Event-Driven

Ecopro BM (247540 KS) and Kum Yang (001570 KS)’s shares are down 2.5% and 4.5%, respectively today, driven by news of insiders at these companies selling their shares.
It is estimated that the total amount of Ecopro BM shares sold by insiders and related parties was about 20 billion won in July by more than 12 insiders/related parties.
We are increasingly concerned about insiders selling at Ecopro BM and Kum Yang. Coupled with lofty valuations, we think there is a higher probability of downside risk on these names.

Offshore China ETFs Rebalance Preview: Two Changes in September

As of 1 August, there could be two changes for the iShares A50 China (2823 HK)/ CSOP A50 (2822 HK) in September.
There should be over 1x ADV to buy on NARI Technology Co Ltd A (600406 CH) and over 1x ADV to sell on Shaanxi Coal Industry (601225 CH).
There are a few stocks bunched around similar market caps among the potential adds and there could be changes to the list over the next few weeks.

Superloop/Symbio’s Indicative Merger

Broadband provider Superloop Ltd (SLC AU) has made an indicative Offer, by way of a Scheme, for cloud communication software outfit Symbio Holdings (SYM AU).
Under the proposal, Symbio shareholders would receive A$1.425 (cash) and 2.14 new Superloop shares for each Symbio share held, for an implied price of A$2.85/share, a 20% premium to undisturbed.
A four-week period of reciprocal exclusivity has been agreed to further progress the proposal.

Nice Information Service: KRX Approves Switching Its Listing from KOSDAQ to KOSPI

On 1 August, the Korea Exchange approved the transfer of listing of Nice Information Service Co (030190 KS) from KOSDAQ to KOSPI.
Nice Information Service will also be deleted from KOSDAQ 150 index and it will be replaced by Hydro Lithium (101670 KS).
The recent share price decline in Nice Info Service has resulted in more attractive valuations for the company.

Symbio (SYM AU): Superloop’s Indicative Offer

Symbio Holdings (SYM AU) has disclosed a non-binding indicative proposal from Superloop Ltd (SLC AU) at A$1.425 cash per share and 2.14 SLC shares per SYM share.
The implied offer price of A$2.85 per share is a 19.7% premium to the undisturbed price of A$2.38 per share. A 4-week reciprocal exclusivity period starts on 1 August.
The offer is not close to being a knockout bid. Superloop states that it will progress the transaction on “a disciplined basis“, suggesting some risk towards a binding proposal.

Selected European HoldCos and DLC: July’23 Report

Discounts to NAV of covered holdcos have generally widened during July. Discounts to NAV: C.F.Alba, 47.5%; GBL, 39.1%; Heineken Holding, 16.4%; Industrivärden C, 6.6%; Investor B, 15%; Porsche Automobile Holding, 43.8%.
The spread of Rio Tinto DLC tightened to 19%. Rio Tinto is a candidate for an Australian top hat structure.
Interesting situations: Heineken Holding/Heineken, Porsche SE/vs. listed assets and Rio DLC.

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Aug 01

Daily Brief Event-Driven: JAPAN PASSIVE: Who Owns What 2023? and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

JAPAN PASSIVE: Who Owns What 2023?
Nikkei 225 Index Rebalance Preview (Sep 2023): Final Look as Review Period Ends
End of Mandatory Lock-Up Periods for 40 Companies in Korea in August 2023
Toshiba – Earnings Preview 1QFY24
Macquarie Korea Infra Fund Announces A Rights Offering Worth 361 Billion Won
EQD | Nikkei 225 (NKY) MONTHLY Trajectories
(Mostly) Asia M&A, July 2023: Costa Group, Pacific Current, IMAX, Takisawa Machine Tools, Yachiyo

JAPAN PASSIVE: Who Owns What 2023?

The 2023 Version of JAPAN PASSIVE: Who Owns What? where we break down the major (and minor) passive tracking indices and which category of investor owns how much of each.
Even if you do not “play” index changes, understanding impact is important. Advantest is up 100% in 3mos. Existing passive ownership and new passive buying were crucial to that performance.
Understanding the nature of the ownership and flows is crucial to understanding how to trade certain stocks in Japan.

Nikkei 225 Index Rebalance Preview (Sep 2023): Final Look as Review Period Ends

The review period for the Nikkei 225 (NKY) September rebalance ended yesterday. There should be three index changes, potential stepwise inclusion, no Fast Retailing capping and a big funding trade.
There appears to be decent positioning on the potential adds, while it is the close adds that are spiking along with a big increase in traded volumes.
If the three changes are on expected lines, estimated one-way turnover at the rebalance is 2.01% resulting in a one-way trade of JPY 461bn (US$3.24bn).

End of Mandatory Lock-Up Periods for 40 Companies in Korea in August 2023

We discuss the end of the mandatory lock-up periods for 40 stocks in Korea in August 2023, among which 2 are in KOSPI and 38 are in KOSDAQ.
These 40 stocks on average could be subject to further selling pressures in August and could underperform relative to the market.
Among these 40 stocks, the top five market cap stocks include HK inno.N, PhilEnergy, CJ CGV Co Ltd, Sure Soft Tech, and CanariaBio.

Toshiba – Earnings Preview 1QFY24

By Mio Kato

Toshiba announced on Friday that JIP’s upcoming tender offer would not make the July end deadline.
At this point delays for Toshiba are par for the course and we do not think anything needs to be read into this.
With earnings coming up next week we examine the likely trends and the possibility of a revision to guidance.

Macquarie Korea Infra Fund Announces A Rights Offering Worth 361 Billion Won

On 28 July, Macquarie Korea Infra Fund (088980 KS) announced that it will conduct a rights offering worth 361 billion won, representing 7.4% of its current market cap.
The major uses of funds from the rights offering include acquisition of a city gas supplier (128 billion won) and investment in Incheon-Gimpo Expressway private investment project (128 billion won).
We have a positive view of this rights offering. We believe the acquisition of CN City Energy and the investment in Incheon-Gimpo Expressway will add additional value on the company.

EQD | Nikkei 225 (NKY) MONTHLY Trajectories

The Nikkei 225 (NKY INDEX) rallied +27% in the first 6 months of 2023. 6 months closed up, July closed (barely) down. The index can rise further in Aug/Sep.
If August is down, a LONG opportunity: look at support prices between 32391 and 30600, good probability to see the market going higher from there.
If rallying in August, Nikkei could rise between +1.73% (33745) and +3.29% (34265). Continuation of the rally into September could reach higher prices but will encounter resistance at +8.29% (35922).

(Mostly) Asia M&A, July 2023: Costa Group, Pacific Current, IMAX, Takisawa Machine Tools, Yachiyo

For the month of July 2023, 6 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$2.2bn.
The average premium for the new deals announced (or first discussed) in July was 40%. The average YTD is 36%.
This compares to the average premium for all deals in 2022 (106 deals), 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 41%, 33%, 31%, and 31% respectively.

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Jul 31

Daily Brief Event-Driven: KDDI (9433) – Own Share Tender Offer and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

KDDI (9433) – Own Share Tender Offer, Toyota To Sell (Gasp!)
Finally, Korea Launches English Search Service for All Disclosures Starting July 31st
NIFTY/NEXT50 Index Rebalance Preview: Loads of Changes if Proposed Methodology Is Implemented
JSR Corporation (4185 JP): Tender Offer Risk/Reward
Merger Arb Mondays (31 Jul) – Eoflow, JSR, Toshiba, Pacific Current, Costa, Estia, Newcrest, Dali
Weekly Deals Digest (30 Jul) – L’Occitane, Dali, Eoflow, Toshiba, Pacific Current, Estia
OCI Swap Arbitrage: A Bit More Complex Structure, Still Juicy Spread in Play
STAR50 Index Rebalance Preview: Potential Changes Playing Catchup
Dali Foods (3799 HK): 23 August Scheme Meeting. IFA Says Fair
EQD | S&P/ASX200 WEEKLY Make-It-Or-Break-It

KDDI (9433) – Own Share Tender Offer, Toyota To Sell (Gasp!)

Today, with Q1 earnings, which I found less than great, KDDI Corp (9433 JP) announced a Tender Offer Buyback to repurchase up to 64,102,500 shares for up to ¥250.03175bn.
The Tender Offer – at ¥3900/share vs Last at ¥4,271/share (designed for cross-holding unwinds) – goes from 31-July through 28-August. It fills the 83.3% of the buyback programme announced 11-May.
Toyota Motor (7203 JP) has announced it would sell ¥250bn of shares into this Tender Offer. This is less interesting than it looks. The whole thing is.

Finally, Korea Launches English Search Service for All Disclosures Starting July 31st

Starting Monday, July 31st, the FSS-operated disclosure website, DART (Data Analysis, Retrieval, and Transfer System), will provide an English search service for all disclosures.
This measure will open up possibilities for diverse position strategies that require timeliness and comparability for Korean local stocks, leading to a significant turning point.
This calls for a more comprehensive approach in identifying the overall market flow. We should be attentive to potential alterations in the structure of foreign flows.

NIFTY/NEXT50 Index Rebalance Preview: Loads of Changes if Proposed Methodology Is Implemented

Using the current index methodology throws up 5 changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) in September. Turnover will be BIG.
Using the proposed index methodology throws up 11 changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) in September. Turnover will be HUGE.
The market consultation being put on hold could indicate pushback from index users or the possibility of F&O contracts being introduced on some of the non-F&O index constituents.

JSR Corporation (4185 JP): Tender Offer Risk/Reward

JSR Corp (4185 JP)‘s pre-conditional tender offer from JIC is JPY4,350 per share. Since the deal announcement on 26 June, the gross spread has averaged 6.4%.
The wide gross spread reflects the risk in satisfying the pre-conditions related to country approvals, particularly in China. JIC, unusually can waive all or part of the conditions precedent.
The wild card is geopolitical developments. There are three China approval scenarios. The likely scenario is the deal approval under a normal procedure with a delay to the tender start.

Merger Arb Mondays (31 Jul) – Eoflow, JSR, Toshiba, Pacific Current, Costa, Estia, Newcrest, Dali

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 – 111 Inc (YI US), Chindata Group (CD US), Estia Health (EHE AU), ENM Holdings (128 HK), JSR Corp (4185 JP), Costa Group Holdings (CGC AU).
Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Toyo Construction (1890 JP), Penguin International (PBS SP), Kenedix Retail REIT (3453 JP), ARTERIA Networks Corp (4423 JP).

Weekly Deals Digest (30 Jul) – L’Occitane, Dali, Eoflow, Toshiba, Pacific Current, Estia

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 – Rakuten Securities (RAKUSEC JP), EbixCash (EBIXC IN), Lalatech Holdings Co Ltd (LALA HK) and Lianlian DigiTech (2104619D CH) IPOs.
Event-Driven developments – Eoflow (294090 KS), Dali Foods Group (3799 HK), L’Occitane (973 HK), Toshiba Corp (6502 JP), Pacific Current (PAC AU), Estia Health (EHE AU).

OCI Swap Arbitrage: A Bit More Complex Structure, Still Juicy Spread in Play

This is a classic swap arbitrage of shorting the acquirer and using the tendered shares to repay it. However, executing now would be meaningless as the swap ratio isn’t finalized.
Nevertheless, we should consider securing a long position in OCI Holdings in advance. The target (45%) is quite substantial, indicating that the practical allocation rate won’t plummet dangerously below 1.
Additionally, the likelihood of OCI Holdings’ swap price plummeting to completely nullify the 5.6% spread immediately after its determination appears to be low based on the current context.

STAR50 Index Rebalance Preview: Potential Changes Playing Catchup

The review period for the September rebalance ends today. The changes could be announced on 25 August with the implementation taking place after the close on 8 September.
The upcoming launch of the STAR100 Index could result in the index committee continuing to use a 6-month minimum listing history resulting in two changes to the index.
One way turnover is estimated at 2.3% resulting in a one-way trade of CNY 2,658m. The impact on the deletions will be much larger than that on the inclusions.

Dali Foods (3799 HK): 23 August Scheme Meeting. IFA Says Fair

Back on the 27 June, Dali Foods Group (3799 HK), announced a privatisation Offer by way of a Scheme from its founder/chairman/CEO Xu Shihui.
The cancellation price, which has been declared final, was HK$3.75/share, a decent 37.87% premium to undisturbed.
The Scheme Doc is now out. The Scheme Meeting is the 23 August. Xu and concert parties control 88.89%, therefore a blocking stake is 1.11% of shares out.

EQD | S&P/ASX200 WEEKLY Make-It-Or-Break-It

The S&P/ASX 200 INDEX has been stuck in the 7000-7400 range for 16 weeks until last week when it briefly pierced the upper range (but closed the week at 7403).
This WEEKLY trend pattern can lead to a multi-week rally when it rises for => + 3 weeks in a row (it’s a pattern that can include momentum trades).
The index is at a make-it-or-break-it junction: either it starts to trend higher towards the previous peak (7567, January 2023), or it will pullback into the 7000-7400 range.

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Jul 30

Daily Brief Event-Driven: KOSDAQ150 Ad Hoc Index Rebalance: Hydro Lithium (101670) Could Replace Nice Information (030190) and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

KOSDAQ150 Ad Hoc Index Rebalance: Hydro Lithium (101670) Could Replace Nice Information (030190)
Index Rebalance & ETF Flow Recap: LQ45/IDX30, FXI, New Deal, KOSPI, KQ150, LG Energy, IN Float, TTMT
Concordia/Rothschild: Start of Offer Period
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Talon Energy, Pacific Current, Toshiba, Eoflow, 111 Inc
Last Week in Event SPACE: NTT, Delta Electronics, Fortescue Metals, Nomura Real Estate
Dali Foods (3799 HK): Scheme Vote on 23 August
OCI Holdings Announces a Tender Offer to Buy 45% Stake in OCI Co

KOSDAQ150 Ad Hoc Index Rebalance: Hydro Lithium (101670) Could Replace Nice Information (030190)

The KRX has approved Nice Information Service Co (030190 KS)‘s transfer from the KOSDAQ Board to the KOSPI Board. The transfer could take place in the next two weeks.
Hydro Lithium (101670 KS) was the highest ranked non-constituent from the Industrials sector at the June rebalance and could replace Nice Information Service (030190 KS) in the KOSDAQ 150 Index.
Nice Information Service Co (030190 KS) has no chance of inclusion in the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) and will not be short sell eligible post section transfer.

Index Rebalance & ETF Flow Recap: LQ45/IDX30, FXI, New Deal, KOSPI, KQ150, LG Energy, IN Float, TTMT

The changes to the LQ45/IDX30 were announced last week and will be implemented Monday. The PSE also announced that there would be no changes for the PCOMP INDEX in August.
There are a bunch of review cutoffs on Monday, most notably for the Nikkei 225 (NKY INDEX), STAR50 INDEX, the NIFTY family of indices and the KRX New Deal indices.
There were inflows to China focused ETFs and outflows from Taiwan and Korea focused ETFs during the week.

Concordia/Rothschild: Start of Offer Period

The simplified tender offer for Rothschild & Co (ROTH FP) opened on 24 July and will last until 8 September (inclusive). The ex-dividend offer price is €38.60.
The offer represents 7.22x NTM Fwd P/E (ex-dividend), rather low for the top European M&A player and a high quality business. Merchant Banking division could have a lot of upside.
The enlarged family concert has bought shares in the market and has now c.66%. I anticipate the offer to go according to plan. Gross spread is nil.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Talon Energy, Pacific Current, Toshiba, Eoflow, 111 Inc

I tally 42 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Two new deals this week: Talon Energy (TPD AU)‘s non-binding Offer from Strike Energy (STX AU); and Pacific Current (PAC AU)‘s cash/scrip NBIO from Regal Partners (RPL AU).
Key updates took place for Toshiba Corp (6502 JP), Eoflow (294090 KS), and 111 Inc (YI US).

Last Week in Event SPACE: NTT, Delta Electronics, Fortescue Metals, Nomura Real Estate

NTT (9432 JP) will likely buy back more shares than previously expected as the government sells shares down. Buy dips vs peers KDDI and Softbank Corp. This is a long-term tilt.
There are some doubts over the fate of Delta Electronics Thai (DELTA TB)‘s SET50 membership, at present, but it should escape deletion in December 2023.
Don’t punt Fortescue Metals (FMG AU) on the off-chance of a change of control in the wake pf the Forrest split. If anything, there might be a leakage of shares.

Dali Foods (3799 HK): Scheme Vote on 23 August

Dali Foods Group (3799 HK)‘s scheme document is out with the court meeting scheduled for 23 August. The IFA considers the HK$3.75 per share offer to be fair and reasonable.
Key condition is approval by at least 75% of disinterested shareholders (<10% of all disinterested shareholders rejection). No independent shareholder holds a blocking stake.
Sector sentiment has modestly weakened. This looks done. At the last close and for the 8 September payment, the gross and annualised spread is 3.6% and 34.8%, respectively.

OCI Holdings Announces a Tender Offer to Buy 45% Stake in OCI Co

On 28 July, OCI Holdings (010060 KS) announced that it plans to conduct a tender offer to purchase up to 45% stake in OCI Co (456040 KS).
The tender offer price of OCI Co is 139,000 won. The method of this tender offer is to issue new common shares of OCI Holdings.
In the short term (one month), we expect OCI Co’s shares to outperform OCI Holdings shares. This deal is structured to mainly benefit the OCI Group’s insiders.

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Jul 28

Daily Brief Event-Driven: Toshiba (6502) Tender – Certainly Cheaper. Maybe Delayed and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Toshiba (6502) Tender – Certainly Cheaper. Maybe Delayed, But Toshiba Fatigue Is Strong
SK Telecom – Major Share Buyback & Cancellation
Nomura Real Estate To Buy Nomura RE Master Fund Units
KRX Autos Sept Rebalancing: Less Known, Still Juicy Trading Event with 4 Constituent Changes
EOFLOW/Medtronic Tender: Assessing the Wide Spread
A Long Short Arb Event on SKT & LG U+ Targeting SKT’s Index Inclusion in November with Buyback
GQG Mulls Offer As Pacific Current Balks At Regal’s NBIO
Quiddity Leaderboard CSI 300/500 Dec 22: Massive Baskets, US$2.5bn One-Way
Bain Capital/SoftwareOne: Bargaining for a Better Offer
Alpha Auto Group/Lookers: Sharp Turn

Toshiba (6502) Tender – Certainly Cheaper. Maybe Delayed, But Toshiba Fatigue Is Strong

It has been four months since JIP officially announced their intention to launch a Tender Offer for Toshiba Corp (6502 JP) by end-July. 7 weeks since Toshiba’s Board supported it.
There’s been no material public griping. Peers are sharply higher. There have been news stories suggesting a Western Digital/Kioxia deal is close. That’s now extended. The Toshiba deal possibly too.
But huge outperformance by peers, and possible clarity from Kioxia deal terms are unlikely to move the Toshiba Board to demand more.

SK Telecom – Major Share Buyback & Cancellation

On 27 July, SK Telecom announced a sizeable share buyback worth 300 billion won (including shares cancellation of 200 billion won) and quarterly dividend of 181 billion won.
SK Telecom will pay a quarterly DPS of 830 won, which represents 1.8% of its current price of 45,900 won.
SK Telecom is trying to boost its share price which has been negatively impacted by the regulators’ pressure to cut telecom tariff rates and also increase competition.

Nomura Real Estate To Buy Nomura RE Master Fund Units

Today, Nomura Real Estate Master Fund, (3462 JP) – the largest REIT in the ‘Diversified REIT’ JREIT space – announced sponsor Nomura Real Estate (3231 JP) would up its stake.
They would lift their stake from 4.47% by 2.54% to 7.01%. There is a reason for this, just like there was last time with Japan Excellent (8987 JP).
Understanding the reason is how you understand the trade to do.

KRX Autos Sept Rebalancing: Less Known, Still Juicy Trading Event with 4 Constituent Changes

At the current stage, with the three-month review period almost complete, there will likely be two additions and two deletions:
Additions: KG Mobility (003620 KS) & Nexen Tire Corp (002350 KS) Deletions: Sebang Global Battery (004490 KS) & Kumho HT Inc (214330 KS)
In the past few years, KRX Autos has shown a significant price impact for constituent changes on the rebalancing trading day. This pattern will likely repeat in the upcoming rebalancing.

EOFLOW/Medtronic Tender: Assessing the Wide Spread

Medtronic Plc (MDT US) aims to acquire Eoflow (294090 KS) through share purchase agreements (SPA), a share subscription agreement (SSA) and a public tender offer at KRW30,000.
Since the deal announcement on 26 May, the spread has widened, reflecting deal risk around patent litigation risk, regulatory approvals and the minimum acceptance condition.
Our assessment of these risks suggests a low probability of a deal break. At the last close, the gross spread is an attractive 8.5%.

A Long Short Arb Event on SKT & LG U+ Targeting SKT’s Index Inclusion in November with Buyback

The chances of SKT’s inclusion in the August MSCI Review seem slim. SKT narrowly missed meeting the 15% threshold on both Day 1 and Day 2 during this review.
SK Telecom’s buyback completion can be accelerated to align with the MSCI November Review period, just like the previous case of KT Corp back in April.
The estimated size of passive funds flowing into SKT is approximately ₩160 billion, which is expected to be around 5.5 times the average daily trading volume (ADTV).

GQG Mulls Offer As Pacific Current Balks At Regal’s NBIO

Yesterday (26 July), asset manager Pacific Current (PAC AU) announced a cash/scrip NBIO from Regal Partners (RPL AU).
Under Regal’s proposal, Pacific Current shareholders would receive an implied $10.77/share. Pacific Current considers the current share price doesn’t reflect the underlying value of its portfolio and business.
Now GQG Partners (GQG AU) has announced it intends to submit its own NBIO. No price was mentioned.

Quiddity Leaderboard CSI 300/500 Dec 22: Massive Baskets, US$2.5bn One-Way

CSI 300 represents the 300 largest stocks by market capitalization and liquidity from the entire universe of Shanghai and Shenzhen Stock Exchanges. CSI 500 represents the next largest 500 names.
In this insight, we take a look at the potential ADDs/DELs for the CSI 300 and CSI 500 rebalance in December 2023.
I currently expect 13 ADDs/DELs for CSI 300 and 50 ADDs/DELs for CSI 500.

Bain Capital/SoftwareOne: Bargaining for a Better Offer

The board of SoftwareONE Holding (SWON SW) rejected on 24 July a revised CHF 19.50-20.50 offer from Bain Capital and said it began a strategic review to seek the best value.
CHF 19.5 represents a 40% premium, Gross spread to the low point of the range is 4.2%. 0x EV/NTM EBITDA and 19.5 Fwd P/E.
This could trigger upwards revisions and would justify the Board asking for a higher offer. I’d hold on to the shares as Bain Capital could increase the offer a bit.

Alpha Auto Group/Lookers: Sharp Turn

The deal looked dead in the water during a week until, on 27 July, Global Auto Holdings raised its offer for Lookers PLC (LOOK LN) by 8%, to 130p/share (46.6% premium).
The increased offer will now be carried out via takeover, and represents an implied EV of £968 million, 6.1x EV/Fwd NTM EBITDA and 9x Fwd P/E (on latest Consensus figures).
Considering the number of failed deals in the sector, I believe the offer looks very decent and the deal should now close. Spread is 5.2%/23.7% (gross /annualised). Long.

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Jul 27

Daily Brief Event-Driven: July TOPIX FFW Rebal – Update With 2 Days To Go on $3bn a Side and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

July TOPIX FFW Rebal – Update With 2 Days To Go on $3bn a Side
Tata Motors (TTMT IN) – Goodbye to the DVR Arb
Quiddity HSCEI Sep 23 Flow Expectations Update: US$367mn One-Way, Beigene Vs Peers Interesting
Quiddity HSTECH Sep 23 Flow Expectations Update: Last Trade Sucessful; Some New Trade Ideas
Pacific Current Group (PAC AU): Regal Partners’ Attractive Indicative Offer

July TOPIX FFW Rebal – Update With 2 Days To Go on $3bn a Side

In the two weeks since the announcement, Large ADDs (>2d ADV, >$5mm) have outperformed Large DELs by 1.3%. Smaller ADDs vs DELs (>2d, >$2<$5mm) have outperformed by 1.3%.
Using only >$20mm >2d DELs vs Top 5 $amt >2d ADDs, that’s a bit better than 1%. And the really obvious large ones? Not so obvious.
There is still a large reverse funding trade, with some large sells.

Tata Motors (TTMT IN) – Goodbye to the DVR Arb

Tata Motors Ltd (TTMT IN) has announced a Scheme of Arrangement where all the Tata Motors DVR (TTMT/A IN) shares will be cancelled.
For every 10 shares of Tata Motors DVR (TTMT/A IN) held, shareholders will receive 7 shares of Tata Motors Ltd (TTMT IN).
The process is expected to take 12-15 months to complete and there will be passive buying in Tata Motors Ltd (TTMT IN) at the end of it.

Quiddity HSCEI Sep 23 Flow Expectations Update: US$367mn One-Way, Beigene Vs Peers Interesting

In three more weeks, the index changes and the indicative capping changes for the September 2023 rebalance will be officially announced.
We first looked at the potential HSCEI index changes and the resultant capping flows for September 2023 in Quiddity HSCEI Sep 23 Flow Expectations: Two Changes Likely, US$276mn One-Way
In this insight, we take a look at Quiddity’s updated flow expectations which account for the changes in prices in the last ~1.5 months.

Quiddity HSTECH Sep 23 Flow Expectations Update: Last Trade Sucessful; Some New Trade Ideas

In Quiddity HSTECH Sep 23 Flow Expectations: Two ADDs/DELs Possible, I discussed my initial flow expectations and potential index changes for the September 2023 Rebalance.
The suggested (previous insight) SHORT Ping An Healthcare and Technol (1833 HK) is down 10.6% vs the hedge JD Health International (6618 HK) in ~1.5 months.
In this insight, I have presented my updated flow expectations and some new trade ideas for the next few weeks.

Pacific Current Group (PAC AU): Regal Partners’ Attractive Indicative Offer

Pacific Current (PAC AU) has disclosed a non-binding indicative proposal from Regal Partners (RPL AU) at A$7.50 cash per share and 2.2 GQG Partners (GQG AU) shares per PAC share.
The implied offer price of A$11.12 per share based on GQG’s last close price is a juicy 42.6% premium to the undisturbed price of A$7.80 per share (26 July).
The offer is attractive compared to historical ranges and peer multiples. Expect the Board to grant due diligence access to facilitate a binding proposal.

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Jul 26

Daily Brief Event-Driven: L’Occitane (973 HK): Controlling Shareholder Mulling a Bid? and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

L’Occitane (973 HK): Controlling Shareholder Mulling a Bid?
NTT (9432) – LDP Consideration of Full Sale Is Not Necessarily Overhang
KRX New Deal Index Rebalance Preview: Review Period Nearly Complete
India – Potential Float Changes & Impact
An Update on Medtronic’s Tender Offer of Eoflow
LQ45 Index Rebalance: Two Changes in a Few Days
KRX Latest Press Release: CFD Inspection Results & Immediate Impacts to Monitor
Quiddity Leaderboard SET50 Dec 23: DELTA Deletion Fears Unrealistic
Strike Energy Yanks Its NBIO For Talon
Apollo/Applus: Blocking Minorities

L’Occitane (973 HK): Controlling Shareholder Mulling a Bid?

L’Occitane (973 HK) is drawing takeover interest from Reinold Geiger, the Chairman and the largest shareholder, according to Bloomberg. Mr Geiger has been exploring financing options for the potential deal.
The presence of a significant disinterested shareholder, Acatis KVG, necessitates an attractive takeover premium. Acatis KVG trimmed its stake in July 2021 at HK$30.01 per share.
L’Occitane released a solid 1QFY2024 update today with constant currency growth of 24.5% YoY. Irrespective of a bid materialising, the valuation is undemanding compared to peer multiples.

NTT (9432) – LDP Consideration of Full Sale Is Not Necessarily Overhang

Six weeks ago, LDP Policy Research Council chairman KAGIUDA led a discussion about full NTT privatisation to fund defence. Today he said serious deliberations begin in August. Shares fell today.
The LDP wants non-tax resources to increase defence/social spending. Selling would require a change in NTT Law, but the argument is that communications have changed/internationalised.
As discussed in NTT (9432 JP) – Would the Govt Sell All Its Shares? Why? How? How Long? Overhang?, there are questions on overhang. BUT… presumably there are mitigants.

KRX New Deal Index Rebalance Preview: Review Period Nearly Complete

The review period for the September rebalance ends on 31 July, the changes will be announced towards end August and implemented at the close of trading on 7 September.
There is one change currently for each of the Secondary Battery, Bio and Game indices. Then there are a couple of changes for the Internet and BBIG indices.
There are four stocks that will have over 2 days of ADV to trade from passive trackers and these stocks could move around announcement of the changes.

India – Potential Float Changes & Impact

Over the last few weeks, companies in India have been disclosing their shareholding pattern as of end-June. There are a few companies with significant float changes from end-March and/or end-December.
The changes in free float could be reflected in domestic and global indices over the next couple of months resulting in action from passive trackers.
We see 6 stocks where there could be passive inflows and 2 stocks that could have passive outflows – but there are caveats.

An Update on Medtronic’s Tender Offer of Eoflow

In this insight, we provide an update of Medtronic’s tender offer of Eoflow.
The foreign ownership of Eoflow has surged in the past two months from 6.5% on 25 May to 33.2% as of 24 July.
We continue to believe that there is 95%+ probability of this M&A getting completed at the tender offer price of 30,000 won and Eoflow eventually becoming delisted in 2H 2023.

LQ45 Index Rebalance: Two Changes in a Few Days

Gudang Garam (GGRM IJ) and Mitra Adiperkasa (MAPI IJ) will replace Timah Persero (TINS IJ) and Japfa Comfeed Indonesia (JPFA IJ) in the LQ45 Index next week.
There are some large changes to free float plus capping changes for Bank Central Asia (BBCA IJ) and Bank Rakyat Indonesia (BBRI IJ).
There could be jumps in the stocks of the adds/deletes today, though there should be pre-positioning and a potential reversal later in the week.

KRX Latest Press Release: CFD Inspection Results & Immediate Impacts to Monitor

KRX stated in this press release that they have identified the suspected stocks involved in illegal trading and have reported them to the financial authorities (Korea FSC and Korea FSS).
The primary concern in the short term seems to revolve around whether the battery stocks are among the ones suspected of illegal trading, as reported to the financial authorities.
We must remain vigilant and ready for the potential recurrence of CFD-related price plunges, as seen in the recent two instances, affecting specific stocks in the short term.

Quiddity Leaderboard SET50 Dec 23: DELTA Deletion Fears Unrealistic

In this insight, we take a look at the potential ADDs/DELs for Thailand’s SET50 index rebalance in December 2023.
Delta Electronics Thai (DELTA TB) – one of the largest SET 50 members – has been in the Market Surveillance Measure list a couple of times already this year.
Although this creates some doubts over the fate of DELTA’s SET50 membership, at present, I believe DELTA will escape deletion in December 2023.

Strike Energy Yanks Its NBIO For Talon

O&G junior Talon Energy (TPD AU) announced it had received a non-binding Offer from Strike Energy (STX AU).
The all-scrip bid – by way of a Scheme – entailed an implied A$0.20/share in Strike shares plus Talon shareholders retaining their holding in Talon’s Mongolia gas project.
After Talon said it intended to undertake a process of evaluation of the Proposal before offering due diligence, Strike promptly withdrew its bid.

Apollo/Applus: Blocking Minorities

The spread has been in positive territory since the announcement. Apollo only bid the minimum requested by the Board. Investors hope for a counteroffer or Apollo sweetening its offer.
Exceeding the 75% threshold is key for Apollo to be able to quickly and effectively carry out the delisting of Applus+, the objective stated in the offer announcement.
Risk arbitrageurs holding now over 25%, may give that gentle push, otherwise delisting will be in jeopardy. A sweetening/counteroffer in the range €10-10.5/share seems very likely.

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Jul 25

Daily Brief Event-Driven: Alpha Generation Through Share Buybacks in Korea: June & July 2023 and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Alpha Generation Through Share Buybacks in Korea: June & July 2023
KOSPI Size Indices – Plenty of Overlap With Other Index Flows
Quiddity Leaderboard NIFTY Sep 23: 5 ADDs/DELs for NIFTY Next 50 Unless the Methodology Changes
FXI Rebalance Preview: One Potential Change in September
GS AM Consortium/ Kahoot!: Agreed Fair Offer

Alpha Generation Through Share Buybacks in Korea: June & July 2023

In this insight, we discuss the alpha generation through companies that announced share buybacks in Korea in June and July 2023.
We provide a list of 38 stocks in the Korean stock market that have announced share buyback programs in June and July 2023.
The top four market cap stocks that have announced share repurchases include Celltrion Inc, Celltrion Healthcare, Hyundai Elevator, and SFA.

KOSPI Size Indices – Plenty of Overlap With Other Index Flows

The review period for the September rebalance of the KOSPI Size Indices started 1 June and will end 31 August. The changes will be implemented at the close 7 September.
We see 8 migrations from MidCap to LargeCap, 7 migrations from LargeCap to MidCap, 6 new adds to MidCap, and 16 migrations from SmallCap to MidCap.
Historically, stocks migrating from SmallCap to MidCap have outperformed stocks that are migrating between other categories.

Quiddity Leaderboard NIFTY Sep 23: 5 ADDs/DELs for NIFTY Next 50 Unless the Methodology Changes

In this insight, we take a look at the names leading the race to become ADDs/DELs for the NIFTY 50 and NIFTY 100 indices in the September 2023 rebalance.
The NIFTY Next 50 methodology was supposed to change in June 2023 but this has been kept on hold for now. This change could still take place before September 2023.
In this insight, we take a look at our expectations for index changes under both the existing methodology and the proposed new methodology.

FXI Rebalance Preview: One Potential Change in September

As of 24 July, there could be one set of changes for the iShares China Large-Cap (FXI) (FXI US) in September.
There should be less than 1x ADV to buy on ZTE Corp H (763 HK) while there will be nearly 2x ADV to sell on Anhui Conch Cement (914 HK).
Short interest has been inching higher on ZTE Corp H (763 HK) while it is barely moving on Anhui Conch Cement (914 HK) as the stock trades near its lows.

GS AM Consortium/ Kahoot!: Agreed Fair Offer

Kahoot! ASA (KAHOOT NO) saw better times on the stock market during the pandemic. To revive fortunes, GS AM has enlisted top shareholders and offers NOK 35/share “best and final” price.
This represents 29.1x EV/Fwd NTM EBITDA, 3.3% FCF yield. I believe the offer price is fair. Interloper risk seems low: a competing bid should come above NOK 38.5, surely overpaying.
Spread is 0.74%/2.15% (gross/annualised, assuming settlement by 30 November). With better opportunities elsewhere, I would wait for the share price to come under NOK 34.5 to open a position.

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Jul 24

Daily Brief Event-Driven: LG Energy Solution (373220 KS) – Potential Float Increase Coming Up and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

LG Energy Solution (373220 KS) – Potential Float Increase Coming Up
111 (YI US): The Privatisation Offer Gets a Reboot
Merger Arb Mondays (24 Jul) – JSR, 111, Estia, Newcrest, InvoCare, Origin, Golden Eagle, Dali Foods
Fortescue: Twiggy’s Share Separation
EQD | KOSPI 200 Index WEEKLY: Rising After a Brief Pullback
Inflexion/DWF: Deal Announcement
EQD | NIFTY Index WEEKLY: Topping (In The) Tails

LG Energy Solution (373220 KS) – Potential Float Increase Coming Up

Selling from the ESOP program in the first quarter could result in an increase in LG Energy Solution (373220 KS)‘s float in local and global indices.
The largest buying from passive trackers could take place next month with over 3% of the real float needing to be bought.
Short interest has increased in the last month and short covering could take the stock higher ahead of the passive buying.

111 (YI US): The Privatisation Offer Gets a Reboot

111 Inc (YI US), China’s largest virtual pharmacy network, amended an SC 13D filing on 13 July, which belatedly updated the consortium’s privatisation offer of US$3.66 per ADS.
The consortium has been revamped such that the lead investors (Dr Gang Yu, Dr Junling Liu and Shanghai Guosheng Capital Management) are joined with 13 additional investors.
The development facilitates the signing of a definite agreement. The consortium represents 95.27% of the voting power, which ensures a successful vote. At last close, the gross spread is 9.6%.

Merger Arb Mondays (24 Jul) – JSR, 111, Estia, Newcrest, InvoCare, Origin, Golden Eagle, Dali Foods

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 – Chindata Group (CD US), Estia Health (EHE AU), 111 Inc (YI US), ENM Holdings (128 HK), JSR Corp (4185 JP), Costa Group Holdings (CGC AU).
Lowest spreads Healius (HLS AU), Liontown Resources (LTR AU), Toyo Construction (1890 JP), Penguin International (PBS SP), ARTERIA Networks Corp (4423 JP), Inner Mongolia Yitai Coal Company Ltd (3948 HK).

Fortescue: Twiggy’s Share Separation

Prior to recent developments, Andrew Forrest held a 36.25% stake in Fortescue Metals (FMG AU).
An ASIC shareholder disclosure into the giant iron-ore miner earlier this year fuelled speculation, culminating in an ASX notice Andrew was separating from his wife after 31 years of marriage.
A private statement assures there will be no impact on the control of FMG. But that won’t put a stop to the rumour mill.

EQD | KOSPI 200 Index WEEKLY: Rising After a Brief Pullback

The KOSPI 200 (KOSPI2 INDEX EQUITY) last week closed the week down (CC=-1) after a strong rise the previous week. Could be getting ready to rise higher.
The index last week tested supports in the Market Reversal Matrix’s Q2/Median support area (around 335).
Valid support levels for the coming week (if CC=-2) are between 333 (Q2) and 324 (Q3).

Inflexion/DWF: Deal Announcement

There were no surprises and Inflexion launched the offer for DWF Group (DWF LN) well ahead of the 7 August PUSU deadline. DWF shares increased by c. 15%.
The final proposal maintains what was announced: 97p in cash plus a 3p dividend,8.0x EV/Fwd NTM EBIT and 8.2x Fwd P/E, and an 18% discount to the IPO price.
The closing share price pre-first announcement was 56.5p, taking it as break, the market is pricing a 94% chance to complete the deal. Spread is 2.6%/6.2% (gross/annualised). Long.

EQD | NIFTY Index WEEKLY: Topping (In The) Tails

The NIFTY Index has been in a strong rally since early April 2023, returning almost +17% as of last Friday’s Close. The MRM tool shows the index is OVERBOUGHT WEEKLY .
The NIFTY Index has reached a “Tails” area of the current pattern: forecasts in these price areas are less reliable, but the MRM tool indicates the index is topping.
SHORT trades can be implemented at prices > Last Close (19745). Higher prices are possible, it could take +1/+2 weeks for the index to complete its topping process.

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Jul 23

Daily Brief Event-Driven: SBI Shinsei Bank (8303) Calls Its EGM and Appraisal Rights Seekers Prepare for Battle and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

SBI Shinsei Bank (8303) Calls Its EGM and Appraisal Rights Seekers Prepare for Battle
Last Week in Event SPACE: Takisawa Machine Tools, Kesei Electric/Oriental, Shenzhen Int’l/Way, HMM
Index Rebalance & ETF Flow Recap: ASX, SK Telecom, Yuanta ETFs
EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades-Where Is the Stimulus

SBI Shinsei Bank (8303) Calls Its EGM and Appraisal Rights Seekers Prepare for Battle

The SBI Holdings Tender Offer for SBI Shinsei Bank (8303 JP) was completed about four weeks ago, and in something of a surprise, only 3.7% of 26.98% minority holdings tendered.
The stock traded above terms every day during the Tender Offer Period. People accumulated in order to pursue their appraisal rights later. That is big.
This week, SBI Shinsei announced the schedule of dates relating to the squeezeout EGM. The record date was early. The reverse stock split announced is as expected, possibly game-able.

Last Week in Event SPACE: Takisawa Machine Tools, Kesei Electric/Oriental, Shenzhen Int’l/Way, HMM