Ltd (7868 JP) was announced last month, my first reaction was that this was wrong. It was couched as being management-supportive, had one large independent shareholder agreeing to tender, and the it was touted as an effort to improve the printing and other “info” businesses such as staffing, and similar.
There was no mention of the fact that 94+% of the profits the last few years came from a majority stake in an external company which conducted funeral rites and services across a well-known chain of six large funeral parlours in Tokyo. Neither that company’s name nor the business segment it operates in were mentioned in the document (Japanese only) announcing the intention to conduct the MBO and if you look on the Kosaido website, you have to dig somewhat deeply to figure out that it is even a thing. In the company’s quarterly statements and semi-annual presentations of earnings, there is one line with revenues. One has to go into the fine print of the yukashoken hokokusho to discover more, and if one does, one sees that it is the profitable funeral parlour business which is effectively being purchased at 0.5x book and the rest of the company is being purchased at 1x book.
This is a virtual asset strip in progress. It is the kind of thing which gives activist hedge funds a bad name, but when cloaked in the finery of “Private Equity”, it looks like renewal of a business.
This company is an example of why investors should be spending more time on their stewardship and the governance of their portfolio companies.
It is also why investors should be taking a very close look at the METI request for public comment on what constitutes “Fair M&A.”
It is a decent premium but an underwhelming valuation. Because of the premium, and its smallcap nature, I expect this gets done.
If deals like this start to not get done, that would be a bullish sign. Investors will finally be taking the blinders off to unfair M&A practices.
Shortly afterwards, an activist did come forward. Long-time Japan activist Yoshiaki Murakami bought 5% through his entity Reno KK, and later lifted his stake (combined with affiliates) to 9.55%. I thought the stock had run too far at that point (¥775/share). While still cheap, I did not expect Bain to lift its price by 30+% and I did not expect a white knight to arrive quickly enough. This was discussed in Kosaido: Activism Drives Price 30+% Through Terms.
The New News
In the wee hours of Monday 18 February, with 11 days left to the Tender Offer, toyokeizai.net published an article (partially paywalled) suggesting that the longstanding external auditor Mr. Nakatsuji and lead shareholder Sakurai Mie (descendent of the founder of Kosaido, who originally founded a company called 桜井謄写堂 (Sakurai Transcription) in 1949, which later became Sakurai Kosaido, then just Kosaido) were against the takeover.
THAT is interesting. And the backstory here is even more interesting.
Best World International (BEST SP) is a direct-selling company that distributes premium skincare and wellness products. On Monday, The Business Times claimed that it is difficult to verify Best World’s strong sales in China based on “an unimpressive online and offline footprint.” On the back of the Business Times article, Best World shares slid 17% before the company was granted a trading halt pending a clarification announcement.
Checking the accuracy of the Business Times’ facts and figures is beyond the scope of this note. Instead, the aim is to analyse alternative financial metrics to judge if Business Times’ allegations have some substance. Overall, our analysis suggests that Business Times’ claims have some substance and investors should not be so quick to dismiss it.
Friday 15 February after the close, the Offerors for M1 Ltd (M1 SP)announced that their Offer had been declared Unconditional In All Respects as the tendered amount was 57.04% and the total held by concert parties was 76.35%.
Axiata Group (AXIATA MK) made an announcement to the Bursa Malaysia that it had accepted the Offer as required because it was a significant asset disposal. The reasoning for the disposal was that given the long-term view required because of changes in the Singaporean telecom market structure and the inability of Axiata to exert management control, the disposal fit within Axiata’s portfolio rebalancing strategy and would serve to mitigate short- to medium-term risks associated with the changes in the Singaporean market.
Going unconditional has triggered an extension of the Closing Date to 4 March 2019 at 5:30pm Singapore time (our estimate pre-Offer Despatch was closing of 7 March).
If you are going to tender, you might as well do it now. Consideration (the offer price) will be despatched to those Shareholders who have already tendered within 7 business days, and those who accept the Offer starting now will get their funds within 7 business days of the Offer acceptance being validated.
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Softbank has announced a buyback of ¥600bn – its largest buyback ever. At ~¥10,500/share it is 57mm shares or 5.2% of shares out. At ¥12,000/share it is 50mm shares or 4.6%. The “official” float is about 68.7% or 750mm shares. However, by Travis’ estimate, only 44.5% of shares out or 488mm shares are Real World Float. 57mm shares out of 488mm shares is 11.7%. That is a non-negligible portion of float, and will mean significant reduction in foreign active management exposure to Softbank, or significant reduction in individual investor exposure to Softbank, or both.
Travis Lundy wrote the buyback will have further impact on the stock price simply because of flow dynamics. It isn’t easy to buy 10% of float. And we should remember that the BOJ is still buying ¥100bn+ of Softbank shares per year as it continues to buy ¥6trln of ETFs per year. And given the stock will be in the top momentum ranks of large cap Japan, Travis expects momentum flows will join the party adding more inflow.
For trading types, he thought Softbank was a buy, relatively and on an absolute basis. The Japan market is CHEAP on a current year and forecast year ahead, which suggests either the market is “wrong” or economic headwinds are picking up to a greater extent than pundits suggest.
The pre-conditons have been fulfilled and Delta Electronics (2308 TT)will now move to a tender offer. But there exist a number of unknowns for the transaction, which could delay the Offer timetable.
Although the initial wording in the August conditional voluntary tender offer announcement suggests the offer will be for ALL shares, there is talk there may be a maximum acceptance condition, therefore possible clawback for shareholders tendering. A rumoured 60% maximum translates to a minimum 50% pro-rata, potentially 67% if the family tenders 40% and the rest of holders tender half.
It is not clear whether the FY18 dividend will be netted. DELTA has announced two sets of quarterly results since the initial Offer announcement and it would be unjust for DEISG to net off any dividend. It would likely suit the family to receive the dividend. The Offer is pitched at a 1.79% premium to the then-current price. If the dividend is netted, then the Offer price will, in fact, be at a discount to last close as of announcement. DELTA will announce its full-year dividend tomorrow (18th February) and the terms of the deal may also be announced the same day. The AGM to ratify the dividend will take place around the 2 April.
Currently trading at terms or a gross/annualised spread of 4.6/21%, if including a Bt3.30 FY18 dividend and mid-May payment. That looks overly tight in the face of timing delays and actual consideration to be paid if indeed it comes out to be a partial offer.
Three months ago, Minebea Mitsumi (6479 JP) announced it would launch a Tender Offer for U Shin and it would take just under three months until the approvals were received and it could officially start the Tender Offer process. The background to the Tender Offer was discussed in Minebea Mitsumi Launches Offer for U-SHIN in early November. Travis first conclusion in November was that this was the “riskiest” straight-out non-hostile TOB he had seen in a while. Minebea Mitsumi has now announced the launch of its Tender Offer, at the same price as originally planned (¥985/share).
This deal is still perplexing to Travis. It’s easy enough from an industrial standpoint. Why not buy relatively cheap assets then see if you can cross-sell or assume some attrition? But for investors, he wonders why they put up with this. The process of reaching a “fair” valuation is, by definition, conflicted. It cannot NOT be conflicted. And just because some independent directors who don’t have skin in the game, and may have no clue about corporate valuation methodology, or fair market price, agree to a price that the acquiree’s managers, not wanting to lose their jobs, agree to doesn’t make this “fair.”
The tender offer period is QUITE long. Most tender offers are 30 days in order to give time for people to tender or “offer sufficient time for a rival bidder.” This time Travis thinks it is longer so people can take their time and get bored and tender.
Travis would sell shares now and use the balance sheet elsewhere until an activist shows his hand. If no activist, this deal is not an interesting one.
After multiple news outlets reported that LG Uplus Corp (032640 KS) will finalise a transaction with the CJ Hello, a deal was done at ₩800bn (instead of ₩1tn speculated), and only 50%+1 share instead of the full 53.92% stake held by CJ ENM (035760 KS). The acquisition price of ₩20,659 is a 107% premium to last price and translates to a EV/EBITDA multiple of 6.6x.
This is a straight stock acquisition deal. CJ Hello will be a subsidiary of LG Uplus and will continue to exist as a separate listed company. CJ ENM still owns nearly 4% CJH stake. SKT owns 8.61%.
LG Group is publicly saying that they have no plan of an immediate merger, which means neither party requires shareholder approval. But the transaction is subject to local regulator approval – MSIT and Korea FTC. MSIT approval is not an issue. FTC rejected the SKT-CJH deal last time. This time, the FTC’s head Kim Sang-jo is hinting that this deal will go through.
LG Uplus’ acquisition of CJ Hellovision is likely to further accelerate the consolidation of the Korean cable TV/media sector. KT Corp (030200 KS)is now likely to aggressively try to acquire cable-operator D’Live. SK Telecom (017670 KS) has shown some interests in acquiring Tbroad cable company.
Glow announced that the Energy Regulatory Commission (“ERC”) has resolved to approve the merger with GPSC, provided Glow sells its Glow SPP1 plant before or at the same time as the merger. A number of conditions were also attached to some of the remaining power plants. No price has been disclosed for the 69.11% stake in Glow, ex the SPP1 plant, but it will be in reference to the Bt94.892 Offer price previously announced, net of expenses with selling SPP1 and the reduced synergy thereon.
Given SPP1 is an immaterial contributor (~5%) to Glow, in terms of revenue, it can be argued that GPSC may make only a minimal change to the Offer price. Still, even a 5% downward adjustment would equate to a price below where Glow is trading.
The downside is ~8%, if using the closing price on the 11 October. Glow/GPSC/Engie want this deal to complete. I think the final Offer price will come in very close to that initially proposed. But I would not buy through Bt90, preferring to pick up shares at Bt89 or below. The merger is expected to be completed by next month, triggering a mandatory tender offer, which may take an additional 2 months or so to complete.
Sigma Healthcare released a 2-page Market Update saying the four month Business Review had identified A$100mm of annual cost savings, confirmed the FY19 EBIT guidance of A$75mn, and confirmed the FY20 EBITDA guidance of $55-60mm. The business review sees 10% underlying EBITDA growth from FY20 to FY23 so that after cost savings are included, FY23 sees the same EBITDA as FY19 [i.e. almost A$90mm].
On a standalone basis, at the end of FY22 looking towards FY23, at 8x EV/EBITDA, it looks like there is something like 60-80% upside. EBITDA might be worth even more than A$90mm in FY23 as long as the DCs can run at high capacity. And at mid-high teens PER that would be a pretty great result. They won’t get that 60-80% upside from now doing a deal with API, but they won’t have to wait for 4 years to get it either.
Travis expects another A$0.15 of value would do it. He doesn’t think they need A$0.20. The shares bounced and traded around A$0.80-1.00 from mid summer 2017 to mid-summer 2018. But that is when EBIT was supposed to fall to A$90mm. And that was nearer-term. Now we have a forecast of EBITDA of A$90mm and that is 3+ years out.
Travis thinks this could get done at 0.42-0.45 shares of API and A$0.23 of cash, given that would probably impact API shares a little bit, that would end up being a 10-15% bump vs original terms, but all told that would be pretty good – and almost a double from undisturbed.
KDDI Corp (9433 JP) announced its intention to conduct a Tender Offer for Kabu.com through a made-for-purpose SPC. The deal is not terribly different in scope than the one discussed in KDDI Deal for Kabu.com (8703 JP) Coming? about two weeks ago.
The Tender Offer is to purchase a minimum of 45,758,400 shares at ¥559/share, which is a 5.67% premium to last close and a 46.3% premium to the undisturbed price of 23 January 2019. Obtaining the minimum would get the combination of KDDI and MUFJ Securities (which currently holds 52.96% of the shares outstanding, and will not tender) to 66.67% which would allow the combination to do a Two Step Squeezeout, which KDDI states in the document that it intends to do.
Anti-trust and regulatory approvals are required (Travis can’t imagine any issues), and KDDI expects that the Tender Offer will commence in late April. This looks pretty easy as a deal, with few impediments. A rival bid is unlikely – KDDI has a headstart with the shares of MUFG Bank which have committed to the deal.
This is going to be boring. One can make markets, carry it, or allocate capital to something more interesting. However Kabu.com’s ¥6/share dividend for end March 2019 WILL BE PAID according to a press release by Kabu.com today after the close. That means there will be a down-shift in price on the ex-date of the dividend at end-March.
Via subsidiary NSITEXE, Inc, Denso has acquired a stake in Californian start-up quadric.io. NSITEXE was established to develop high performance, next generation semiconductor devices for automated driving solutions. quadric’s edge processing units compliment this technology push.
Xingfa announced its major shareholder, Guangxin Aluminium (a wholly-owned Guangdong SASAC vehicle), has acquired 5,000 shares, lifting its stake to 30.001%, triggering a mandatory general offer. The offer price is $5.60, a premium of just 2.94% to last close.
Guangxin, together with certain management of Xingfa, attempted to take Xingfa private at $3.70/share back in 1H17. That scheme failed comprehensively, which was a good outcome for minorities as FY17 net income increased 28%. 1H18 profit was also a 25% improvement over the corresponding period.
The offer price is in line with where Xingfa traded last October and is 23% below the recent peak back in mid-June 2018. It is also 37% below where China Lesso Group Holdings (2128 HK) acquired its 26.3% stake in April last year.
There has to be some behind the scenes play for Xingfa’s shares, and this potentially centres on China Lesso. While a look at CCASS shows Liao Yuqing (an ED in Xingfa) intriguingly moving his entire 48.2mn (11.5% of shares out) outside of CCASS in early December 2018.
OSLO NS is the target of competing tender offers from Euronext NV (ENX FP)andNasdaq Inc (NDAQ US). Euronext owns 5.3% and has irrevocables for 45.2% of OSLO NS shares, for 50.5% total. It launched an Offer to acquire all shares at NOK 145, and just raised that to NOK 158 on February 11, 2019. Nasdaq has irrevocables for 35.2% of OSLO NS shares and has launched an Offer to acquire all OSLO NS shares at NOK 152 per share. Nasdaq’s Offer received the unanimous recommendation of Oslo Børs VPS’s Board when it was announced. The IFA opined that NOK 152 per share is above the top end of what shareholders could expect.
Nasdaq’s undertakings are irrevocable and binding, including in the event of a higher offer. The pre-acceptances further include an obligation on the part of the pre-accepting shareholders not to accept the Euronext Offer. Irrevocables for both bidders have an end date of 31 December 2019, after which they are no longer binding.
Nasdaq, which is conditional on a 90% acceptance level, seems to have the weaker hand since its acceptance threshold condition won’t be met unless Euronext folds its cards and walks away; while Euronext (with a 50.01% acceptance condition) can keep its 50.5% “stake” as long as it gets regulatory approval. Therefore, Nasdaq would need to waive its 90% acceptance condition in order to stay in the game.
The Norwegian Ministry of Finance MoF may resolve this by approving both bidders, provided they reach a super majority acceptance threshold of two-thirds or 90% of shares outstanding (but not less). In this scenario, either party will have enough to block the other from reaching the threshold while the irrevocables are binding.
If the MoF says both parties have approval if they get to whatever super majority the MoF decides or is statutorily permitted to impose, and puts a deadline on getting there of some date after the irrevocable lock-up expiration (say, January 31, 2020), then the formerly locked-up shares are free to go to whichever bidder they chose.
I estimate HLG’s discount to NAV at 41% compared to its one-year average of 38%. The implied stub is right at the 2STD extreme and excluding a brief dip in late April 2018, is at the lowest level since June 2013.
What assets HLG does directly own at the stub level are intertwined with HLP’s own investments. There is therefore, very little to distinguish between the two companies. In addition, HLG has gradually offloaded its HK properties – to HLP no less – further increasing its exposure to China and blurring the lines between HLP and HLG’s business exposure.
HLG has also been increasing its stake in HLP since June 2011, from 48.96% to 57.62% as at 31 Dec 2018. It’s a pretty astute trade to sell a property at book to HLP, then “buy” it back indirectly via increasing its stake in HLP, which trades at 0.6x P/B.
There is no significant catalyst for the NAV discount to narrow. And liquidity does play a role, although HLG’s volume has narrowed the gap to HLP’s in recent years. Nevertheless, a ~40% discount to NAV is extreme for a straightforward, passive, single stock holdco structure.
Athaporn Arayasantiparb, CFA discussed his one-on-one with Intouch. Of interest is his discussions on the stub assets specifically InVent, a venture capital arm and considered the market leader in growth stage funding. In 2018, InVent invested Bt30m into ytm thailand, an end-to-end digital marketing and feedback platform, which used the proceeds to buy offline digital access; Bt40m into Choco CRM, a CRM and POS (point of sales) platform for SME; and Bt40m into E Studio, a B2C lifestyle portal.
Other investments discussed by Athaporn, at the stub level, include Wongnai and HSN. Wongnai is an online foodie guide and one of their largest investments to date, boasted 8m active users, 120m page views, 200,000 patron restaurants, and 10m pictures posted so far. Revenue grew 60% in 2018 to Bt250mn, and is expected to grow at 50%. HSN is an online shopping venture between Intuch and Hyundai, which managed to breakeven on a net basis.
The overall value of these investments, and the estimated 11 other start-up companies under InVent, is very much a “finger in the air” calculation. They may exceed the value of Intouch’s 41.1% stake in Thaicom Pcl (THCOM TB), but that still would be just 1% of NAV.
I estimate Intouch’s discount to NAV at ~21% (vs. the one-year average of 27%), having significantly narrowed in response to rumours of a purported sale of Thaicom (discussed in StubWorld: Intouch Gains On Possible Sale of Thaicom). At the time, I thought Intouch had run its course, noting Intouch had denied any definitive approach/agreement.
New Street Research also met with AIS and remains cautious on this telco in the current slowing environment ahead of delayed elections.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Issuance of the new shares and common stock to be delisted on the Tokyo Stock Exchange
C
Japan
Showa Shell
Scheme
1-Apr
Close of offer
E
NZ
Trade Me Group
Scheme
19-Feb
Application for initial orders filed
C
Singapore
Courts Asia
Scheme
15-Mar
Offer Close Date
C
Singapore
M1 Limited
Off Mkt
18-Feb
Closing date of offer
C
Singapore
PCI Limited
Scheme
February
Release of Scheme Booklet
E
Thailand
Delta
Off Mkt
18-Feb
Submit Tender Offer Form
C
Finland
Amer Sports
Off Mkt
28-Feb
Offer Period Expires
C
Norway
Oslo Børs VPS
Off Mkt
4-Mar
Nasdaq Offer Close Date
C
Switzerland
Panalpina
Off Mkt
27-Feb
Binding offer to be announced
E
US
Red Hat, Inc.
Scheme
March/April
Deal lodged for approval with EU Regulators
C
Source: Company announcements. E = our estimates; C =confirmed
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The company that brought the off-road vehicle to post-war India in the 1940s has grown into a leading personal vehicle manufacturer covering land, air and sea. Merely making cars, planes and boats wasn’t ambitious enough for this company though, the conglomerate wouldn’t be complete without a financial services and tech consulting business under the corporate umbrella.
Indian holding companies typically trade a wider discount to NAV than their East Asian counterparts, however the 42% discount to NAV that Mahindra & Mahindra (MM IN) currently trades at, is a trough level historically for the company. In the body of this insight I will present my case for a stub trade on the company, detailing the business structure, performance and the unlisted stub businesses.
When the Tender Offer / MBO for Kosaido Co Ltd (7868 JP) was announced last month, my first reaction was that this was wrong. It was couched as being management-supportive, had one large independent shareholder agreeing to tender, and the it was touted as an effort to improve the printing and other “info” businesses such as staffing, and similar.
There was no mention of the fact that 94+% of the profits the last few years came from a majority stake in an external company which conducted funeral rites and services across a well-known chain of six large funeral parlours in Tokyo. Neither that company’s name nor the business segment it operates in were mentioned in the document (Japanese only) announcing the intention to conduct the MBO and if you look on the Kosaido website, you have to dig somewhat deeply to figure out that it is even a thing. In the company’s quarterly statements and semi-annual presentations of earnings, there is one line with revenues. One has to go into the fine print of the yukashoken hokokusho to discover more, and if one does, one sees that it is the profitable funeral parlour business which is effectively being purchased at 0.5x book and the rest of the company is being purchased at 1x book.
This is a virtual asset strip in progress. It is the kind of thing which gives activist hedge funds a bad name, but when cloaked in the finery of “Private Equity”, it looks like renewal of a business.
This company is an example of why investors should be spending more time on their stewardship and the governance of their portfolio companies.
It is also why investors should be taking a very close look at the METI request for public comment on what constitutes “Fair M&A.”
It is a decent premium but an underwhelming valuation. Because of the premium, and its smallcap nature, I expect this gets done.
If deals like this start to not get done, that would be a bullish sign. Investors will finally be taking the blinders off to unfair M&A practices.
Shortly afterwards, an activist did come forward. Long-time Japan activist Yoshiaki Murakami bought 5% through his entity Reno KK, and later lifted his stake (combined with affiliates) to 9.55%. I thought the stock had run too far at that point (¥775/share). While still cheap, I did not expect Bain to lift its price by 30+% and I did not expect a white knight to arrive quickly enough. This was discussed in Kosaido: Activism Drives Price 30+% Through Terms.
The New News
In the wee hours of Monday 18 February, with 11 days left to the Tender Offer, toyokeizai.net published an article (partially paywalled) suggesting that the longstanding external auditor Mr. Nakatsuji and lead shareholder Sakurai Mie (descendent of the founder of Kosaido, who originally founded a company called 桜井謄写堂 (Sakurai Transcription) in 1949, which later became Sakurai Kosaido, then just Kosaido) were against the takeover.
THAT is interesting. And the backstory here is even more interesting.
Best World International (BEST SP) is a direct-selling company that distributes premium skincare and wellness products. On Monday, The Business Times claimed that it is difficult to verify Best World’s strong sales in China based on “an unimpressive online and offline footprint.” On the back of the Business Times article, Best World shares slid 17% before the company was granted a trading halt pending a clarification announcement.
Checking the accuracy of the Business Times’ facts and figures is beyond the scope of this note. Instead, the aim is to analyse alternative financial metrics to judge if Business Times’ allegations have some substance. Overall, our analysis suggests that Business Times’ claims have some substance and investors should not be so quick to dismiss it.
Friday 15 February after the close, the Offerors for M1 Ltd (M1 SP)announced that their Offer had been declared Unconditional In All Respects as the tendered amount was 57.04% and the total held by concert parties was 76.35%.
Axiata Group (AXIATA MK) made an announcement to the Bursa Malaysia that it had accepted the Offer as required because it was a significant asset disposal. The reasoning for the disposal was that given the long-term view required because of changes in the Singaporean telecom market structure and the inability of Axiata to exert management control, the disposal fit within Axiata’s portfolio rebalancing strategy and would serve to mitigate short- to medium-term risks associated with the changes in the Singaporean market.
Going unconditional has triggered an extension of the Closing Date to 4 March 2019 at 5:30pm Singapore time (our estimate pre-Offer Despatch was closing of 7 March).
If you are going to tender, you might as well do it now. Consideration (the offer price) will be despatched to those Shareholders who have already tendered within 7 business days, and those who accept the Offer starting now will get their funds within 7 business days of the Offer acceptance being validated.
Hansae Holdco/Sub duo is giving a very wide price divergence right now. They are now at -227% of σ. This is a 120D low. Holdco discount is 50% to NAV. Sub is 55% of the sub holdings and 60% of Holdco NAV. Sub has made a run lately mainly on improving outlook. Local long-term funds have led the recent Sub buying. They like Sub’s 4Q results. They also expect this trend to continue at least for this year.
Valuation wise, Sub price is at a little over 17x PER on already adjusted FY19 earnings. This is pretty much in line with the yearly average in the past 3 years. Sub price rally should be resisted at this point. Holdco/Sub price ratio is at the lowest in 120D on a 20D MA. It has also fallen to near 2 year low.
Local short-term money managers do not seem to be joining the current Sub buying. Shorting on Sub is still at a significant level (nearly 10%). I’d make a trade at this point. I’d go long Holdco and short Sub for a short-term mean reversion. Again, Holdco liquidity can be an issue to some of us.
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When the Tender Offer / MBO for Kosaido Co Ltd (7868 JP) was announced last month, my first reaction was that this was wrong. It was couched as being management-supportive, had one large independent shareholder agreeing to tender, and the it was touted as an effort to improve the printing and other “info” businesses such as staffing, and similar.
There was no mention of the fact that 94+% of the profits the last few years came from a majority stake in an external company which conducted funeral rites and services across a well-known chain of six large funeral parlours in Tokyo. Neither that company’s name nor the business segment it operates in were mentioned in the document (Japanese only) announcing the intention to conduct the MBO and if you look on the Kosaido website, you have to dig somewhat deeply to figure out that it is even a thing. In the company’s quarterly statements and semi-annual presentations of earnings, there is one line with revenues. One has to go into the fine print of the yukashoken hokokusho to discover more, and if one does, one sees that it is the profitable funeral parlour business which is effectively being purchased at 0.5x book and the rest of the company is being purchased at 1x book.
This is a virtual asset strip in progress. It is the kind of thing which gives activist hedge funds a bad name, but when cloaked in the finery of “Private Equity”, it looks like renewal of a business.
This company is an example of why investors should be spending more time on their stewardship and the governance of their portfolio companies.
It is also why investors should be taking a very close look at the METI request for public comment on what constitutes “Fair M&A.”
It is a decent premium but an underwhelming valuation. Because of the premium, and its smallcap nature, I expect this gets done.
If deals like this start to not get done, that would be a bullish sign. Investors will finally be taking the blinders off to unfair M&A practices.
Shortly afterwards, an activist did come forward. Long-time Japan activist Yoshiaki Murakami bought 5% through his entity Reno KK, and later lifted his stake (combined with affiliates) to 9.55%. I thought the stock had run too far at that point (¥775/share). While still cheap, I did not expect Bain to lift its price by 30+% and I did not expect a white knight to arrive quickly enough. This was discussed in Kosaido: Activism Drives Price 30+% Through Terms.
The New News
In the wee hours of Monday 18 February, with 11 days left to the Tender Offer, toyokeizai.net published an article (partially paywalled) suggesting that the longstanding external auditor Mr. Nakatsuji and lead shareholder Sakurai Mie (descendent of the founder of Kosaido, who originally founded a company called 桜井謄写堂 (Sakurai Transcription) in 1949, which later became Sakurai Kosaido, then just Kosaido) were against the takeover.
THAT is interesting. And the backstory here is even more interesting.
Best World International (BEST SP) is a direct-selling company that distributes premium skincare and wellness products. On Monday, The Business Times claimed that it is difficult to verify Best World’s strong sales in China based on “an unimpressive online and offline footprint.” On the back of the Business Times article, Best World shares slid 17% before the company was granted a trading halt pending a clarification announcement.
Checking the accuracy of the Business Times’ facts and figures is beyond the scope of this note. Instead, the aim is to analyse alternative financial metrics to judge if Business Times’ allegations have some substance. Overall, our analysis suggests that Business Times’ claims have some substance and investors should not be so quick to dismiss it.
Friday 15 February after the close, the Offerors for M1 Ltd (M1 SP)announced that their Offer had been declared Unconditional In All Respects as the tendered amount was 57.04% and the total held by concert parties was 76.35%.
Axiata Group (AXIATA MK) made an announcement to the Bursa Malaysia that it had accepted the Offer as required because it was a significant asset disposal. The reasoning for the disposal was that given the long-term view required because of changes in the Singaporean telecom market structure and the inability of Axiata to exert management control, the disposal fit within Axiata’s portfolio rebalancing strategy and would serve to mitigate short- to medium-term risks associated with the changes in the Singaporean market.
Going unconditional has triggered an extension of the Closing Date to 4 March 2019 at 5:30pm Singapore time (our estimate pre-Offer Despatch was closing of 7 March).
If you are going to tender, you might as well do it now. Consideration (the offer price) will be despatched to those Shareholders who have already tendered within 7 business days, and those who accept the Offer starting now will get their funds within 7 business days of the Offer acceptance being validated.
Hansae Holdco/Sub duo is giving a very wide price divergence right now. They are now at -227% of σ. This is a 120D low. Holdco discount is 50% to NAV. Sub is 55% of the sub holdings and 60% of Holdco NAV. Sub has made a run lately mainly on improving outlook. Local long-term funds have led the recent Sub buying. They like Sub’s 4Q results. They also expect this trend to continue at least for this year.
Valuation wise, Sub price is at a little over 17x PER on already adjusted FY19 earnings. This is pretty much in line with the yearly average in the past 3 years. Sub price rally should be resisted at this point. Holdco/Sub price ratio is at the lowest in 120D on a 20D MA. It has also fallen to near 2 year low.
Local short-term money managers do not seem to be joining the current Sub buying. Shorting on Sub is still at a significant level (nearly 10%). I’d make a trade at this point. I’d go long Holdco and short Sub for a short-term mean reversion. Again, Holdco liquidity can be an issue to some of us.
For years, Panalpina Welttransport Holding (PWTN SW) has underperformed expectations, and investors such as Artisan and Franklin Templeton have held stakes of a few percent to more (Artisan now owns 12%) and have complained more or less publicly. Swedish activist investor Cevian has also owned shares for years (now at 12.3% approximately) and complained quite publicly last October about the governance structure and management and suggested that management be open to a takeover. The company pooh-poohed that, but a week later announced that Chairman Peter Ulber – one of Cevian’s governance targets – would not stand for re-election in May 2019 at the AGM.
A week after that, Kuehne + Nagel International A (KNIN VX) CEO Detlef Trefzger said in Swiss finance magazine Finanz und Wirtschaft (German) it would be happy to open talks with Panalpina but would not pursue a hostile merger. Fast forward less than 8 weeks and DSV A/S (DSV DC) made a public proposal of a takeover for cash and scrip valued at CHF 170/share, which came at a 24% premium to last and +31% vs 1-month VWAP but was even better by day end and by Friday’s close was 8.5% higher.
A couple of weeks after Panalpina shares spiked, the Chairman of K&N Klaus-Michael Kühne was quoted in the press saying Panalpina was “hopelessly overvalued” and the company did not want to either overpay, or undertake a “megafusion” (large M&A) because of the difficulty in integrating companies. He IS chairman, AND his name is on the door, AND he indirectly controls 53% of the stock so his word carries weight.
A body of Panalpina workers came out against the idea of a DSV acquisition, and the board of major shareholder The Ernst Göhner Foundation apparently told Panalpina it supported Panalpina management’s model of growing by its own consolidator strategy, which Panalpina CEO Stefan Karlen said on the 13th in a phone interview with Bloomberg could involve taking on debt.
A day later, interviews with the Thomas Gutzwiller, chairman of the Göhner Foundation’s Panalpina committee, said the Foundation doesn’t fundamentally oppose a takeover of Panalpina and would be prepared to reduce its stake in “any transactions within the scope of implementing the strategy,” (Luzerner Zeitung). He also said that the foundation had supported the company’s major investments (in IT) in recent years and wanted to reap the benefits.
It wasn’t clear whether which approach takes priority. Does the foundation want to wait? Is it just looking for a higher price? I think the two are not incompatible.
Frustrated by the lack of transparency on whether Panalpina was considering DSV’s approach or not, major shareholder Artisan Partners earlier this week wrote an open letter to Panalpina’s board explicitly asking Panalpina to entertain the bid and open negotiations, and to ensure that conflicted members of the board recuse themselves.
This puts the #2, #3, and long-time #4 shareholders (Franklin Templeton was a long-time #4) firmly and publicly in the camp of trying to get something done. In fact, a fund manager at Franklin Templeton was quoted in a Bloomberg article recently saying the Foundation was perhaps the only shareholder against the deal. There is an enormous amount of frustration at these holders who have held for years (9, 10+, and several) have not seen margins improve. Since the deal was announced, two major risk arb funds have purchased a combined 5+%, and others appear to be in as well.
The New News
On Friday, Panalpina confirmed media scuttlebutt that it was in preliminary talks with Kuwait-listed logistics company Agility Public Warehouse which has a market cap of about US$3.7bn. A Bloomberg report suggested a deal could be reached as early as this week for its logistics business (presumably leaving the infrastructure business in Agility’s hands. The same article suggested the Göhner Foundation is supportive of the new talks.
Also on Friday, DSV announced a new all cash CHF 180/share offer for Panalpina, and Panalpina shares rebounded from CHF 149.00 to CHF 156.10/share that day. That leaves 15.3% to the cash offer, though the original cash and scrip offer is now worth CHF 184.5/share, which is an even better premium to pre-offer terms.
It’s all still in play, but for the moment, EVERYTHING comes down to the Foundation – for one simple reason embedded in the Panalpina Articles of Association.
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MYOB Group Ltd (MYO AU)‘s shares are trading A$3.42, marginally above KKR & Co Inc (KKR US)‘s revised lower offer of A$3.40 cash per share, due to the expectation of a bidder trumping KKR. The optimism has also been stoked by the sharp market rally since MYOB agreed to recommend KKR’s revised lower offer on 24 December 2018. The ASX 200 and ASX 300 Information Technology Index has rallied 10% and 20% respectively from 24 December 2018 to 15 February 2019.
While shareholders may feel like KKR is acquiring MYOB at a knockdown price, the market could quickly revert to a downward trend. We believe that shareholders hoping for a white knight to ride to the rescue will be disappointed.
KCL-SPH again extended the closing date of the offer from 18 February to 4 March 2019. M1’s shares are trading at S$2.04 per share, marginally below the VGO price of S$2.06 per share. We believe that the KCL-SPH should get the valid acceptances to complete the delisting and wholly own M1.
Softbank has announced a buyback of ¥600bn – its largest buyback ever. At ~¥10,500/share it is 57mm shares or 5.2% of shares out. At ¥12,000/share it is 50mm shares or 4.6%. The “official” float is about 68.7% or 750mm shares. However, by Travis’ estimate, only 44.5% of shares out or 488mm shares are Real World Float. 57mm shares out of 488mm shares is 11.7%. That is a non-negligible portion of float, and will mean significant reduction in foreign active management exposure to Softbank, or significant reduction in individual investor exposure to Softbank, or both.
Travis Lundy wrote the buyback will have further impact on the stock price simply because of flow dynamics. It isn’t easy to buy 10% of float. And we should remember that the BOJ is still buying ¥100bn+ of Softbank shares per year as it continues to buy ¥6trln of ETFs per year. And given the stock will be in the top momentum ranks of large cap Japan, Travis expects momentum flows will join the party adding more inflow.
For trading types, he thought Softbank was a buy, relatively and on an absolute basis. The Japan market is CHEAP on a current year and forecast year ahead, which suggests either the market is “wrong” or economic headwinds are picking up to a greater extent than pundits suggest.
The pre-conditons have been fulfilled and Delta Electronics (2308 TT)will now move to a tender offer. But there exist a number of unknowns for the transaction, which could delay the Offer timetable.
Although the initial wording in the August conditional voluntary tender offer announcement suggests the offer will be for ALL shares, there is talk there may be a maximum acceptance condition, therefore possible clawback for shareholders tendering. A rumoured 60% maximum translates to a minimum 50% pro-rata, potentially 67% if the family tenders 40% and the rest of holders tender half.
It is not clear whether the FY18 dividend will be netted. DELTA has announced two sets of quarterly results since the initial Offer announcement and it would be unjust for DEISG to net off any dividend. It would likely suit the family to receive the dividend. The Offer is pitched at a 1.79% premium to the then-current price. If the dividend is netted, then the Offer price will, in fact, be at a discount to last close as of announcement. DELTA will announce its full-year dividend tomorrow (18th February) and the terms of the deal may also be announced the same day. The AGM to ratify the dividend will take place around the 2 April.
Currently trading at terms or a gross/annualised spread of 4.6/21%, if including a Bt3.30 FY18 dividend and mid-May payment. That looks overly tight in the face of timing delays and actual consideration to be paid if indeed it comes out to be a partial offer.
Three months ago, Minebea Mitsumi (6479 JP) announced it would launch a Tender Offer for U Shin and it would take just under three months until the approvals were received and it could officially start the Tender Offer process. The background to the Tender Offer was discussed in Minebea Mitsumi Launches Offer for U-SHIN in early November. Travis first conclusion in November was that this was the “riskiest” straight-out non-hostile TOB he had seen in a while. Minebea Mitsumi has now announced the launch of its Tender Offer, at the same price as originally planned (¥985/share).
This deal is still perplexing to Travis. It’s easy enough from an industrial standpoint. Why not buy relatively cheap assets then see if you can cross-sell or assume some attrition? But for investors, he wonders why they put up with this. The process of reaching a “fair” valuation is, by definition, conflicted. It cannot NOT be conflicted. And just because some independent directors who don’t have skin in the game, and may have no clue about corporate valuation methodology, or fair market price, agree to a price that the acquiree’s managers, not wanting to lose their jobs, agree to doesn’t make this “fair.”
The tender offer period is QUITE long. Most tender offers are 30 days in order to give time for people to tender or “offer sufficient time for a rival bidder.” This time Travis thinks it is longer so people can take their time and get bored and tender.
Travis would sell shares now and use the balance sheet elsewhere until an activist shows his hand. If no activist, this deal is not an interesting one.
After multiple news outlets reported that LG Uplus Corp (032640 KS) will finalise a transaction with the CJ Hello, a deal was done at ₩800bn (instead of ₩1tn speculated), and only 50%+1 share instead of the full 53.92% stake held by CJ ENM (035760 KS). The acquisition price of ₩20,659 is a 107% premium to last price and translates to a EV/EBITDA multiple of 6.6x.
This is a straight stock acquisition deal. CJ Hello will be a subsidiary of LG Uplus and will continue to exist as a separate listed company. CJ ENM still owns nearly 4% CJH stake. SKT owns 8.61%.
LG Group is publicly saying that they have no plan of an immediate merger, which means neither party requires shareholder approval. But the transaction is subject to local regulator approval – MSIT and Korea FTC. MSIT approval is not an issue. FTC rejected the SKT-CJH deal last time. This time, the FTC’s head Kim Sang-jo is hinting that this deal will go through.
LG Uplus’ acquisition of CJ Hellovision is likely to further accelerate the consolidation of the Korean cable TV/media sector. KT Corp (030200 KS)is now likely to aggressively try to acquire cable-operator D’Live. SK Telecom (017670 KS) has shown some interests in acquiring Tbroad cable company.
Glow announced that the Energy Regulatory Commission (“ERC”) has resolved to approve the merger with GPSC, provided Glow sells its Glow SPP1 plant before or at the same time as the merger. A number of conditions were also attached to some of the remaining power plants. No price has been disclosed for the 69.11% stake in Glow, ex the SPP1 plant, but it will be in reference to the Bt94.892 Offer price previously announced, net of expenses with selling SPP1 and the reduced synergy thereon.
Given SPP1 is an immaterial contributor (~5%) to Glow, in terms of revenue, it can be argued that GPSC may make only a minimal change to the Offer price. Still, even a 5% downward adjustment would equate to a price below where Glow is trading.
The downside is ~8%, if using the closing price on the 11 October. Glow/GPSC/Engie want this deal to complete. I think the final Offer price will come in very close to that initially proposed. But I would not buy through Bt90, preferring to pick up shares at Bt89 or below. The merger is expected to be completed by next month, triggering a mandatory tender offer, which may take an additional 2 months or so to complete.
Sigma Healthcare released a 2-page Market Update saying the four month Business Review had identified A$100mm of annual cost savings, confirmed the FY19 EBIT guidance of A$75mn, and confirmed the FY20 EBITDA guidance of $55-60mm. The business review sees 10% underlying EBITDA growth from FY20 to FY23 so that after cost savings are included, FY23 sees the same EBITDA as FY19 [i.e. almost A$90mm].
On a standalone basis, at the end of FY22 looking towards FY23, at 8x EV/EBITDA, it looks like there is something like 60-80% upside. EBITDA might be worth even more than A$90mm in FY23 as long as the DCs can run at high capacity. And at mid-high teens PER that would be a pretty great result. They won’t get that 60-80% upside from now doing a deal with API, but they won’t have to wait for 4 years to get it either.
Travis expects another A$0.15 of value would do it. He doesn’t think they need A$0.20. The shares bounced and traded around A$0.80-1.00 from mid summer 2017 to mid-summer 2018. But that is when EBIT was supposed to fall to A$90mm. And that was nearer-term. Now we have a forecast of EBITDA of A$90mm and that is 3+ years out.
Travis thinks this could get done at 0.42-0.45 shares of API and A$0.23 of cash, given that would probably impact API shares a little bit, that would end up being a 10-15% bump vs original terms, but all told that would be pretty good – and almost a double from undisturbed.
KDDI Corp (9433 JP) announced its intention to conduct a Tender Offer for Kabu.com through a made-for-purpose SPC. The deal is not terribly different in scope than the one discussed in KDDI Deal for Kabu.com (8703 JP) Coming? about two weeks ago.
The Tender Offer is to purchase a minimum of 45,758,400 shares at ¥559/share, which is a 5.67% premium to last close and a 46.3% premium to the undisturbed price of 23 January 2019. Obtaining the minimum would get the combination of KDDI and MUFJ Securities (which currently holds 52.96% of the shares outstanding, and will not tender) to 66.67% which would allow the combination to do a Two Step Squeezeout, which KDDI states in the document that it intends to do.
Anti-trust and regulatory approvals are required (Travis can’t imagine any issues), and KDDI expects that the Tender Offer will commence in late April. This looks pretty easy as a deal, with few impediments. A rival bid is unlikely – KDDI has a headstart with the shares of MUFG Bank which have committed to the deal.
This is going to be boring. One can make markets, carry it, or allocate capital to something more interesting. However Kabu.com’s ¥6/share dividend for end March 2019 WILL BE PAID according to a press release by Kabu.com today after the close. That means there will be a down-shift in price on the ex-date of the dividend at end-March.
Via subsidiary NSITEXE, Inc, Denso has acquired a stake in Californian start-up quadric.io. NSITEXE was established to develop high performance, next generation semiconductor devices for automated driving solutions. quadric’s edge processing units compliment this technology push.
Xingfa announced its major shareholder, Guangxin Aluminium (a wholly-owned Guangdong SASAC vehicle), has acquired 5,000 shares, lifting its stake to 30.001%, triggering a mandatory general offer. The offer price is $5.60, a premium of just 2.94% to last close.
Guangxin, together with certain management of Xingfa, attempted to take Xingfa private at $3.70/share back in 1H17. That scheme failed comprehensively, which was a good outcome for minorities as FY17 net income increased 28%. 1H18 profit was also a 25% improvement over the corresponding period.
The offer price is in line with where Xingfa traded last October and is 23% below the recent peak back in mid-June 2018. It is also 37% below where China Lesso Group Holdings (2128 HK) acquired its 26.3% stake in April last year.
There has to be some behind the scenes play for Xingfa’s shares, and this potentially centres on China Lesso. While a look at CCASS shows Liao Yuqing (an ED in Xingfa) intriguingly moving his entire 48.2mn (11.5% of shares out) outside of CCASS in early December 2018.
OSLO NS is the target of competing tender offers from Euronext NV (ENX FP)andNasdaq Inc (NDAQ US). Euronext owns 5.3% and has irrevocables for 45.2% of OSLO NS shares, for 50.5% total. It launched an Offer to acquire all shares at NOK 145, and just raised that to NOK 158 on February 11, 2019. Nasdaq has irrevocables for 35.2% of OSLO NS shares and has launched an Offer to acquire all OSLO NS shares at NOK 152 per share. Nasdaq’s Offer received the unanimous recommendation of Oslo Børs VPS’s Board when it was announced. The IFA opined that NOK 152 per share is above the top end of what shareholders could expect.
Nasdaq’s undertakings are irrevocable and binding, including in the event of a higher offer. The pre-acceptances further include an obligation on the part of the pre-accepting shareholders not to accept the Euronext Offer. Irrevocables for both bidders have an end date of 31 December 2019, after which they are no longer binding.
Nasdaq, which is conditional on a 90% acceptance level, seems to have the weaker hand since its acceptance threshold condition won’t be met unless Euronext folds its cards and walks away; while Euronext (with a 50.01% acceptance condition) can keep its 50.5% “stake” as long as it gets regulatory approval. Therefore, Nasdaq would need to waive its 90% acceptance condition in order to stay in the game.
The Norwegian Ministry of Finance MoF may resolve this by approving both bidders, provided they reach a super majority acceptance threshold of two-thirds or 90% of shares outstanding (but not less). In this scenario, either party will have enough to block the other from reaching the threshold while the irrevocables are binding.
If the MoF says both parties have approval if they get to whatever super majority the MoF decides or is statutorily permitted to impose, and puts a deadline on getting there of some date after the irrevocable lock-up expiration (say, January 31, 2020), then the formerly locked-up shares are free to go to whichever bidder they chose.
I estimate HLG’s discount to NAV at 41% compared to its one-year average of 38%. The implied stub is right at the 2STD extreme and excluding a brief dip in late April 2018, is at the lowest level since June 2013.
What assets HLG does directly own at the stub level are intertwined with HLP’s own investments. There is therefore, very little to distinguish between the two companies. In addition, HLG has gradually offloaded its HK properties – to HLP no less – further increasing its exposure to China and blurring the lines between HLP and HLG’s business exposure.
HLG has also been increasing its stake in HLP since June 2011, from 48.96% to 57.62% as at 31 Dec 2018. It’s a pretty astute trade to sell a property at book to HLP, then “buy” it back indirectly via increasing its stake in HLP, which trades at 0.6x P/B.
There is no significant catalyst for the NAV discount to narrow. And liquidity does play a role, although HLG’s volume has narrowed the gap to HLP’s in recent years. Nevertheless, a ~40% discount to NAV is extreme for a straightforward, passive, single stock holdco structure.
Athaporn Arayasantiparb, CFA discussed his one-on-one with Intouch. Of interest is his discussions on the stub assets specifically InVent, a venture capital arm and considered the market leader in growth stage funding. In 2018, InVent invested Bt30m into ytm thailand, an end-to-end digital marketing and feedback platform, which used the proceeds to buy offline digital access; Bt40m into Choco CRM, a CRM and POS (point of sales) platform for SME; and Bt40m into E Studio, a B2C lifestyle portal.
Other investments discussed by Athaporn, at the stub level, include Wongnai and HSN. Wongnai is an online foodie guide and one of their largest investments to date, boasted 8m active users, 120m page views, 200,000 patron restaurants, and 10m pictures posted so far. Revenue grew 60% in 2018 to Bt250mn, and is expected to grow at 50%. HSN is an online shopping venture between Intuch and Hyundai, which managed to breakeven on a net basis.
The overall value of these investments, and the estimated 11 other start-up companies under InVent, is very much a “finger in the air” calculation. They may exceed the value of Intouch’s 41.1% stake in Thaicom Pcl (THCOM TB), but that still would be just 1% of NAV.
I estimate Intouch’s discount to NAV at ~21% (vs. the one-year average of 27%), having significantly narrowed in response to rumours of a purported sale of Thaicom (discussed in StubWorld: Intouch Gains On Possible Sale of Thaicom). At the time, I thought Intouch had run its course, noting Intouch had denied any definitive approach/agreement.
New Street Research also met with AIS and remains cautious on this telco in the current slowing environment ahead of delayed elections.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Issuance of the new shares and common stock to be delisted on the Tokyo Stock Exchange
C
Japan
Showa Shell
Scheme
1-Apr
Close of offer
E
NZ
Trade Me Group
Scheme
19-Feb
Application for initial orders filed
C
Singapore
Courts Asia
Scheme
15-Mar
Offer Close Date
C
Singapore
M1 Limited
Off Mkt
18-Feb
Closing date of offer
C
Singapore
PCI Limited
Scheme
February
Release of Scheme Booklet
E
Thailand
Delta
Off Mkt
18-Feb
Submit Tender Offer Form
C
Finland
Amer Sports
Off Mkt
28-Feb
Offer Period Expires
C
Norway
Oslo Børs VPS
Off Mkt
4-Mar
Nasdaq Offer Close Date
C
Switzerland
Panalpina
Off Mkt
27-Feb
Binding offer to be announced
E
US
Red Hat, Inc.
Scheme
March/April
Deal lodged for approval with EU Regulators
C
Source: Company announcements. E = our estimates; C =confirmed
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KCL-SPH again extended the closing date of the offer from 18 February to 4 March 2019. M1’s shares are trading at S$2.04 per share, marginally below the VGO price of S$2.06 per share. We believe that the KCL-SPH should get the valid acceptances to complete the delisting and wholly own M1.
Softbank has announced a buyback of ¥600bn – its largest buyback ever. At ~¥10,500/share it is 57mm shares or 5.2% of shares out. At ¥12,000/share it is 50mm shares or 4.6%. The “official” float is about 68.7% or 750mm shares. However, by Travis’ estimate, only 44.5% of shares out or 488mm shares are Real World Float. 57mm shares out of 488mm shares is 11.7%. That is a non-negligible portion of float, and will mean significant reduction in foreign active management exposure to Softbank, or significant reduction in individual investor exposure to Softbank, or both.
Travis Lundy wrote the buyback will have further impact on the stock price simply because of flow dynamics. It isn’t easy to buy 10% of float. And we should remember that the BOJ is still buying ¥100bn+ of Softbank shares per year as it continues to buy ¥6trln of ETFs per year. And given the stock will be in the top momentum ranks of large cap Japan, Travis expects momentum flows will join the party adding more inflow.
For trading types, he thought Softbank was a buy, relatively and on an absolute basis. The Japan market is CHEAP on a current year and forecast year ahead, which suggests either the market is “wrong” or economic headwinds are picking up to a greater extent than pundits suggest.
The pre-conditons have been fulfilled and Delta Electronics (2308 TT)will now move to a tender offer. But there exist a number of unknowns for the transaction, which could delay the Offer timetable.
Although the initial wording in the August conditional voluntary tender offer announcement suggests the offer will be for ALL shares, there is talk there may be a maximum acceptance condition, therefore possible clawback for shareholders tendering. A rumoured 60% maximum translates to a minimum 50% pro-rata, potentially 67% if the family tenders 40% and the rest of holders tender half.
It is not clear whether the FY18 dividend will be netted. DELTA has announced two sets of quarterly results since the initial Offer announcement and it would be unjust for DEISG to net off any dividend. It would likely suit the family to receive the dividend. The Offer is pitched at a 1.79% premium to the then-current price. If the dividend is netted, then the Offer price will, in fact, be at a discount to last close as of announcement. DELTA will announce its full-year dividend tomorrow (18th February) and the terms of the deal may also be announced the same day. The AGM to ratify the dividend will take place around the 2 April.
Currently trading at terms or a gross/annualised spread of 4.6/21%, if including a Bt3.30 FY18 dividend and mid-May payment. That looks overly tight in the face of timing delays and actual consideration to be paid if indeed it comes out to be a partial offer.
Three months ago, Minebea Mitsumi (6479 JP) announced it would launch a Tender Offer for U Shin and it would take just under three months until the approvals were received and it could officially start the Tender Offer process. The background to the Tender Offer was discussed in Minebea Mitsumi Launches Offer for U-SHIN in early November. Travis first conclusion in November was that this was the “riskiest” straight-out non-hostile TOB he had seen in a while. Minebea Mitsumi has now announced the launch of its Tender Offer, at the same price as originally planned (¥985/share).
This deal is still perplexing to Travis. It’s easy enough from an industrial standpoint. Why not buy relatively cheap assets then see if you can cross-sell or assume some attrition? But for investors, he wonders why they put up with this. The process of reaching a “fair” valuation is, by definition, conflicted. It cannot NOT be conflicted. And just because some independent directors who don’t have skin in the game, and may have no clue about corporate valuation methodology, or fair market price, agree to a price that the acquiree’s managers, not wanting to lose their jobs, agree to doesn’t make this “fair.”
The tender offer period is QUITE long. Most tender offers are 30 days in order to give time for people to tender or “offer sufficient time for a rival bidder.” This time Travis thinks it is longer so people can take their time and get bored and tender.
Travis would sell shares now and use the balance sheet elsewhere until an activist shows his hand. If no activist, this deal is not an interesting one.
After multiple news outlets reported that LG Uplus Corp (032640 KS) will finalise a transaction with the CJ Hello, a deal was done at ₩800bn (instead of ₩1tn speculated), and only 50%+1 share instead of the full 53.92% stake held by CJ ENM (035760 KS). The acquisition price of ₩20,659 is a 107% premium to last price and translates to a EV/EBITDA multiple of 6.6x.
This is a straight stock acquisition deal. CJ Hello will be a subsidiary of LG Uplus and will continue to exist as a separate listed company. CJ ENM still owns nearly 4% CJH stake. SKT owns 8.61%.
LG Group is publicly saying that they have no plan of an immediate merger, which means neither party requires shareholder approval. But the transaction is subject to local regulator approval – MSIT and Korea FTC. MSIT approval is not an issue. FTC rejected the SKT-CJH deal last time. This time, the FTC’s head Kim Sang-jo is hinting that this deal will go through.
LG Uplus’ acquisition of CJ Hellovision is likely to further accelerate the consolidation of the Korean cable TV/media sector. KT Corp (030200 KS)is now likely to aggressively try to acquire cable-operator D’Live. SK Telecom (017670 KS) has shown some interests in acquiring Tbroad cable company.
Glow announced that the Energy Regulatory Commission (“ERC”) has resolved to approve the merger with GPSC, provided Glow sells its Glow SPP1 plant before or at the same time as the merger. A number of conditions were also attached to some of the remaining power plants. No price has been disclosed for the 69.11% stake in Glow, ex the SPP1 plant, but it will be in reference to the Bt94.892 Offer price previously announced, net of expenses with selling SPP1 and the reduced synergy thereon.
Given SPP1 is an immaterial contributor (~5%) to Glow, in terms of revenue, it can be argued that GPSC may make only a minimal change to the Offer price. Still, even a 5% downward adjustment would equate to a price below where Glow is trading.
The downside is ~8%, if using the closing price on the 11 October. Glow/GPSC/Engie want this deal to complete. I think the final Offer price will come in very close to that initially proposed. But I would not buy through Bt90, preferring to pick up shares at Bt89 or below. The merger is expected to be completed by next month, triggering a mandatory tender offer, which may take an additional 2 months or so to complete.
Sigma Healthcare released a 2-page Market Update saying the four month Business Review had identified A$100mm of annual cost savings, confirmed the FY19 EBIT guidance of A$75mn, and confirmed the FY20 EBITDA guidance of $55-60mm. The business review sees 10% underlying EBITDA growth from FY20 to FY23 so that after cost savings are included, FY23 sees the same EBITDA as FY19 [i.e. almost A$90mm].
On a standalone basis, at the end of FY22 looking towards FY23, at 8x EV/EBITDA, it looks like there is something like 60-80% upside. EBITDA might be worth even more than A$90mm in FY23 as long as the DCs can run at high capacity. And at mid-high teens PER that would be a pretty great result. They won’t get that 60-80% upside from now doing a deal with API, but they won’t have to wait for 4 years to get it either.
Travis expects another A$0.15 of value would do it. He doesn’t think they need A$0.20. The shares bounced and traded around A$0.80-1.00 from mid summer 2017 to mid-summer 2018. But that is when EBIT was supposed to fall to A$90mm. And that was nearer-term. Now we have a forecast of EBITDA of A$90mm and that is 3+ years out.
Travis thinks this could get done at 0.42-0.45 shares of API and A$0.23 of cash, given that would probably impact API shares a little bit, that would end up being a 10-15% bump vs original terms, but all told that would be pretty good – and almost a double from undisturbed.
KDDI Corp (9433 JP) announced its intention to conduct a Tender Offer for Kabu.com through a made-for-purpose SPC. The deal is not terribly different in scope than the one discussed in KDDI Deal for Kabu.com (8703 JP) Coming? about two weeks ago.
The Tender Offer is to purchase a minimum of 45,758,400 shares at ¥559/share, which is a 5.67% premium to last close and a 46.3% premium to the undisturbed price of 23 January 2019. Obtaining the minimum would get the combination of KDDI and MUFJ Securities (which currently holds 52.96% of the shares outstanding, and will not tender) to 66.67% which would allow the combination to do a Two Step Squeezeout, which KDDI states in the document that it intends to do.
Anti-trust and regulatory approvals are required (Travis can’t imagine any issues), and KDDI expects that the Tender Offer will commence in late April. This looks pretty easy as a deal, with few impediments. A rival bid is unlikely – KDDI has a headstart with the shares of MUFG Bank which have committed to the deal.
This is going to be boring. One can make markets, carry it, or allocate capital to something more interesting. However Kabu.com’s ¥6/share dividend for end March 2019 WILL BE PAID according to a press release by Kabu.com today after the close. That means there will be a down-shift in price on the ex-date of the dividend at end-March.
Via subsidiary NSITEXE, Inc, Denso has acquired a stake in Californian start-up quadric.io. NSITEXE was established to develop high performance, next generation semiconductor devices for automated driving solutions. quadric’s edge processing units compliment this technology push.
Xingfa announced its major shareholder, Guangxin Aluminium (a wholly-owned Guangdong SASAC vehicle), has acquired 5,000 shares, lifting its stake to 30.001%, triggering a mandatory general offer. The offer price is $5.60, a premium of just 2.94% to last close.
Guangxin, together with certain management of Xingfa, attempted to take Xingfa private at $3.70/share back in 1H17. That scheme failed comprehensively, which was a good outcome for minorities as FY17 net income increased 28%. 1H18 profit was also a 25% improvement over the corresponding period.
The offer price is in line with where Xingfa traded last October and is 23% below the recent peak back in mid-June 2018. It is also 37% below where China Lesso Group Holdings (2128 HK) acquired its 26.3% stake in April last year.
There has to be some behind the scenes play for Xingfa’s shares, and this potentially centres on China Lesso. While a look at CCASS shows Liao Yuqing (an ED in Xingfa) intriguingly moving his entire 48.2mn (11.5% of shares out) outside of CCASS in early December 2018.
OSLO NS is the target of competing tender offers from Euronext NV (ENX FP)andNasdaq Inc (NDAQ US). Euronext owns 5.3% and has irrevocables for 45.2% of OSLO NS shares, for 50.5% total. It launched an Offer to acquire all shares at NOK 145, and just raised that to NOK 158 on February 11, 2019. Nasdaq has irrevocables for 35.2% of OSLO NS shares and has launched an Offer to acquire all OSLO NS shares at NOK 152 per share. Nasdaq’s Offer received the unanimous recommendation of Oslo Børs VPS’s Board when it was announced. The IFA opined that NOK 152 per share is above the top end of what shareholders could expect.
Nasdaq’s undertakings are irrevocable and binding, including in the event of a higher offer. The pre-acceptances further include an obligation on the part of the pre-accepting shareholders not to accept the Euronext Offer. Irrevocables for both bidders have an end date of 31 December 2019, after which they are no longer binding.
Nasdaq, which is conditional on a 90% acceptance level, seems to have the weaker hand since its acceptance threshold condition won’t be met unless Euronext folds its cards and walks away; while Euronext (with a 50.01% acceptance condition) can keep its 50.5% “stake” as long as it gets regulatory approval. Therefore, Nasdaq would need to waive its 90% acceptance condition in order to stay in the game.
The Norwegian Ministry of Finance MoF may resolve this by approving both bidders, provided they reach a super majority acceptance threshold of two-thirds or 90% of shares outstanding (but not less). In this scenario, either party will have enough to block the other from reaching the threshold while the irrevocables are binding.
If the MoF says both parties have approval if they get to whatever super majority the MoF decides or is statutorily permitted to impose, and puts a deadline on getting there of some date after the irrevocable lock-up expiration (say, January 31, 2020), then the formerly locked-up shares are free to go to whichever bidder they chose.
I estimate HLG’s discount to NAV at 41% compared to its one-year average of 38%. The implied stub is right at the 2STD extreme and excluding a brief dip in late April 2018, is at the lowest level since June 2013.
What assets HLG does directly own at the stub level are intertwined with HLP’s own investments. There is therefore, very little to distinguish between the two companies. In addition, HLG has gradually offloaded its HK properties – to HLP no less – further increasing its exposure to China and blurring the lines between HLP and HLG’s business exposure.
HLG has also been increasing its stake in HLP since June 2011, from 48.96% to 57.62% as at 31 Dec 2018. It’s a pretty astute trade to sell a property at book to HLP, then “buy” it back indirectly via increasing its stake in HLP, which trades at 0.6x P/B.
There is no significant catalyst for the NAV discount to narrow. And liquidity does play a role, although HLG’s volume has narrowed the gap to HLP’s in recent years. Nevertheless, a ~40% discount to NAV is extreme for a straightforward, passive, single stock holdco structure.
Athaporn Arayasantiparb, CFA discussed his one-on-one with Intouch. Of interest is his discussions on the stub assets specifically InVent, a venture capital arm and considered the market leader in growth stage funding. In 2018, InVent invested Bt30m into ytm thailand, an end-to-end digital marketing and feedback platform, which used the proceeds to buy offline digital access; Bt40m into Choco CRM, a CRM and POS (point of sales) platform for SME; and Bt40m into E Studio, a B2C lifestyle portal.
Other investments discussed by Athaporn, at the stub level, include Wongnai and HSN. Wongnai is an online foodie guide and one of their largest investments to date, boasted 8m active users, 120m page views, 200,000 patron restaurants, and 10m pictures posted so far. Revenue grew 60% in 2018 to Bt250mn, and is expected to grow at 50%. HSN is an online shopping venture between Intuch and Hyundai, which managed to breakeven on a net basis.
The overall value of these investments, and the estimated 11 other start-up companies under InVent, is very much a “finger in the air” calculation. They may exceed the value of Intouch’s 41.1% stake in Thaicom Pcl (THCOM TB), but that still would be just 1% of NAV.
I estimate Intouch’s discount to NAV at ~21% (vs. the one-year average of 27%), having significantly narrowed in response to rumours of a purported sale of Thaicom (discussed in StubWorld: Intouch Gains On Possible Sale of Thaicom). At the time, I thought Intouch had run its course, noting Intouch had denied any definitive approach/agreement.
New Street Research also met with AIS and remains cautious on this telco in the current slowing environment ahead of delayed elections.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Issuance of the new shares and common stock to be delisted on the Tokyo Stock Exchange
C
Japan
Showa Shell
Scheme
1-Apr
Close of offer
E
NZ
Trade Me Group
Scheme
19-Feb
Application for initial orders filed
C
Singapore
Courts Asia
Scheme
15-Mar
Offer Close Date
C
Singapore
M1 Limited
Off Mkt
18-Feb
Closing date of offer
C
Singapore
PCI Limited
Scheme
February
Release of Scheme Booklet
E
Thailand
Delta
Off Mkt
18-Feb
Submit Tender Offer Form
C
Finland
Amer Sports
Off Mkt
28-Feb
Offer Period Expires
C
Norway
Oslo Børs VPS
Off Mkt
4-Mar
Nasdaq Offer Close Date
C
Switzerland
Panalpina
Off Mkt
27-Feb
Binding offer to be announced
E
US
Red Hat, Inc.
Scheme
March/April
Deal lodged for approval with EU Regulators
C
Source: Company announcements. E = our estimates; C =confirmed
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Best World International (BEST SP) is a direct-selling company that distributes premium skincare and wellness products. On Monday, The Business Times claimed that it is difficult to verify Best World’s strong sales in China based on “an unimpressive online and offline footprint.” On the back of the Business Times article, Best World shares slid 17% before the company was granted a trading halt pending a clarification announcement.
Checking the accuracy of the Business Times’ facts and figures is beyond the scope of this note. Instead, the aim is to analyse alternative financial metrics to judge if Business Times’ allegations have some substance. Overall, our analysis suggests that Business Times’ claims have some substance and investors should not be so quick to dismiss it.
Friday 15 February after the close, the Offerors for M1 Ltd (M1 SP)announced that their Offer had been declared Unconditional In All Respects as the tendered amount was 57.04% and the total held by concert parties was 76.35%.
Axiata Group (AXIATA MK) made an announcement to the Bursa Malaysia that it had accepted the Offer as required because it was a significant asset disposal. The reasoning for the disposal was that given the long-term view required because of changes in the Singaporean telecom market structure and the inability of Axiata to exert management control, the disposal fit within Axiata’s portfolio rebalancing strategy and would serve to mitigate short- to medium-term risks associated with the changes in the Singaporean market.
Going unconditional has triggered an extension of the Closing Date to 4 March 2019 at 5:30pm Singapore time (our estimate pre-Offer Despatch was closing of 7 March).
If you are going to tender, you might as well do it now. Consideration (the offer price) will be despatched to those Shareholders who have already tendered within 7 business days, and those who accept the Offer starting now will get their funds within 7 business days of the Offer acceptance being validated.
Hansae Holdco/Sub duo is giving a very wide price divergence right now. They are now at -227% of σ. This is a 120D low. Holdco discount is 50% to NAV. Sub is 55% of the sub holdings and 60% of Holdco NAV. Sub has made a run lately mainly on improving outlook. Local long-term funds have led the recent Sub buying. They like Sub’s 4Q results. They also expect this trend to continue at least for this year.
Valuation wise, Sub price is at a little over 17x PER on already adjusted FY19 earnings. This is pretty much in line with the yearly average in the past 3 years. Sub price rally should be resisted at this point. Holdco/Sub price ratio is at the lowest in 120D on a 20D MA. It has also fallen to near 2 year low.
Local short-term money managers do not seem to be joining the current Sub buying. Shorting on Sub is still at a significant level (nearly 10%). I’d make a trade at this point. I’d go long Holdco and short Sub for a short-term mean reversion. Again, Holdco liquidity can be an issue to some of us.
For years, Panalpina Welttransport Holding (PWTN SW) has underperformed expectations, and investors such as Artisan and Franklin Templeton have held stakes of a few percent to more (Artisan now owns 12%) and have complained more or less publicly. Swedish activist investor Cevian has also owned shares for years (now at 12.3% approximately) and complained quite publicly last October about the governance structure and management and suggested that management be open to a takeover. The company pooh-poohed that, but a week later announced that Chairman Peter Ulber – one of Cevian’s governance targets – would not stand for re-election in May 2019 at the AGM.
A week after that, Kuehne + Nagel International A (KNIN VX) CEO Detlef Trefzger said in Swiss finance magazine Finanz und Wirtschaft (German) it would be happy to open talks with Panalpina but would not pursue a hostile merger. Fast forward less than 8 weeks and DSV A/S (DSV DC) made a public proposal of a takeover for cash and scrip valued at CHF 170/share, which came at a 24% premium to last and +31% vs 1-month VWAP but was even better by day end and by Friday’s close was 8.5% higher.
A couple of weeks after Panalpina shares spiked, the Chairman of K&N Klaus-Michael Kühne was quoted in the press saying Panalpina was “hopelessly overvalued” and the company did not want to either overpay, or undertake a “megafusion” (large M&A) because of the difficulty in integrating companies. He IS chairman, AND his name is on the door, AND he indirectly controls 53% of the stock so his word carries weight.
A body of Panalpina workers came out against the idea of a DSV acquisition, and the board of major shareholder The Ernst Göhner Foundation apparently told Panalpina it supported Panalpina management’s model of growing by its own consolidator strategy, which Panalpina CEO Stefan Karlen said on the 13th in a phone interview with Bloomberg could involve taking on debt.
A day later, interviews with the Thomas Gutzwiller, chairman of the Göhner Foundation’s Panalpina committee, said the Foundation doesn’t fundamentally oppose a takeover of Panalpina and would be prepared to reduce its stake in “any transactions within the scope of implementing the strategy,” (Luzerner Zeitung). He also said that the foundation had supported the company’s major investments (in IT) in recent years and wanted to reap the benefits.
It wasn’t clear whether which approach takes priority. Does the foundation want to wait? Is it just looking for a higher price? I think the two are not incompatible.
Frustrated by the lack of transparency on whether Panalpina was considering DSV’s approach or not, major shareholder Artisan Partners earlier this week wrote an open letter to Panalpina’s board explicitly asking Panalpina to entertain the bid and open negotiations, and to ensure that conflicted members of the board recuse themselves.
This puts the #2, #3, and long-time #4 shareholders (Franklin Templeton was a long-time #4) firmly and publicly in the camp of trying to get something done. In fact, a fund manager at Franklin Templeton was quoted in a Bloomberg article recently saying the Foundation was perhaps the only shareholder against the deal. There is an enormous amount of frustration at these holders who have held for years (9, 10+, and several) have not seen margins improve. Since the deal was announced, two major risk arb funds have purchased a combined 5+%, and others appear to be in as well.
The New News
On Friday, Panalpina confirmed media scuttlebutt that it was in preliminary talks with Kuwait-listed logistics company Agility Public Warehouse which has a market cap of about US$3.7bn. A Bloomberg report suggested a deal could be reached as early as this week for its logistics business (presumably leaving the infrastructure business in Agility’s hands. The same article suggested the Göhner Foundation is supportive of the new talks.
Also on Friday, DSV announced a new all cash CHF 180/share offer for Panalpina, and Panalpina shares rebounded from CHF 149.00 to CHF 156.10/share that day. That leaves 15.3% to the cash offer, though the original cash and scrip offer is now worth CHF 184.5/share, which is an even better premium to pre-offer terms.
It’s all still in play, but for the moment, EVERYTHING comes down to the Foundation – for one simple reason embedded in the Panalpina Articles of Association.
MYOB Group Ltd (MYO AU)‘s shares are trading A$3.42, marginally above KKR & Co Inc (KKR US)‘s revised lower offer of A$3.40 cash per share, due to the expectation of a bidder trumping KKR. The optimism has also been stoked by the sharp market rally since MYOB agreed to recommend KKR’s revised lower offer on 24 December 2018. The ASX 200 and ASX 300 Information Technology Index has rallied 10% and 20% respectively from 24 December 2018 to 15 February 2019.
While shareholders may feel like KKR is acquiring MYOB at a knockdown price, the market could quickly revert to a downward trend. We believe that shareholders hoping for a white knight to ride to the rescue will be disappointed.
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