Event-Driven

• MBK has teamed up with Young Poong (000670 KS) to secure control of Korea Zinc (010130 KS) via Partial Tender Offers for Korea Zinc and Young Poong Precision (036560 KS).
• Preceding my comments on Young Poong, Korea Zinc, and Young Poong Precision 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%.

• We have significantly raised the NAV of Young Poong to 965,193 won (up 105% than previously). Our current NAV estimate of the company is 150% higher than current price.
• Some traders have been positioning for Young Poong to be deleted from the KOSPI200 in the next round of rebalancing. Young Poong is not likely to be deleted from KOSPI200.
• We also provide three potential scenarios of the Choi family’s strategy to fight back to gain control of Korea Zinc.

• The change in control of Raysum Co Ltd (8890 JP) has a complex backstory. But one week shy of two years ago, Oasis launched a buyout to own 65%.
• The company had a strong MTMP. Oasis paid ¥1,700/share to own 65%. The MTMP came through, there was an offering, and it stayed near ¥3,000/share. 
• Now Hulic Co Ltd (3003 JP) has come out with a Tender Offer to buy the company for ¥5,913/share. That’s a 94% premium and 3.5x what Oasis paid 2yrs ago.

• Since Choi and his affiliates can’t buy shares directly, his only play is to recruit more white knights to boost his stake.
• He needs at least 6% from the 23% free float, costing over ₩800 billion. This hefty price tag is why the stock hasn’t moved much from the tender offer price.
• The market isn’t ruling out Hyundai getting aggressive to secure Korea Zinc’s nickel, making this a hot trading point during the tender offer.

• MBK launches a tender offer to acquire 14.6% of Korea Zinc at ₩660,000 per share, a ₩2T deal with an 18.7% premium. Offer runs from September 13 to October 4.
• On top of that, MBK’s also rolling out a tender offer for Young Poong Precision at ₩20,000 per share—a hefty 113% premium over yesterday’s close.
• Spread action is possible if the Choi family counters, driving volatility. The market’s watching for a higher bid, which could create trading opportunities amid rising spread volatility.

• Late last month, Shinko Electric Industries (6967 JP) announced that the JIC consortium Tender Offer due to be launched by end-August would be delayed. Next update? January 2025.
• Everyone was expecting a delay, but that caused the stock to fall. Then tech/AI fell out of bed, Ibiden crashed, then China export restrictions noise/pushback caused further delay.
• I saw a 9% gross spread yesterday and thought “Geez”, that’s a buy.” A day later, it’s 6%. Still wide, still interesting. And that has set a boundary.

• After the market close on 12 September, Maekyung Business Daily reported that MBK Partners will become the largest shareholder of Korea Zinc (010130 KS) along with Young Poong (000670 KS). 
• MBK Partners, along with Youngpoong and advisor Jang Hyung-jin, also plans to conduct a tender offer of 14.6% stake in Korea Zinc. 
• The tender offer price for Korea Zinc is 660,000 won per share, which is 18.7% higher than the closing price on 12 September.

• After the market close on 12 September, Hankyung Business Daily reported that MBK Partners plans to conduct a tender offer of 43.43% stake in Young Poong Precision.
• The tender offer price is 20,000 won per share (113% higher than the closing price on 12 September). 
• Choi family currently controls Young Poong Precision. MBK plans to secure a controlling stake and obtain voting rights for the 1.85% stake in Korea Zinc held by Young Poong Precision.

• Back in August 2017, Xingxuan Technology, a privately held Cayman Islands company operating in the online food delivery space in China, was transferred by way of a statutory merger. 
• The buyer was Alibaba Group (9988 HK)-backed Rajax, the key seller, Baidu (9888 HK). The dissenter, having paid US$125mn for its shares, was offered cash/scrip worth an estimated US$42mn.
• The dissenter considered terms low-balled. The judge agreed. The uplift? 659%.

• Raymond Lifestyle (RAYMONDL IN) recently demerged from Raymond Limited.  Since Raymond Limited was part of various indexes, Raymond Lifestyle was not. Index Fund selling led to a correction.
• The correction made Raymond Lifestyle a special situation value bet.
• The cherry on the cake is strong management guidance and a foray into the untapped non branded and unorganized apparel segment

• With the November reshuffle, single stock futures rise from 222 to 258 (+36) and single stock options increase from 52 to 58 (+6) across KOSPI 200 and KOSDAQ Global.
• The main takeaway from this reshuffle is the price impact from a short-term volume spike as market makers jump into newly listed single-stock futures.
• The volume surge in spot markets for newly listed assets consistently drives positive price impact, most notably right after listing, rather than waiting until contract expiry.

• Media reports indicate that Midea Group (000333 CH) has priced its H-shares IPO at HK$54.8/share, the top of the range. That is a 19.85% discount to the A-shares.
• Reports also indicate that the IPO was oversubscribed multiple times with Hillhouse and GIC putting in large orders. That could result in the Offer Size Adjustment Option being exercised.
• The exercise of the Offer Size Adjustment Option will take the IPO raise to HK$31bn (US$3.98bn) and index inclusion in some of the larger indices will become a lot easier.

• When Bain came out saying they would bid more, with preparation to launch in November, KKR launched early to see if they could get the jump, discussed here.
• The stock popped when the Bain’s bid was obviously serious, and supported by the Founding Family, but it went to Bain’s “5% higher” plus another 5%. I was bearish.
• But I signalled willingness to change my mind if the stock price dropped. It has dropped. 

• Terumo Corp (4543 JP) was able to hang in well after the announcement, up until the day or two before pricing date, then the shares were walloped into Pricing. 
• After pricing, they have fallen and erased most of the discount. That’s an opportunity. 
• The shares have underperformed Peers, and there is flow to come. This deal was, as advertised, smaller than it first appeared. 

• There could be 17 changes at the December rebalance with the Industrials sector gaining 3 index spots and the Information Technology sector losing 3 spots.
• We estimate one-way turnover of 2.9% at the rebalance leading to a one-way trade of CNY 21.96bn (US$3.1bn). There are 22 stocks with over 3x ADV to trade.
• Impact on the stocks has increased as creations in ETFs linked to the CSI 300 Index continue. That flow will reverse from the deletions in the next few months.

• Samsung’s preferred shares lagged significantly behind the common shares yesterday, showing the largest daily sigma move we’ve seen in a while.
• Samsung’s delayed value-up announcement, despite regulatory pressure, has fueled speculation about a potential Biologics stake purchase from C&T.
• It’s time to pause the trade on Samsung’s preferred discount narrowing that I highlighted in early August. The main inflection point will be when Samsung makes its value-up announcement.

• Back on the 26 August, Goh Peng Ooi, the executive chair and founder, made a voluntary unconditional general Offer for the 25.9% in Silverlake Axis (SILV SP) not held.
• The Offer Doc is now out for this S$0.36/share cash Offer. The first close is the 7th October.
• There was no IFA opinion in this Doc. This will appear in the Response Doc within a fortnight. It’ll be interesting how the mixed consideration alternative is assessed. Or not.

• Dyna Mac Holdings (DMHL SP) disclosed a voluntary conditional offer from Hanwha Aerospace (012450 KS) and Hanwha Ocean (042660 KS) at S$0.60, a 21.2% premium to the undisturbed price.
• The offer is conditional on regulatory approval (Competition and Consumer Commission of Singapore) and a 50% minimum acceptance condition. 
• The offer is reasonable compared to peer multiples. However, it may face resistance as it is below the recent high of S$0.615 and Dyna-Mac’s improving outlook (S$681 million order book). 

• Hanwha Galleria’s tender offer, led by Kim Dong-sun, closed today with a subscription rate just over 80%, according to the local brokerage after market close.
• Retail investors in small caps like Hanwha Galleria often skip tender offers, hoping for price gains. Kim Dong-sun may try to buy the remaining 10-15% soon, possibly via open-market buys.
• Watch for signs that Kim Dong-sun might go for a second tender to take Galleria private. He might be aiming to avoid taxes and boost his stake’s value.

• Puig Brands (PUIG SM) will be added in SXXP and SXXE at the close of 20 September 2024. Forecasted demand is ~1.6m shares, ~$36m and ~2.7 ADV.
• The security is at risk of failing the fcap threshold hence inclusion in November 2024 due to a recent price drop and a substantial portion of shares outstanding being unlisted.
• The company closely exceeds the minimum public voting rights and its inclusion is expected in December 2024. Forecasted demand is ~4.5m shares, ~$101m and ~7.5 ADV.

• The tender offer period for Hanwha Galleria ended on 11 September. Its share price closed down 7.4% but still up 8.2% from its price prior to the tender offer announcement.
• The local media accounts mentioned today that about 80-90% of the shares targeted in this tender offer have been filled.
• If 90% of the tender offer is successful, Kim Dong-Sun’s stake in the company will rise from 2.3% to 18.1%.

• Following a Partial Offer for Hanwha Corporation (000880 KS) in July, and Hanwha Galleria (452260 KS)‘s yesterday, the Hanwha Group has now made an Offer for Dyna-Mac (DMHL SP).
• Hanwha Ocean (042660 KS) and Hanwha Aerospace (012450 KS), collectively holding 25.36%, have made a S$0.60/share cash Offer for shares not owned, conditional on a 50% acceptance hurdle.   
• Terms are not final for the offshore oil-and-gas contractor. Optically, that’s probably prudent. The Offer also requires Singapore’s competition watchdog signing off. 

• Despite Seven & I Holdings (3382 JP)‘s rejection, Alimentation Couche-Tard (ATD CN) remains prepared to enter collaborative and friendly discussions to focus on finding greater value for 7&i shareholders. 
• Couche-Tard’s options are to return with a revised offer, go hostile or walk away. Couche-Tard will likely test the Board’s resolve by returning with a higher offer.
• The Board’s options are to go through the motions (appointing IFAs), conduct a market check or launch a more aggressive action plan to placate restive shareholders. 

• ASX 200 index rebalancing: West Gold and Yancoal added, Strike Energy removed
• Impact on stock prices and trading dynamics around index inclusions and removals
• Observations on companies prematurely entering the index and facing challenges after being removed

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

• KT’s foreign room is likely staying below 3.75% for November, setting up an ETF recall play. We’ve seen short-term buying pressure in similar past index reshuffles.
• The ETF recall impact peaks right after the announcement. KT’s May downweight saw a 5% spike in two trading days post-announcement.
• KT’s price moves more with downweights than SK Telecom’s because of higher overseas borrowing demand. This trend should hold, so setting up a position before the November announcement makes sense.

• Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
• SUNWELS Co (9229 JP) and Macbee Planet (7095 JP) moved to the Prime market in July 2024 and their TOPIX Inclusion events took place at the end of August 2024.
• We currently have CELSYS (3663 JP), Japan Eyewear Holdings (5889 JP), and Core Concept Technologies Inc (4371 JP) in our TOPIX Inclusions pre-event watchlist.

• On the 18th June, personal computer parts and accessories play PC Partner (1263 HK) (PCP) announced a SGX listing was under consideration; and a possible withdrawal of the HKEx listing.
• PCP’s 30th August announcement provided clarity on a step-by-step approach for the HKEx withdrawal. I recently held zooms with the SFC and SGX for added clarification.
• PCP’s exchange relocation is predicated on PCP’s operational expansion into new markets, in particular, Southeast Asia. How and when the SGX becomes the preferred trading exchange  remains an unanswered question. 

• In the annals of foreign buyers of Japanese tourism-related real estate assets, there have been a few good examples, and several disasters. Yesterday, we got a new suitor for assets. 
• Fortress SPV Ontario GK will attempt to buy out Fukushima-based Joban Kosan (9675 JP) through a double Tender Offer. 
• There is a history here of a bump on an MBO on an associated company. That may have caused it to trade at a premium on Day 1. It’s unrelated.

• Itochu’s Textile division continues to execute the directive from its CEO to expand reach and coverage in the fashion and lifestyle sectors, with sports one of the major target categories.
• It will completely absorb Descente as part of this plan, meaning the brand is likely to become one of the largest in the portfolio.
• The ongoing tender offer will likely succeed giving Itochu a bargain and investors no stake in the future.

• Last Friday, the S&P Index Committee announced the changes to the S&P500, S&P400, S&P600, and other indices, along with the result of a recent consultation on capping methodology.
• The result is about US$23bn a side of flows for the major indices
• In the S&P500, DELL, PLTR, and ERIE are ADDs. AAL, ETSY, and BIO are DELETEs. But as always, just knowing the names is deceptive. The history matters more.

• Constituent changes to the S&P 500 INDEX and weight changes as a result of the market consultation proposals being adopted will result in a round-trip trade of US$31.5bn.
• The largest one-way turnover is expected in the Consumer Staples Select Sector SPDR Fund, Technology Select Sector SPDR, Materials Select Sector SPDR and Communication Services Select Sector SPDR Fund.
• The inflows to Apple (AAPL US), Palantir Technologies (PLTR US) and Dell Technologies (DELL US) will add to the buying from the S&P 500 INDEX (SPX INDEX) trackers.

• Guotai Junan Securities (2611 HK) and Haitong Securities Co Ltd (H) (6837 HK), two of China’s leading state-backed brokerages, intend to merger via a share swap, subject to regulatory approvals.
• Via a Merger by Absorption. GJS will issue new A and H shares to Haitong shareholders. The ratio hasn’t been firmed. Upon completion, the MergeCo creates China’s largest securities entity.
• A merger is welcome – possibly mandated – amid challenging capital markets and a tightening regulatory backdrop.

• Late last week, the Nikkei reported Seven & I Holdings (3382 JP) would send a letter to Couche-Tard saying they reviewed ACT’s Proposal and deemed it “inadequate.” Indeed it was.
• 7&i then published the Board’s letter, saying 7&i remained open to discussions but ACT’s Offer “grossly undervalued” 7&i’s intrinsic value and lacked in other areas. ACT responded with a “letter.”
• But ACT’s “letter” was a press release aimed not at 7&i but the public. 7&i released a terse response today. ACT is the suitor. It needs to act like it.

• Midea Group Co Ltd A (000333 CH)  is offering 492.1 million shares in Hong Kong, priced between HKD52 and HKD54.8 per share.The valuation looks attractive.
• Nearly one-third of the Hong Kong share offering has already been subscribed by cornerstone investors.
• Midea’s strong market share in home appliances, consistent revenue growth, margin expansion, and appealing return ratios make a compelling investment case.

• Pub play Hotel Property Investments (HPI AU) has announced – and summarily rejected – a A$3.65/share cash Offer from Charter Hall Retail Reit (CQR AU).
• Terms are a 14.8% premium to the undisturbed share price on March 28; following which a 14.8% “strategic interest” (@ A$3.35/share) was acquired by CQR and Charter Hall (CHC AU).  
• The Offer is subject to a 50.1% acceptance hurdle. The Offer should be open for acceptances around the 23 September.

• As things stand, Trent Ltd (TRENT IN) could replace Bajaj Finserv (BJFIN IN) in the S&P BSE SENSEX Index (SENSEX INDEX) at the close on 20 December.
• Addition to the F&O list could see Zomato (ZOMATO IN) added to the index instead. That could then result in two changes to the S&P BSE SENSEX Index in December.
• Trent Ltd (TRENT IN) is also an inclusion to the NIFTY Index (NIFTY INDEX) later this month and the pool of shares available for active investors is getting smaller.

• Fosun Pharma will make every effort to promote the success of this privatization. The management has disclosed the afterwards arrangements- Henlius and Fosun Pharma will further expand/integrate in the future.
• Henlius’ revenue is expected to reach RMB6 billion in 2024 and RMB8-9 billion in next 2-3 years. Even if the privatization fails, things are still manageable due to strong fundamentals.
• Fosun Pharma will not stop its capital operation against Henlius, but the plans of re-listing could be based on a new entity. So, the Cash Alternative is a better choice. 

• Back on the 23 June 2024, 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.
• The in-specie involved distributing 97.8% of Midea’s assets (involved in property development and sales); accounting for 95% of revenue and ~91% of profit. All figures as at FY23.
• Midea went ex yesterday, closing down just HK$4.87/share. Midea, ex-in-specie, is currently trading at a trailing 0.6x P/B, and 2.3x PER. Pricing looks full.

• The NIFTY Index closed down last week, but if the rally restarts from here it would be good to analyse the pattern trend, to estimate how high it could go.
• The current WEEKLY pattern favors uptrend that last for 2 or 3 weeks up in a row, on average, and up to 5 consecutive weeks up in a row.
• Some additional reasoning is necessary to highlight the strongest resistance levels, we will do it in the insight.

• There are 3 changes for the S&P 500 INDEX, 8 changes for the S&P Midcap400 Index and 15 changes for the S&P SmallCap600 Index at the September rebalance.
• Dell Technologies (DELL US) and Palantir Technologies (PLTR US) were finally added to the S&P 500 INDEX (SPX INDEX) and there is huge size to trade in the stocks.
• There will also be big buying in Apple (AAPL US) following a float increase driven by Berkshire Hathaway Inc Cl A (BRK/A US) selling last quarter.

• There are 2 changes for the S&P/ASX100 Index, 3 changes for the S&P/ASX 200 (AS51 INDEX) and 16 adds/ 8 deletes for the S&P/ASX300 Index.
• The two big surprises are the inclusion of Guzman Y Gomez (GYG AU) and Yancoal Australia (YAL AU) in the S&P/ASX 200 (AS51 INDEX) and S&P/ASX300 Index.
• The adds to the indices have outperformed the deletes over the last few months and there could be profit-taking in the next few days.

• Hankook & Company is unexpectedly entering Autos, the only large-cap inclusion, likely getting a significant weight and facing a massive flow impact.
• Like BBIG, this single-day flow event driven by one or two ETFs means smaller front-running impact, but names like Hankook & Company could see early positioning due to massive flows.
• I’ll position in big impact names two days before the ETF rebalance trading. I’ll then go long on a basket of those with over 0.5x ADTV at Wednesday’s close.

• The Midea Group (300 HK) IPO is being offered at a price range of HK$52-54.8/share, a discount of 20.9%-25% to Midea Group. That will raise US$3.28bn-US$3.46bn for the company.
• Midea Group (300 HK) will not get Fast Entry to the HSCI but will be added to Southbound Stock Connect on 14 October once the price stabilisation period has ended.
• Midea Group (300 HK) should get Fast Entry to one global index and that could lead to inclusion in the iShares China Large-Cap (FXI) (FXI US) too.

• On 6 September, Guotai Junan Securities (2611 HK) and Haitong Securities Co Ltd (H) (6837 HK) entered a legally binding agreement to merge through absorption and share exchange. 
• The high-profile merger aligns with the Chinese government’s ambition to reform the brokerage sector and create world-class investment banks. The merger would result in the largest China broker by assets.
• In this note, we evaluate the potential share exchange ratio and the risks to satisfying the conditions for implementing the potential merger.

• 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), Canvest Environmental Protection Group (1381 HK), Shinko Electric Industries (6967 JP), Malaysia Airports Holdings (MAHB MK), Greatview Aseptic Packaging (468 HK). 
• Lowest spreads: Fuji Soft Inc (9749 JP), Tohokushinsha Film (2329 JP), Second Chance Properties (SCE SP), Fancl Corp (4921 JP), Descente Ltd (8114 JP), C.I. TAKIRON Corporation (4215 JP). 

• The ADDs/DELs for the TDIV, T50, and T100 indices for the September 2024 index rebal event was confirmed after market close on Friday 6th September 2024.
• There will be one change for the T50 index and four separate changes for the T100 index. One of the T100 changes will also trigger a TDIV index deletion.
• In this insight, we have presented our final estimates for the index flows for ADDs/DELs and capping flows for the TDIV index.

• SOUTHBOUND was a net buyer this week, again, after a small net sell week broke the 28-week buying streak. This week, over four days, it was +HK$9.3bn.
• ETFs were a net buy this week; CCB, ICBC, Meituan, China Mobile, as well as BYD, Nonfu Spring, and ANTA Sports stand out among net buys. Sells were small. 
• This week sees Alibaba Group Holding (9988 HK) eligible for SOUTHBOUND buying. And what was supposed to be the HSI/HSCEI/HSTECH rebals Friday are pushed to Monday (link here).

• Pharmaessentia Corp (6446 TT) will replace Nanya Technology (2408 TT) in the Yuanta/P-Shares Taiwan Top 50 ETF at the close of trading on 20 September.
• Shorts have been covering positions in Pharmaessentia Corp (6446 TT) while there has been a surge in new short positions in Nanya Technology (2408 TT). 
• Cumulative excess volume in Pharmaessentia Corp (6446 TT) has flattened out as momentum has stalled while there has been a surge in cumulative excess volume for Nanya Technology (2408 TT).

• Repeat of last week: Miserable economic data continues. Trade geopol is mixed. Territorial geopol getting more serious. SOUTHBOUND gross volumes and net back up, but not high.
• AH Premia rose slightly as HK-listed shares underperformed mainland share indices. Hs underperform their As consistently compared to relative index performance.
• It is not clear what impetus there might be for better H performance.

• I tally 40 – 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 were discussed this week: Offers for Virgin Money UK Plc (VUK AU) and PSC Insurance (PSI AU).
• Key updates took place on Rex Minerals (RXM AU), Namoi Cotton (NAM AU), CPMC (906 HK), China TCM (570 HK), Seven & I (3382 JP), and Fuji Soft (9749 JP) . 

• The ADDs/DELs for the ASX index family for the September 2024 index rebal event were announced after market close on Friday 6th September 2024.
• In this insight, we take a final look at the flow expectations for each of these index changes.
• We have also highlighted certain names with noticeable movements in short interest.

• The past “infrastructure-driven demand model” in medical devices has become “an updated model”. The future reasonable demand for medical devices may fall back to a quarter of pre anti-corruption levels.
• Top innovative pharmaceutical companies worth investing in need to meet certain conditions. Currently, there is still a gap between Chinese pharmaceutical companies and companies like Regeneron in various aspects.
• Henlius is of great strategic significance for Fosun Pharma, which actually increases the privatization success rate. Valuation logic of Fosun Pharma should be based on PE/VC firms not traditional pharma.

• Buy dips on the possibility that 3DIP would not agree to Bain. Otherwise, at ¥9,000 Fuji Soft (9749 JP) is a buy, and at ¥9,500, it’s probably a sell near-term.
• Drilling down into its balance sheet uncovers additional value for Jardine Matheson Holdings (JM SP); but not enough to move the needle
• Exedy Corp (7278 JP) completed its buyback. Murakami Group bought more. The stock (pro-forma) is at 0.62x book, 0.54x book for the non-cash portion. There’s LOTS of cash left.

• After publishing my insight (Jardine Matheson (JM SP): Trading “Cheap”) last week, my NAV calcs were called into question by some readers, when compared to street estimates.
• Which is cool. I’m big enough to admit mistakes, where needed. So I’ve done some digging, including a back and forth with Jardine Matheson Holdings (JM SP).
• The upshot? I have not lead you astray. You’ve been coming to the right place.

• Got surprised by KRX adding POSCO Holdings to the Battery Index. Normally predictable rebalancing went off-script with this unexpected move.
• POSCO Holdings, not Posco Future M, replaced Ecopro BM. Plus, Alteogen Inc is replacing SK Biopharmaceuticals in the BBIG, driving notable flow.
• Consider a day trading long POSCO Holdings and short Ecopro BM. Also, a long-short futures basket could be worth exploring for names with big passive flows.

• The KOSPI 200 has corrected for 3 weeks in a row, reaching a low at 340.08 last week. It is WEEKLY OVERSOLD, according to our models.
• In a previous insight we theorized the index could go higher (but only for 1 week), however the rally never materialized. From there it went downhill, now it can bounce.
• The support area between the last Close and 320 offers strong support, according to our WEEKLY pattern models. 

• KKR has launched its deal early to make life difficult for Bain, who has Founding Family support, due diligence, and another hearing with the company to make a Binding Bid.
• The combination of Bain’s PR on 3 September and the new documents out late last night from KKR and Fuji Soft show a picture of KKR/3D somehow acting coercively.
• This is something of a mess. It should become a case study for lawyers/advisors of what NOT to do when a large PE firm approaches you. Expect a bun fight.

• The S&P 500 index tracks the 500 largest names listed in the US and it is one of the most highly-tracked indices in the world.
• The rankings used for the September 2024 index rebal event will be based on yesterday’s (4th September 2024) opening prices.
• In this insight, we take a final look at the potential ADDs and DELs leading the rankings for the upcoming review.

• For this September reshuffle, fewer factors affected price impact, so outlier chances were low. Biggest price moves typically occur 30 days before the effective date, especially during LARGE↔MID transitions.
• Early positioning for this reshuffle paid off. Past trends suggest price action fades before the effective date, so consider exiting positions by tomorrow or early next week.
• Small→Mid migrants historically show weak price impacts, with no clear correlation observed in this September reshuffle either. I’m avoiding those plays targeting the effective date for now.

• Back on the 7 Dec 2023, Xingda International (1899 HK)  announced a partial Offer from a consortium comprising management at HK$1.88/share.
• The consortium, at the time, held 45%, with the objective to hold >50.01% at the close of the Offer. The final % was 50.42%. 
• The consortium was then free to take their stake up to 75%. However the shareholder structure has materially changed in 2024. Xingda is suspended (again) pursuant to the Takeovers Code.

• S&P MidCap 400 additions by transition require market cap, float cap, sector balance, liquidity and earnings as parameters for inclusion.
• The highest combined score from the parameters is given to CVNA, HOOD, LPLA and ENTG which makes them acceptable candidates for addition. 
• Ensign Group (ENSG US) and Mueller Industries (MLI US) have the highest probability of being added out of the migrations. Market cap of migration candidates is estimated to be insufficient.

• Pasco Corp (9232 JP) has recommended a tender offer from Secom Co Ltd (9735 JP) and Itochu Corp (8001 JP) at JPY2,140, 31.4% premium to the undisturbed price of JPY1,629.
• The tender offer runs from 6 September to 22 October (30 business days), with payment commencing on 28 October. It represents a 10-year high. 
• This a done deal as the offeror represents a 71.66% ownership ratio, higher than the two-thirds of voting rights required to implement a squeeze-out through share consolidation.  

• Xingda International (1899 HK) entered a trading halt pending the release of an announcement under the Hong Kong Code on Takeovers and Mergers. 
• Significant changes in substantial shareholders have occurred since the previous partial offer closed on 10 March 2023, which could be the catalyst for an offer. 
• Management is likely reloading a partial offer to exercise statutory control and bypass the 2% creeper rule. The partial offer price could be around HK$1.60-1.70 per share. 

• Today, the Nikkei Index Committee decided to delete Nippon Paper (3863) for low liquidity, and DIC (4631) for sector over-representation, and added Nomura Research Institute (4307) and Ryohin Keikaku (7453).
• The only auto-delete was Nippon Paper. The DIC delete was “discretionary.” But they could have done a third. Why did they not do a third change? I do not know.
• The whole shebang should be ¥350-375bn a side. At current price, Fast Retailing is set for another capping (selling) event in March 2025. And there is one shoo-in then too.

• Nomura Research Institute (4307 JP) and Ryohin Keikaku (7453 JP) will replace Nippon Paper Industries Co L (3863 JP) and Dic Corp (4631 JP) in the Nikkei 225 (NKY INDEX). 
• Fast Retailing (9983 JP)‘s CPAF will drop from 3 to 2.7 and there will be further selling in March 2025 as the CPAF drops to 2.4 (or possibly even 2.1!) 
• Passives will need to buy 7-15x ADV (13-14% of real float) in the adds and sell 2.7-6.5x ADV in the deletes. There is a big reverse funding trade too.

• In response to the potential Bain competing offer for Fuji Soft Inc (9749 JP), KKR has waived the precondition and launched its offer at unchanged JPY8,800 per share.
• Bain’s due diligence ends on 20 September, and it aims to submit a binding proposal in October. This timeline will thwart KKR’s offer, which closes on 21 October.
• KKR’s offer launch at unchanged terms is delaying the inevitable and will have to bump to succeed. A potential bidding war is likely to push the offer price to JPY10,500. 

• The Couche-Tard “friendly bid” raises more questions than it answers: Is it real? What does CT really want? Can it afford it? Will the Japanese government let it through?
• We remain sceptical about a bid – if it happens – succeeding. Either way, Seven & Eleven Japan looks to be the much better retailer.
• It has been selling 25-40% more than competitors in the world’s toughest CVS market and looks set to extract more value in Japan/overseas than anyone else could so why sell?

• There will be passive buying in Nextdc Ltd (NXT AU) and Charter Hall (CHC AU) and selling in Vital Healthcare Property Trust (VHP NZ) at the close on 20 September.
• Charter Hall (CHC AU)‘s stock price jumped following announcement of results and that was accompanied by big short covering. There should still be more positioning here. 
• Nextdc Ltd (NXT AU)‘s increase in cumulative excess volume came on a drop in the stock price. There could be some covering here as positioning builds up.

• On 4 September, Ecopro HN announced that it plans to conduct a rights offering capital raise of about 200 billion won. 
• The company plans to issue 5.67 million new shares and the expected rights offering price is 35,300 won (23% lower than current price). 
• We would not subscribe to this rights offering mainly due to lofty valuations, declining sales and profit growth, continued negative free cash flow, and concerns about excessive shares dilution. 

• A group of minority investors started to go activist on Hojeon (111110 KS), demanding that the company increase its treasury share buybacks/cancellations, dividends, and cut CEO’s salary.
• This coalition of minority investors has threatened to sell their shares to a competitor (Hansae) if the company does not abide by their demands.
• Hojeon has attractive valuations and are trading at low multiples. It had P/E of 5x, EV/EBITDA of 3.4x, and P/B of 0.5x in 2023.

• China Tower (788 HK) will replace China International Capital Corporation (3908 HK) in the iShares China Large-Cap (FXI) (FXI US) at the close on 20 September.
• The appears to be a lot more positioning and short interest in China International Capital Corporation (3908 HK) compared to China Tower (788 HK). 
• The listing of Midea Group Co Ltd A (000333 CH) H-shares could result in another change for the ETF prior to the next scheduled rebalance in December.

• Key watchpoints: Will POSCO cancel the 3.4% treasury shares in Q4 and how will they replenish cash reserves after paying ₩1.5 trillion? Their moves could set trends.
• POSCO might cancel these shares to boost their value-up index weight. This could drive up the stock price, giving them an opening to improve their cash position through equity financing.
• Expect a short-term stock pivot with value-up index and ETFs driving inflows and price pops. After this, equity financing may signal stock peaks, with POSCO and others leading the trend.

• Louis Dreyfus Company (LDC) and Olam (OLG SP)‘s Olam Agri have been going toe-to-toe over Namoi Cotton (NAM AU) since the 1st February. LDC has now declared its Offer unconditional. 
• It’s an interesting move. Namoi is trading through LDC’s A$0.67/share Offer terms. But unlike Olam’s Offer, LDC now has FIRB and ACCC under its belt.
• Currently trading at Olam’s A$0.70/share terms. All eyes are on ACCC giving Olam the green light. Or not.