Event-Driven

When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
Nearly 6mos ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 16+wks ago, recommended taking profits.
Shinko had outperformed Ibiden, gross spreads had narrowed 5+% on JSR approval. Gross spread is now 4.6% but time is shorter so annualised is 10+% even out to December launch.

ESR Group (1821 HK): Consortium’s Expansion Talks Suggest Progress

Bloomberg reports that the bidding consortium is in talks to bring in other partners, such as QIA, PIF, and CPP Investment Board, to aid in privatising ESR Group (1821 HK).
Warburg Pincus and OMERS have blocking stakes for a Cayman scheme. Warburg Pincus is seemingly supportive, and the consortium’s expansion talks suggest confidence in meeting OMERS’ price expectations.
Our best guess is that an offer is around HK$14.00. ESR’s current valuation is undemanding, with its forward EV/EBITDA multiple at a 40% discount compared to the median peers’ multiple.

StubWorld: Barito Renewables (BREN IJ) – This Too Shall Pop

Barito Pacific (BRPT IJ)‘s 64.7% stake in Barito Renewables Energy (BREN IJ) (now Indonesia’s largest company by market cap), is worth 8x its market cap. That’s unsustainable.
Preceding my comments on the Barito complex are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Yangzijiang Shipbuilding (YZJSGD SP): Cheaper than Peers with Index Inclusion Kicker

The rally in Yangzijiang Shipbuilding (YZJSGD SP) over the last month should result in the stock being added to global passive portfolios late next month.
Yangzijiang Shipbuilding (YZJSGD SP) trades cheaper than peers on forward PE but there has been a big rally in the stock over the last month.
There has been an increase in cumulative excess volume since mid-May and there will be positioning for the event, but there could be further gains in the stock.

Japan Cross-Shareholding – Summary Matrix – Over US$100bn of Selling in 118 Companies

By Sumeet Singh

Following up on our earlier cross-shareholding work, in this note we look to summarize our work so far by looking at where most of the selling will likely come.
Of the seven companies that we have looked at so far, collectively they have around US$102bn worth of shares to sell in 118 companies.
Of these, they have a combined stake of over US$1bn in 23 companies.

EQT/Keywords Studios: Scheme of Arrangement

On 3 July, PUSU deadline, Bidco and Keywords Studios (KWS LN) have agreed to an acquisition to be carried out through a scheme of arrangement.
Shareholders will receive 2,450p/share in cash, cum dividend, 66.7% premium, for 22.4x Fwd P/E. There’s a minimal number of irrevocables and just 7.57% of capital in letters of intent.
I think the price is reasonable considering the recent challenges affecting the value of the stock, and deal will close. Spread is 2.45%/6.3% (gross/annualised, assuming settlement by 29 November). Long.

Sermsuk (SSC TB): THBEV’s Delisting Offer

Thai Beverage (THBEV SP) is proposing to take 64.67%-held Sermsuk PCL (SSC TB) private by way of a voluntary Delisting Offer.
The Offer price is THB 63/share, a 27.9% premium to last close.
This Delisting Offer requires a Scheme-like shareholder vote. Payment may occur late 4Q24. This is an illiquid arb.

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Jul 03

Daily Brief Event-Driven: BIG ¥500bn Honda (7267) Offering Coming? and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

BIG ¥500bn Honda (7267) Offering Coming?
Japan CorpGovReport Details: TSE “Mgmt Conscious of Capital Cost/Stock Price” Details (Jul24)
HDFC Bank (HDFCB IN): Foreign Room Crosses 25%; Index Implications & Positioning for US$5bn+ Buying
HSCI Index Rebalance Preview and Stock Connect: Potential Changes in September
China TCM (570.HK) Update – Behind The Share Price Plunge and Prospects for Privatization Progress
Alpha Generation Through Share Buybacks in Korea: Bi-Monthly (May and June 2024)
HSTECH Index Rebalance Preview: ASM Pacific (522) Could Replace Ping An Health (1833); US$1bn Trade

BIG ¥500bn Honda (7267) Offering Coming?

Today just before the close, Reuters came out with an article saying Japan’s four major insurers and some financial institutions would offer ¥500bn of shares in a secondary offering.
That implies about 275-280mm shares (insurers hold ~195mm). In May, Honda announced a ¥300bn buyback with earnings, with nothing done so far.
The supply/demand dynamics here are key. There are a lot of moving parts over time. Honda is cheaper than it looks but there are moving parts there too.

Japan CorpGovReport Details: TSE “Mgmt Conscious of Capital Cost/Stock Price” Details (Jul24)

This month (June) saw 1,673 Corporate Governance Reports filed and 5 new “Mgmt Conscious of Capital Cost/Stock Price” policies filed.
We created a tool show every report, provide links to every document, and now a new diff file tool. Put in a name, see the difference between the Old/New Reports.
We hope this took will help. It is designed to be a shelf reference. We update the tool once a month, a couple of weeks ahead of the TSE.

HDFC Bank (HDFCB IN): Foreign Room Crosses 25%; Index Implications & Positioning for US$5bn+ Buying

Foreign shareholding in HDFC Bank (HDFCB IN) has dropped to 54.83% and that results in foreign room crossing the ‘magical’ 25% mark.
The increase in foreign room could lead to passive trackers of a global index needing to buy 256m shares (US$5.3bn; 11.5x ADV) at the end of August.
There will definitely be positioning in the stock but there should still be upside in the stock. The HDFC Bank (ADR) (HDB US) line was up 4.5% overnight.

HSCI Index Rebalance Preview and Stock Connect: Potential Changes in September

We see 37 potential adds (including plenty of new listings) and 25 potential deletes (on market cap and liquidity) for the Hang Seng Composite Index in September.
We expect 32 stocks to be added to Southbound Stock Connect following the rebalance while 24 stocks could be deleted from the trading link and become Sell-only.
There are stocks that have a very high percentage of holdings via Stock Connect and there could be some unwinding prior to the stocks becoming Sell-only.

China TCM (570.HK) Update – Behind The Share Price Plunge and Prospects for Privatization Progress

By Xinyao (Criss) Wang

The slow progress of privatization is related to recent high-level changes in CNPGC. Decisions on SOE deals with “strategic purpose” require careful considerations, not based on “one leader’s personal preferences”.
Based on public information, we cannot find convincing reason to prove that CNPGC has changed its mind.There’re rumors that China TCM’s privatization is still considered important project on the agenda.
China TCM’s has strong fundamentals to support valuation. If there is no announcement, the privatization process is expected to proceed as usual, and we continue to wait for the voting.

Alpha Generation Through Share Buybacks in Korea: Bi-Monthly (May and June 2024)

In this insight, we discuss the alpha generation through companies that have been buying back their shares in the Korean stock market in May and June 2024.
On average, the share buyback announcements for the 13 companies that announced share buybacks in Korea represented 1.7% of outstanding shares.
Major companies that have announced share buybacks in Korea in the past two months include Celltrion Inc (068270 KS), SK IE Technology (361610 KS), and NCSOFT Corp (036570 KS).

HSTECH Index Rebalance Preview: ASM Pacific (522) Could Replace Ping An Health (1833); US$1bn Trade

ASM Pacific Technology (522 HK) is expected to replace Ping An Healthcare and Technol (1833 HK) in the Hang Seng TECH Index (HSTECH INDEX) at the September rebalance.
Constituent changes and capping changes will result in a one-way turnover of 3.7% and that will result in a round-trip trade of HK$7.8bn (US$1bn).
Short interest is near the lows on both stocks but there has been a recent tick higher for ASM Pacific Technology (522 HK).

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Jul 02

Daily Brief Event-Driven: Keisei Electric Investor Activism Update: The Vote Count Could Shake Keisei’s Board and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Keisei Electric Investor Activism Update: The Vote Count Could Shake Keisei’s Board
L’Occitane (973 HK): Conditional Offer Opens
Hollysys (HOLI US): Ascendent Finally Obtains Regulatory Approvals
HSCEI Index Rebalance Preview: Two Changes Likely in September
Quiddity JPX-Nikkei 400 Rebal 2024: Final Expectations
HK Connect SOUTHBOUND Flows (To 28 June 2024); Still a Net Buy, but Less Strong. Financials Dominate
CPMC Holdings (906.HK) Privatization – Some New Information Worth the Attention
Shift Up IPO: Details, Bookbuilding & Index Inclusion
STAR50 Index Rebalance Preview: Two Changes & Over US$1.2bn to Trade
Boeing/Spirit AeroSystems: All-Stock Deal

Keisei Electric Investor Activism Update: The Vote Count Could Shake Keisei’s Board

By Oshadhi Kumarasiri

Palliser’s proposal failed to meet the challenging two-thirds threshold at the AGM. Given the ownership landscape, this outcome was anticipated.
Palliser nearing 50% approval at Keisei’s AGM could signify a triumph, potentially leading to significant pressure on management and a positive shift in share price performance.
Keisei Electric Railway Co (9009 JP)‘s valuation, now attractively low post a 33% drop and with a potential OP guidance hike, presents minimal downside at a 26.0x EV/OP multiple.

L’Occitane (973 HK): Conditional Offer Opens

The L’Occitane (973 HK) IFA opines that Reinold Geiger’s conditional voluntary cash (HK$34.00) or scrip offer (10 rollover shares for each share, subject to a cap) is fair and reasonable.
Irrevocable/Letters of support have nudged lower from 49.83% (17 June) to 47.66% of disinterested shares due to Southeastern Asset Management selling its shares.
Nevertheless, the scrip option, an attractive offer and no vocal opposition should facilitate achieving the minimum acceptance condition. At the last close, the gross spread was 2.4%.

Hollysys (HOLI US): Ascendent Finally Obtains Regulatory Approvals

Six months after announcing a binding proposal, Ascendent has obtained all the Chinese regulatory approvals for its US$26.50 Hollysys Automation Technologies (HOLI US) offer.
The gross spread was wide due to the information vacuum, which has resulted in various conspiracy theories and rumours circulating.
The two remaining conditions required for close are the maximum dissenting cap (should be waived) and minimum net cash condition (satisfied). At the last close, the gross spread was 22.5%.

HSCEI Index Rebalance Preview: Two Changes Likely in September

SenseTime Group (20 HK) and JD Logistics (2618 HK) are potential deletions while PICC Property & Casualty (2328 HK) and New Oriental Education & Techn (9901 HK) are potential adds.
Estimated one-way turnover at the rebalance is 1.8% resulting in a one-way trade of HK$950m. Official capping will be based off the close of trading on 3 September.
There will be 1-2x ADV to buy on the adds and over 2x ADV to sell in JD Logistics. The impact on SenseTime is lower given the recent surge in volume.

Quiddity JPX-Nikkei 400 Rebal 2024: Final Expectations

JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
A periodic review is conducted by the Index provider in August every year. The reference period for the August 2024 index rebal event is now complete.
In this insight, we take a look at our final expectations for ADDs and DELs.

HK Connect SOUTHBOUND Flows (To 28 June 2024); Still a Net Buy, but Less Strong. Financials Dominate

SOUTHBOUND was again a net buyer, for HK$9.3bn this week, on smallish two-way volumes. Banks were a big buy.
It is not clear how much of this is H/A discounts, expected dividend tax removal, shareholder return KPIs for SOE CEOs, upcoming Third Plenum policy, or national team buying…
But valuations are acceptable. Flows are good. Policy changes are afoot. SOUTHBOUND may continue to see inflows – national team and otherwise.

CPMC Holdings (906.HK) Privatization – Some New Information Worth the Attention

By Xinyao (Criss) Wang

ORG purchased 27% of CPMC’s shares at HK$6/share in 2015.After about eight years, Baosteel’s Offer Price was only HK$6.87/share. The annualized return rate was low, which obviously cannot satisfy ORG.
Baosteel and CPMC have been in talks for a long time – There may have been some “tacit agreement” between the two parties. The approval process is smooth so far.
For acquisitions/consolidation between SOEs, private enterprises usually have limited chances of winning.ORG has financial pressure and the approval process face uncertainties. There would be more negotiations among CPMC, ORG, Baosteel.

Shift Up IPO: Details, Bookbuilding & Index Inclusion

Shift Up (462870 KS) will raise KRW 435bn (US$315m) in its IPO, valuing the company at KRW 3,482bn (US$2.52bn). Listing is expected later this month.
Competition for the shares has been fierce with institutional investors indicating demand for 226x the number of shares on offer at prices higher than the top end of the range.
Inclusion in the KOSPI 200 looks likely in June 2025, while inclusion in global indices is likely in December. But there could be some passive inflows in September.

STAR50 Index Rebalance Preview: Two Changes & Over US$1.2bn to Trade

The review period for the September rebalance ends 31 July. We expect the changes to be announced 30 August with the implementation taking place after the close on 13 September.
We expect the index committee to continue using a 6-month minimum listing history resulting in two changes to the index.
One-Way turnover is estimated at 3.5% resulting in a one-way trade of CNY 4.5bn (US$618m). Passive trackers will need to trade 4-8x ADV on the index changes.

Boeing/Spirit AeroSystems: All-Stock Deal

On July 1, Boeing Co (BA US) announced a definitive agreement to acquire Spirit Aerosystems Holdings, Inc (SPR US) in an expected all-share deal valued at c.$4.7 billion, or $37.25/share.
Consideration is calculated using a floating exchange ratio ($37.25 divided by 15-day VWAP) with a collar. 0.20466 using Boeing’s last closing share price, which implies 3.9% dilution for Boeing’s shareholders.
The offer price is 6.4% above consensus price target median ($35), and reasonable, reflecting some control premium. The valuation represents 10.1x EV/2025 EBITDA based on IBES estimates. Long spread.

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Jul 01

Daily Brief Event-Driven: TIP Taiwan Technology Dividend Highlight Index Rebalance: 12 Changes & US$4bn Round-Trip Trade and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

TIP Taiwan Technology Dividend Highlight Index Rebalance: 12 Changes & US$4bn Round-Trip Trade
Merger Arb Mondays (01 Jul) – Henlius, China TCM, GA Pack, CPMC, Asia Cement, Great Eastern
(Mostly) Asia M&A, June 2024: Fancl, Capitol Health, Infocom,Jeisys Medical, Nagatanien, Henlius Bio
Potential Recurrence of Local Flow Trade Patterns in Hyundai Glovis’s Stock Dividend Event
EQD / NSE Vol Update / IVs Rise in Conjunction with Equities Counter to Regular Spot-Vol Correlation

TIP Taiwan Technology Dividend Highlight Index Rebalance: 12 Changes & US$4bn Round-Trip Trade

There are 12 changes for the TIP Taiwan Technology Dividend Highlight Index in June/July. The Fuh Hwa Taiwan Technology Dividend Highlight ETF (00929 TW) has an AUM of US$7.16bn.
One-Way turnover is estimated at 35% and that will result in a round-trip trade of TWD 134.7bn (US$4.1bn). There are 8 stocks that could have over 5x ADV to trade.
The ETF started rebalancing their portfolio on Friday and will continue to trade the stock over the next 7 trading days.

Merger Arb Mondays (01 Jul) – Henlius, China TCM, GA Pack, CPMC, Asia Cement, Great Eastern

We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), China Traditional Chinese Medicine (570 HK), Hollysys Automation Technologies (HOLI US), Ansarada Group Ltd (AND AU), Asia Cement China (743 HK).
Lowest spreads: Fancl Corp (4921 JP), Great Eastern Holdings (GE SP), Tatsuta Electric Wire & Cable (5809 JP), Infocom Corp (4348 JP), Kfc Holdings Japan (9873 JP).

(Mostly) Asia M&A, June 2024: Fancl, Capitol Health, Infocom,Jeisys Medical, Nagatanien, Henlius Bio

For the month of June 2024, 8 new transactions (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$6bn.
The average premium for the new transactions announced (or first discussed) in June was ~52%. The average premium YTD is ~47%.
This compares to the average premium for transactions in 2023 (117 transactions), 2022 (106), 2021 (165), 2020 (158), and 2019 (145 ) of 39%, 41%, 33%, 31%, and 31% respectively.

Potential Recurrence of Local Flow Trade Patterns in Hyundai Glovis’s Stock Dividend Event

Finding a trading entry point during a stock dividend event is tough, but locally, stock prices often rise post-ex-rights date and stabilize after listing, over 70% of the time.
There’s speculation that local flow trading, mainly driven by local prop traders, might target this pattern in Glovis’s stock dividend as well.
While I wouldn’t recommend banking on this probabilistic trading setup, it’s important to be aware that this could significantly impact stock movements from the ex-rights date to the listing date.

EQD / NSE Vol Update / IVs Rise in Conjunction with Equities Counter to Regular Spot-Vol Correlation

By Sankalp Singh

Implied Volatilities (IVs) continued to rise as the underlying index tried to break above critical resistance – marking a break-down of usual spot-vol correlations.
Vol surface smile & skew characteristics held steady at the 25-Delta point of curve, while dynamics at the 10-Delta zone extended further.
Nifty50 Back-end Term Structure is in Backwardation as Monthly options enjoy markups based on July-end Indian Budget release.

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Jun 30

Daily Brief Event-Driven: Weekly Deals Digest (30 Jun) – China TCM and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Weekly Deals Digest (30 Jun) – China TCM, Henlius, Midea RE, MMG, Aisin, Sanil, Shift Up
End of Mandatory Lock-Up Periods for 55 Companies in Korea in July 2024
(Mostly) Asia-Pac M&A: TCM, Henlius Bio, Mideal Real Estate, Malaysia Airports, S Line, Best World
Last Week in Event SPACE: Keisei Electric, China Merchants, Great Eastern, Jardine Matheson/JCNC
Quiddity Leaderboard ASX Sep 24 Rebal: Altium to Trigger Two Intra-Review Replacements in July
SK Bioscience (302440 KS): Acquiring Majority Stake in IDT Biologika- A Step Toward ‘Globalization’

Weekly Deals Digest (30 Jun) – China TCM, Henlius, Midea RE, MMG, Aisin, Sanil, Shift Up

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments: MMG (1208 HK) rights issue, Aisin (7259 JP) placement, Sanil Electric (062040 KS) IPO, and Shift Up (462870 KS) IPO.
Event-Driven developments: China Traditional Chinese Medicine (570 HK), Shanghai Henlius Biotech (2696 HK), Midea Real Estate Holding (3990 HK), Best World International (BEST SP).

End of Mandatory Lock-Up Periods for 55 Companies in Korea in July 2024

We discuss the end of the mandatory lock-up periods for 55 stocks in Korea in July 2024, among which 6 are in KOSPI and 49 are in KOSDAQ.
These 55 stocks on average could be subject to further selling pressures in July and could underperform relative to the market.
The top three market cap stocks including those of which at least 1% of outstanding shares could be sold in July include Lunit, Mezzion Pharma, and DS Dansuk.

(Mostly) Asia-Pac M&A: TCM, Henlius Bio, Mideal Real Estate, Malaysia Airports, S Line, Best World

I tally 49 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
One. new deal was discussed this week: Shanghai Henlius Biotech (2696 HK)‘s cash/scrip Offer. Midea Real Estate Holding (3990 HK) also fielded a “Partial Scheme”.
Key updates took place on: China Traditional Chinese Medicine (570 HK), Malaysia Airports Holdings (MAHB MK), S Line Co Ltd (9078 JP), Best World International (BEST SP) .

Last Week in Event SPACE: Keisei Electric, China Merchants, Great Eastern, Jardine Matheson/JCNC

No surprise: Keisei Electric Railway (9009 JP) shareholders voted down Palliser’s proposal. If the vote was close, Palliser may ups its rhetorical game, and takes a harder stance.
Argyle failed to boot one CMCDI (133 HK) director. They’ll next target the management agreement renewal; and agitate the company buy back 20% of shares outstanding at 90% of NAV.
The Offeror now has 90.16% in Great Eastern Holdings (GE SP) – so this will get suspended at the close of the Offer.

Quiddity Leaderboard ASX Sep 24 Rebal: Altium to Trigger Two Intra-Review Replacements in July

In this insight, we take a look at the potential index changes for ASX 200, 100, 50, and 20 in the run-up to the September 2024 index rebal event.
In July 2024, a couple of important Australian M&A deals could close and one of them could trigger intra-review additions for ASX 100 and ASX 200.
Separately, we see one ASX 100 change and one ASX 200 change during the September 2024 rebalance. For ASX 300, there could be 13 ADDs and 6 DELs.

SK Bioscience (302440 KS): Acquiring Majority Stake in IDT Biologika- A Step Toward ‘Globalization’

By Tina Banerjee

SK Bioscience (302440 KS) secures 60% stake in IDT Biologika, a global CDMO company with state-of-the-art manufacturing facilities in Germany, for KRW339B ($244M). The valuation seems reasonable.
The transaction paves the way for SK bioscience to strengthen its global presence, notably in Europe and the U.S., and to diversify its business by expanding into bulk drug substances.
Based on the existing CDMO contracts, IDT Biologika’s outlook remains positive. SK bioscience aims to more than double its revenue and stabilize operating profit margins at 20%+.

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Jun 29

Daily Brief Event-Driven: SK Square + SK Networks Merger Swap: A Guide to Pre-Merger Arb Spread Calculations and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

SK Square + SK Networks Merger Swap: A Guide to Pre-Merger Arb Spread Calculations
EQT/Keywords Studios: Lower Revised Offer
EQD | The Nikkei’s Rally May Be About To Restart
Esseco/Ercros: Bidding War

SK Square + SK Networks Merger Swap: A Guide to Pre-Merger Arb Spread Calculations

SK Square’s market cap exceeds SK Networks’ by over 10 times, qualifying this merger as small-scale. Thus, only SK Networks needs shareholder approval and grants appraisal rights solely to shareholders.
The current arbitrage spread for SK Networks’ appraisal rights is 1.95%, and for the swap, it’s 4.16%. These are nominal values excluding trading costs and taxes.
Today’s SK Square and SK Networks prices reflect arbitrage spreads. Yesterday’s 8% spread widened, focusing on narrowing appraisal rights and swap spreads, essential before next week’s announcement.

EQT/Keywords Studios: Lower Revised Offer

On June 27, Keywords Studios (KWS LN) received an updated cash offer of 2,450p/share from EQT (3.9% lower than initial 2,550p), 66.7% premium, implied EV €2,405 million, 13.2x EV/fwd NTM EBITDA,
22.4x Fwd P/E. The likelihood of a strategic buyer making an offer is low, while the offer from EQT is opportunistic, which will seek to merge Keywords with Virtuos.
The revised lower offer and the small extension to the PUSU deadline do not inspire optimism. Nevertheless, EQT remains a credible bidde. Gross spread stands at 5.9%. Maintain long.

EQD | The Nikkei’s Rally May Be About To Restart

By Nico Rosti

The Nikkei 225 Index rallied last week, and closed the week up.
Although slightly overbought, our models are not pointing to a SHORT opportunity here.
If the index pulls back this coming week, it may be a good idea to BUY, in order to take advantage of a possible reprise of the rally.

Esseco/Ercros: Bidding War

Esseco, an Italian manufacturer of chlorine and sulfur-based chemicals, has made a competing all-cash offer at €3.84/share, cum dividend, valuing 100% of Ercros (ECR SM) at €351 million.
Putting 25e EBITDA of €70 million (source: IBES consensus), on the median of comparables, the stand-alone fair-value per share of Ercros is €4.4. Neither bid accounts for synergies.
The strategic fit of Ercros for both bidders and its intrinsic value suggest a likely bidding war, given the scarcity of listed companies similar to Ercros. Reiterate long.

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Jun 28

Daily Brief Event-Driven: TCM (570 HK): Where’s The Floor? and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

TCM (570 HK): Where’s The Floor?
Brilliance China (1114 HK): Reversing Out of Passive Portfolios
Arb Spread Has Opened Today in Classys & Ilooda Merger Swap: Checking Trade Feasibility
Kolmar Holdings: Aggressive Plans to Cancel Outstanding Shares + Improving Returns to Shareholders
CMCDI (133 HK): Buybacks And Management Fees Into Focus
Dr. Reddy’s Laboratories (DRRD IN): Nicotinell Acquisition to Fortify Consumer Healthcare Business
Brookfield/Neoen: Share Purchase Agreement, Spread and Convertibles

TCM (570 HK): Where’s The Floor?

Just plain ugly. China Traditional Chinese Medicine (570 HK) (“TCM”) fell 11.7% yesterday. It’s down another 7.9%, on large volume, as I type. The stock is now ~35% below terms
Depending on who you talk to, the sudden move was triggered by a couple of event pods dumping stock; or the incoming CNPGC chairman is not supportive. Or perhaps both.
Since rumours surfaced early Feb as to an Offer, a basket of TCM’s peers are up 8% on average. The HSI is up 15%. TCM’s downside from here appears limited.

Brilliance China (1114 HK): Reversing Out of Passive Portfolios

Brilliance China Automotive (1114 HK) is up 220% on a total return basis since we first published our insight in August 2023.
The company paid a special dividend in April this year and will pay a large special dividend of HK$4.3/share going ex-div on 3 July.
The resultant drop in market cap will result in deletion of the stock from large global passive portfolios at the close on 3 July.

Arb Spread Has Opened Today in Classys & Ilooda Merger Swap: Checking Trade Feasibility

The spread is appealing, and Classys’ shorting instrument’s liquidity issue shouldn’t be critical with a manageable position size. The concern is shareholder approval and the stock purchase cost under ₩30B.
Despite cancellation risks, there are reasons to stay interested. Bain Capital aims to merge with Ilooda to boost Classys’ valuation, suggesting the merger may proceed even if ₩30B is exceeded.
The deadline for dissenting votes and appraisal rights at Ilooda’s meeting is July 8th, ex-rights date July 9th. Shareholders’ meeting: August 13th; rights exercise: August 13th to September 2nd.

Kolmar Holdings: Aggressive Plans to Cancel Outstanding Shares + Improving Returns to Shareholders

On 26 June, Kolmar Holdings announced it plans to cancel 2.5 million treasury shares (6.7% of outstanding shares) as part of its participation in the corporate value-up program.
Previously, Kolmar Holdings announced that it would return more than 50% of its net profit to shareholders in accordance with the shareholder return policy announced in July 2023.
According to our NAV analysis, it suggests an implied NAV of 555 billion won or NAV per share of 15,088 won, which represents a 39% upside from current price.

CMCDI (133 HK): Buybacks And Management Fees Into Focus

The recent news on China Merchants China Direct Investments (133 HK) was director Elizabeth Kan narrowly getting re-elected. Of interest, ISS recommended shareholders vote AGAINST. Glass Lewis was FOR re-election.
The key takeaway here is that the majority of the minorities want change. The next development may occur in the lead up to the management agreement renewal in November.
In addition, Argyle Street Management, CMSCI’s key shareholder activist, is also requesting the company buy back 20% of shares outstanding at 90% of NAV.

Dr. Reddy’s Laboratories (DRRD IN): Nicotinell Acquisition to Fortify Consumer Healthcare Business

By Tina Banerjee

Dr. Reddy’s Laboratories (DRRD IN) has signed a definitive agreement with Haleon (HLN LN) to acquire latter’s global portfolio of consumer healthcare brands in the nicotine replacement therapy outside US.
The company will acquire the portfolio for a total consideration of £500M ($633M). In 2023, the portfolio generated ~£217M ($274M) revenue. Purchase consideration values the business at EV/sales of 2.3x.
The acquisition will not stretch the balance sheet as Dr. Reddy’s has a cash balance of $990M as on March 31, 2024. The transaction is expected to complete in 4Q24.

Brookfield/Neoen: Share Purchase Agreement, Spread and Convertibles

On June 24, a share purchase agreement was signed between Brookfield and several shareholders, to acquire 53.12% of Neoen’s outstanding shares at €39.85/share. Brookfield has also received irrevocables for 4.36%.
The offer price is generous and this looks a done deal. Spread 5.19%/7.29% (gross/annualised) seems interesting in spite of the longer approval process in energy deals.
The convertible NEOEN 2.875 14-SEP-2027 has a balanced profile. It is trading at (mid) 100.75 (vs. €37.82), vs. a fair price estimate of 113.773.

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Jun 27

Daily Brief Event-Driven: China Traditional Chinese Medicine (570 HK): Something Is Brewing and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

China Traditional Chinese Medicine (570 HK): Something Is Brewing, but Nobody Knows Quite What
Malaysia Airports (MAHB MK)’s Offer: Buckle Up!
Tax-Loss Selling In Australia 2024 – Time To Reverse The Trade (7.2-8.6% Rtn in Two Months So Far)
Sawai Group (4887) – BIGLY Buyback To “Drastically” Change Capital Structure
Quiddity Leaderboard MV J-Gold Miners Sep 24: Mergers Mean Possible Up-And-Out DELETEs
Redox IPO Lock-Up Expiry – Limited Liquidity Might Provide a Good Excuse to Sell
Midea Real Estate (3990 HK): Ex-In-Specie, The Rump Is Rich
Merger Between Classys and Ilooda Likely to Reduce Local Competition
Adnoc/Covestro: Fresh Takeover Negotiations and Valuation Scenarios

China Traditional Chinese Medicine (570 HK): Something Is Brewing, but Nobody Knows Quite What

On no news, China Traditional Chinese Medicine (570 HK) shares declined 12% today. We spoke to several readers to gauge the likely reasons for the fall.
The speculation is that the fall could be due to forced liquidation, Sinopharm’s new Chairman pulling the offer, the consortium unravelling, SAMR issues and Ping An blocking the deal.
There is clearly news behind today’s fall, but none of the above rumours seem credible. The risk/reward is attractive as the upside (25% spread) outweighs the downside (18% to undisturbed).

Malaysia Airports (MAHB MK)’s Offer: Buckle Up!

Back on the 15th May, Khazanah Nasional, the EPF, the Abu Dhabi Investment Authority, and GIP, offered to buy shares not already owned in Malaysia Airports (MAHB MK) at RM11.00/share.
The premium to undisturbed appears reasonable. The price is a life-time high. The 90% acceptance hurdle was not insurmountable, and the consortium had the flexibility to lower the %.
But the Offer is now facing unexpected political pushback, amid protests against the Israel-linked bid.

Tax-Loss Selling In Australia 2024 – Time To Reverse The Trade (7.2-8.6% Rtn in Two Months So Far)

The original trade was discussed at end-April in Tax-Loss Selling in Australia 2024 – Historical Analysis and A Trade Basket then updated here and here.
That has done OK. The LIQUID basket has delta neutral performance of +8.4% over 2mos; LIQUID+LESSLIQUID +7.2%; If one did a mixed basket (3x L+LL + 1x Illiquids) it’s +8.6%.
Now it is time to reverse the trade, buying the basket you were short, and running it against index for the next 6-8 weeks.

Sawai Group (4887) – BIGLY Buyback To “Drastically” Change Capital Structure

Two years ago, generic pharmaceuticals co Sawai Group Holdings (4887 JP) traded at 10x PER, 6% ROE, and far below book. 10mos ago the price got back to 1x PBR.
By then, their US sub had partly been put into “Current Assets AFS” as it was for sale. By Dec23, it was completely there. In Jan, a “business review” announcement.
The US business sale led to a loss, but growth this year, and a new MTMP in early June. Monday, we got a HUGE buyback announcement. Today, an 8+% pop.

Quiddity Leaderboard MV J-Gold Miners Sep 24: Mergers Mean Possible Up-And-Out DELETEs

The MV J-Gold Miners index represents the performance small-cap gold and silver mining companies listed around the world.
This index is reviewed semi-annually in March and September. During these reviews, names can be added or deleted from the index.
In this insight, we take a look at the potential ADDs and DELs and our flow expectations for the index rebal event in September 2024.

Redox IPO Lock-Up Expiry – Limited Liquidity Might Provide a Good Excuse to Sell

By Sumeet Singh

Redox (RDX AU), a chemical and ingredients distributor, raised US$270m in its IPO in Jun 2023. Some of its founding family shareholders will be released from their IPO lockup soon.
Redox primarily serves the ANZ market, and it has a presence in Malaysia and the US. It is one of the largest chemicals and ingredients distributors in Australia.
In this note, we talk about the upcoming lock-up expiry and possible deal dynamics.

Midea Real Estate (3990 HK): Ex-In-Specie, The Rump Is Rich

In an unusual move, property developer Midea Real Estate Holding (3990 HK) announced the In-Specie distribution of its core ops, either in unlisted scrip, or HK$5.90/share in cash.
As this is considered a “very substantial disposal“, a Scheme-like vote from independent shareholders is required at an EGM. And controlling shareholders – with 81.13% – are required to abstain.
The EGM will be held on the 2 September, with the cash payment expected on (or before) the 18 October. The question is: what is the Rump worth?

Merger Between Classys and Ilooda Likely to Reduce Local Competition

On 25 June, Classys (214150 KS) announced a merger with Ilooda (164060 KS). The merger ratio is set at 0.1405237 to 1 for Classys and Ilooda.
This merger aims to combine Classys’ expertise in high-intensity focused ultrasound (HIFU) with Ilooda’s in micro-needle radio frequency (RF) and laser technologies.
We have a positive view of this merger between Classys and Ilooda. This merger is likely to reduce the overall competition in the aesthetics devices market in Korea.

Adnoc/Covestro: Fresh Takeover Negotiations and Valuation Scenarios

On 24 June, Covestro AG (1COV GR) confirmed it has decided to enter into concrete negotiations with ADNOC regarding a potential transaction at an indicative €62/share (9.6x EV/fwd NTM EBITDA).
Covestro is trading at 8x (vs. 6.5x median of peers). To justify €70/share (sought last December), Covestro should overdeliver, but analysts and market are somehow skeptical about that.
Considering a takeout price of €62, gross spread is 12.1% and the shares are pricing a 32.5% probability of deal completion.

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Jun 26

Daily Brief Event-Driven: Midea Real Estate (3990 HK): An In-Specie Distribution to Unlock Value and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Midea Real Estate (3990 HK): An In-Specie Distribution to Unlock Value
NPN X PRX FY24 Results: Initial Market Reaction Positive & JSE June Auction Analytics
Best World (BEST SP): The 19th July Vote Will Be Close
Shanghai Henlius Biotech Privatization (2696.HK) – The Offer Price Is Disappointing
Quiddity Leaderboard STAR 50 Sep 24: Two Changes; US$681mn One-Way; New Trade Ideas
NCSoft: Corporate Split-Off of Two Divisions
NIFTY Bank Index Rebalance Preview: Canara Bank Should Replace Bandhan Bank

Midea Real Estate (3990 HK): An In-Specie Distribution to Unlock Value

On 25 June, Midea Real Estate Holding (3990 HK) disclosed an in-specie distribution of its PD&S business through a scrip or cash (HK$5.90 per share, 57.33% premium to undisturbed price).
The key condition will be approval of the distribution by at least 75% of disinterested shareholders (<10% of all disinterested shareholders rejection).
Midea RE will remain listed with an asset-light retained business, which is estimated to be worth HK$1.93. The Group’s estimated value is HK$7.83, a 17.6% upside to the last close.

NPN X PRX FY24 Results: Initial Market Reaction Positive & JSE June Auction Analytics

By Charlotte van Tiddens, CFA

Naspers and Prosus released results for FY24 yesterday morning. The initial market reaction was positive, both discounts closed narrower for the day.
Since the appointment of Fabricio Bloisi was announced in May, both discounts have widened.
JSE indices were rebalanced in the closing auction on Friday. Turnover for the day on the JSE was R58bn, R38bn traded in the closing auction (66%).

Best World (BEST SP): The 19th July Vote Will Be Close

Two years of suspension, an “okay” Offer (following the bump), family members selling prior to and after the Offer – Best World International (BEST SP) is anything but dull.
The Circular is now out for the $2.56/share Exit Offer from Best World’s founders Dora Hoan and Doreen Tan. The Offer Price will not be increased.
Independent shareholders go to the vote on the 19th July. The IFA says fair & reasonable. Payment is possible late-July. But the vote is by no means a sure thing.

Shanghai Henlius Biotech Privatization (2696.HK) – The Offer Price Is Disappointing

By Xinyao (Criss) Wang

The Cancellation Price of HK$24.60 per share is about 50% lower than the IPO price of HK$49.6 per share in 2019. So, those long-term investors would suffer big losses.
Henlius’ share price has outperformed the index. If it remains listed, it’s able to continue to grow and provide long-term returns for shareholders. Reasonable Cancellation Price should be above HK$30/share.
As usual, Fosun doesn’t consider the interests of long-term investors and shareholders. There would be some investors/shareholders vote against the privatization, but the returns for arbitrageurs is not bad.

Quiddity Leaderboard STAR 50 Sep 24: Two Changes; US$681mn One-Way; New Trade Ideas

STAR 50 Index is a tech-focused, blue-chip index in Mainland China which tracks the top 50 largest and most liquid names in the STAR market of the Shanghai Stock Exchange.
In this insight, we take a look at our expectations for potential ADDs and DELs for the STAR 50 index during the September 2024 index rebal event.
We currently see two ADDs and two DELs for the STAR 50 index resulting in one-way flows of US$681mn.

NCSoft: Corporate Split-Off of Two Divisions

On 24 June, NCSoft announced a corporate split-off of two divisions called named NC QA Company and NC IDS Company.
NCSoft plans to hold a shareholders meeting where to vote on the split off decision on 14 August. Effective date of the company split is scheduled for 1 October 2024.
The consensus estimates sales of 2.0 trillion won (up 19.2% YoY) and operating profit of 272 billion won (up 155.2% YoY) in 2025.

NIFTY Bank Index Rebalance Preview: Canara Bank Should Replace Bandhan Bank

Despite the recent rally in Bandhan Bank Ltd (BANDHAN IN), the stock should be deleted from the NSE Nifty Bank Index (NSEBANK INDEX) in September.
Canara Bank (CBK IN) should be added to the NSE Nifty Bank Index (NSEBANK INDEX) and passive trackers will need to buy 1x ADV and over 2x delivery volume.
Bandhan Bank Ltd (BANDHAN IN) is safe for now but could be deleted from a large global index in the next few months on further underperformance.

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Jun 25

Daily Brief Event-Driven: T-Gaia (3738 JP) – Possible Premium Takeout Story and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

T-Gaia (3738 JP) – Possible Premium Takeout Story
Unlocking Value: SEBI’s New Special Call Auction Mechanism Explained
Chronic Insider Trading in the Korean Tender Offer Market & Time Positions for Short-Term Targets
Henlius (2696 HK): Fosun Pharma’s HK$24.60 Offer at Around Half the IPO Price
Best World (BEST SP): EGM Vote on 19 July
Quiddity Leaderboard SSE50/180 Dec 24: Some Expected DELs Could Underperform Peers
Quiddity Leaderboard ChiNext & ChiNext 50 Dec 24: Expected ADDs Could Outperform Expected DELs
Henlius Biotech (2696 HK): Fosun Pharma’s “Fair” Offer
Carlsberg/Britvic: Awaiting a Third Proposal

T-Gaia (3738 JP) – Possible Premium Takeout Story

I kind of hate this, but I also can’t ignore it. Apparently, an expensive media service Reporting on Deals or about the Market for Mergers, had an article today.
Bloomberg carried a small blurb saying there was “speculation on a tender offer…. according to traders”. The stock is untraded, limit up.
The most informative comment comes from Japanese stock market portal ‘kabutan‘ which suggests “overseas media” thinks Sumitomo Corp will sell its shares. I look at the possibilities below.

Unlocking Value: SEBI’s New Special Call Auction Mechanism Explained

By Nimish Maheshwari

SEBI introduced the SPECIAL CALL AUCTION framework for Listed Holding Companies to unlock the value.
The first special call auction is set to take place in October.
Some companies are trading at a discount of more than 50% or even 80%, post this framework, shares will be traded at fair value.

Chronic Insider Trading in the Korean Tender Offer Market & Time Positions for Short-Term Targets

There is a high likelihood of information leaking through the lead securities firm when the tender offer prospectus is provided to branches about three days before the disclosure.
With the FSS’s stricter stance, tender offer candidates may act swiftly before new regulations, prompting attention to potential surges in tender offers.
Our approach is clear: identify short-term tender offer candidates, monitor trading volumes for spikes, and use the three-day pre-disclosure surge to time our positions effectively.

Henlius (2696 HK): Fosun Pharma’s HK$24.60 Offer at Around Half the IPO Price

Shanghai Henlius Biotech (2696 HK) disclosed a pre-conditional privatisation offer by Shanghai Fosun Pharmaceutical (Group) (2196 HK) at HK$24.60, a 36.7% premium to the undisturbed price. The offer price is final.
The key condition is approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders rejection). There is no minimum acceptance condition.
Long term investors will be unimpressed as the offer is half the HK$49.60 IPO price. However, shareholders with blocking stakes should be supportive partly because of the share alternative option.

Best World (BEST SP): EGM Vote on 19 July

The Best World International (BEST SP) IFA considers the S$2.56 exit offer fair and reasonable as it is towards the upper end of its S$1.36-2.69 per share valuation range.
The key conditions are approval for the selective capital reduction (at least 75% of eligible shareholders) and delisting resolution (a majority holding not less than 75% in value).
The lack of activists, IFA supporting recommendations, and no competing offer suggest a done deal. At the last close, the gross spread was 2.8%.

Quiddity Leaderboard SSE50/180 Dec 24: Some Expected DELs Could Underperform Peers

SSE 50 and SSE 180, respectively, aim to represent the performance of the 50 and 180 largest and most liquid A-share stocks listed on the Shanghai Stock Exchange.
In this insight, we take a look at the names leading the race to become ADDs and DELs during the December 2024 index rebal event.
We currently estimate one-way flows to be US$1.4bn and US$235mn for the SSE 50 and 180, respectively.

Quiddity Leaderboard ChiNext & ChiNext 50 Dec 24: Expected ADDs Could Outperform Expected DELs

The ChiNext Index represents the performance of the 100 largest and most liquid A-share stocks listed on the ChiNext Market of the Shenzhen Stock Exchange.
The ChiNext 50 index is a subset of the ChiNext Index and it consists of the top 50 names in the ChiNext index with the highest daily average turnover.
We see seven change for the ChiNext index and five changes for the ChiNext 50 index.

Henlius Biotech (2696 HK): Fosun Pharma’s “Fair” Offer

Shanghai Fosun Pharmaceutical (2196 HK) has made a HK$24.60/share Offer (best & final), in cash, for H-shares not held in Shanghai Henlius Biotech (2696 HK). A scrip alternative may be afforded.
As Henlius is PRC-incorporated, this Offer is structured as a Merger by Absorption, involving a Scheme-like vote for independent H-shareholders. There is no tendering condition.
Pre-Conditions include NDRC, MoC, and SAFE. The Long Stop date to secure these conditions is 30th April 2025. That’s way too conservative. This should be wrapped up around mid 4Q24.

Carlsberg/Britvic: Awaiting a Third Proposal