Event-Driven

MSCI announced the changes to its indices prior to market open on 12 August. Most changes were expected, while the non-inclusion of Gcl Poly Energy (3800 HK) was a surprise.
There are a bunch of announcement on the coming Friday for the Hang Seng and FTSE indices. Plus the review cutoff for the S&P/ASX family of indices.
Outflows from KraneShares CSI China Internet ETF (KWEB US) continued for yet another week, while there were inflows to iShares Core MSCI Pacific ETF (IPAC US).

Last Week in Event SPACE: Softbank, OZ Minerals, Lifestyle, Nexon, Magic Empire, Swire Pacific

BHP launched a bid for OZ Minerals (OZL AU). OZ has rejected it as being too low. BHP said the Offer provides certainty of funding growth. They are both right
This Offer price for Lifestyle International Holdings (1212 HK) is probably sufficient to get up. It has been declared final for that reason. Optically $6/share was a more reasonable level.
Nexon (3659 JP) announced another ¥100bn buyback over three years. However, the buyback is too small to pay back the Kim family inheritance tax obligations.

Predicting Inclusion at MSCI Korea November IR: Hyundai Mipo Dockyard

The MSCI’s November IR will hardly see any new addition from Outside IMI. Additions will mostly come from Small Cap→Standard migration.
There are 12 candidates for Small Cap→Standard migration. They are all beating the float market cap hurdle. However, only Hyundai Mipo satisfies the full market cap requirement.
At the current market cap, Hyundai Mipo will likely cause passive inflows equivalent to 5.89x ADTV, equal to US$160M or 1.9M shares.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Oz Minerals, Lifestyle, EVOC Tech, Shinoken, DTAC/True

There are 43 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Four new deals discussed this week: BHP (BHP AU)‘s tilt for OZ Minerals (OZL AU); Lifestyle (1212 HK)‘s privatisation; EVOC (2308 HK)‘s Merger by Absorption, and Shinoken (8909 JP)‘s MBO.
Key updates took place for Total Access Communication (DTAC TB) / True Corp Pcl (TRUE TB).

POSCO Holdings Stock Cancellation: Tiggering a 5%p Float Change for FnGuide Top 10 ETF

POSCO Holdings announced it would cancel ₩567B worth of 2.6M treasury shares last Friday. It represents 3% of the shares outstanding, reducing the treasury shares from 13% to 10%.
With this cancellation, the float change reaches 5%p, triggering an adjustment from 68% to 73% in the upcoming cycle, just in time for the FnGuide Top 10’s December rebalancing.
As a result, POSCO Holdings suddenly becomes a strong contender to beat KB Financial in the FnGuide Top 10 rebalancing as they will be in a very tight race.

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Aug 13

Daily Brief Event-Driven: Swire A Vs Swire B – Regulatory Nuances REALLY Matter and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Swire A Vs Swire B – Regulatory Nuances REALLY Matter
Posco International Merger: Deal Structure & Arbitrage Dynamics
WSP Global/RPS Group: More Consolidation In Engineering Consultancy
POSCO Holdings: Treasury Shares Cancellation Worth 3% of Outstanding Shares

Swire A Vs Swire B – Regulatory Nuances REALLY Matter

Yesterday Swire Pacific (A) (19 HK) (and Swire Pacific Ltd-Cl B (87 HK)) announced a buyback of shares according to the 2022 AGM mandates approved in May, limited to HK$4bn.
A reader question prompted me to look more closely at the rules. There are nuances NOT covered in the announcements. So I work through them.
The conclusions are surprising, and lead to one clear trading idea.

Posco International Merger: Deal Structure & Arbitrage Dynamics

We still have the chance to become eligible. We will still receive the rights if we buy Posco International next Tuesday. But we will exercise them at ₩20,590, NOT ₩27,801.
Given that there is little cancellation risk, we can capitalize on the price falling below the appraisal price by opening both Long and Short at the same price.
We close Short if the price goes under ₩20,590 and fix the arb spread by exercising the rights with Long.

WSP Global/RPS Group: More Consolidation In Engineering Consultancy

WSP agreed to acquire RPS Group at a (generous) 206/share (+0.45p interim), in a well-timed transaction at 76% premium, 17.2x EV/Fwd EBIT and 24x Fwd P/E. Irrevocable undertakings are 18%.
The offer represents a 43% premium to mean consensus TP. My fair value estimate DCF (WACC 9%, 1.6% terminal growth) is 190.5p/share, 1.5% below the offer price.
The shares trade just below the offer. This seems a low risk/low return deal. Gross spread is 0.7% and the estimated annual return is 2.2% assuming settlement by 8 December.

POSCO Holdings: Treasury Shares Cancellation Worth 3% of Outstanding Shares

On 12 August, POSCO Holdings announced that it will cancel treasury shares worth 3% of outstanding shares involving 2.6 million shares worth 672 billion won.
The cancellation of treasury shares is a shareholder friendly policy that will improve the company’s ROE and P/E ratios. The treasury shares cancellation will be completed on 22 August 2022.
The combination of treasury shares cancellation and high dividend yield is likely to lead to higher probability of POSCO Holdings outperforming KOSPI on a total returns basis this year.

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Aug 12

Daily Brief Event-Driven: MSCI August 2022 Index Rebalance: The Last QIR Throws Up One Big Surprise and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

MSCI August 2022 Index Rebalance: The Last QIR Throws Up One Big Surprise
Swire Pacific (19 HK/87 HK) Buyback: Bigger Than It Appears
Swire A/B (19 HK / 87 HK) Buyback Programme – It’s REALLY BIG
Japan Post Insurance (7181 JP) – Reading Between The Lines
Toyo Tecnica (8151) – BIG Buyback
Swire A/B (19 HK / 87 HK)’s BIG Buyback Programme
Solvency Risk Short Candidates: BridgeBio, Wayfair, Archaea Energy, Enviva

MSCI August 2022 Index Rebalance: The Last QIR Throws Up One Big Surprise

As announced, there are 8 adds and 3 deletes for the MSCI Standard indices in Asia Pacific. To trade, there are 8 adds and 2 deletes.
Most of the changes are inline with what we forecast. The non-inclusion of Gcl Poly Energy Holdings Limited (3800 HK) is the big surprise, though that could change.
All the adds in China are potential inclusions to the FTSE All-World Index in September and that will add to the passive inflows on the stocks.

Swire Pacific (19 HK/87 HK) Buyback: Bigger Than It Appears

Swire Pacific (A) (19 HK)/Swire Pacific Ltd-Cl B (87 HK) has announced a HK$4bn buyback. While that is 6.5% of shares out, it is over 15% of real float.
Swire Pacific (A) (19 HK) was trading at a 50% discount to NAV and near the widest level over the last few years.
There will be passive selling once the buyback is complete, but the stocks should run up prior to that.

Swire A/B (19 HK / 87 HK) Buyback Programme – It’s REALLY BIG

Today Swire Pacific (A) (19 HK) (and Swire Pacific Ltd-Cl B (87 HK)) announced earnings, and they announced a large (HK$4bn) buyback.
Details are somewhat thin, but there are a bunch of possibilities, and all of them should have non-negligible impact on Swire and Swire vs Peers.
The immediate market response was to send them up 10% on the day. That puts both at somewhere near one-year highs, but the discount to NAV is still big.

Japan Post Insurance (7181 JP) – Reading Between The Lines

Japan Post Insurance (7181 JP) reported soft Q1 Tuesday on negative existing policy premium growth and higher (covid-related) underwriting claims costs. Guidance was unchanged but JPI also announced a buyback.
The buyback structure is designed to keep Japan Post Holdings (6178 JP) under 50% to continue to abide by the strictures and goals of the Japan Postal Privatisation Act.
50% or more will be done in a ToSTNeT-3 buyback Thursday morning 12 August. The rest will be bought on market. Impact is non-negligible. And JPI is cheap cheap cheap.

Toyo Tecnica (8151) – BIG Buyback

Toyo Corp (8151 JP) is a smallcap electronics firm specialising in sensors/testers/loggers for industrial and data system processes, large scale antennae systems, high tech medical equipment, remote sensing equipment, etc.
They have seen their (extraordinarily seasonal) revenues go mostly nowhere over the past ten years, but they have, until recently, accumulated cash and securities.
On 10 August, the company announced a LARGE buyback of up to 8.44% of shares out. The details suggest

Swire A/B (19 HK / 87 HK)’s BIG Buyback Programme

Swire Pacific (19 HK) has announced a “small” buyback at HK$4bn, but it is a material portion of ADV.
What remains unknown is how the buyback will be split. The split will only be known once buyback volumes are announced.
Swire is trading cheap at a look-through forward P/B of 0.28x compared to its five-year average of 0.38x, and the two-year average pre-Covid of 0.48x.

Solvency Risk Short Candidates: BridgeBio, Wayfair, Archaea Energy, Enviva

By Eric Fernandez, CFA

This model seeks companies facing dangerously high leverage coupled with negative or declining cash flows. It considers interest expense, capex and short term maturities for additional input.
The companies may not be viable given cash flows and capital structures. These shorts tend to have higher betas and can have strong down moves as the crisis is recognized.
This week we flag: BridgeBio, Wayfair, Archaea Energy, Enviva Inc.

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Aug 11

Daily Brief Event-Driven: Softbank Confirms BABA Selldown – Big Changes on Softie’s Balance Sheet and BABA Index Implications and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Softbank Confirms BABA Selldown – Big Changes on Softie’s Balance Sheet and BABA Index Implications
FTSE TWSE Taiwan Dividend+ Index Rebalance Preview: BIG Capping Changes in September
Shinoken (8909) MBO – Decent Premium, Still Light, Will Someone Push?
Looking at Canon Buyback Dynamics History – Patterns Vs Peers Gives Execution Hints
Kakao Games: Announces A Rights Offering Worth 197 Billion Won
Hong Kong CEO & Director Dealings – 10th August 2022
STI Index Rebalance Preview (Sep): Close to the Cutoffs
True/DTAC: Merger Support Increasingly Tenuous
Siemens Energy/Siemens Gamesa: Downwards Guidance

Softbank Confirms BABA Selldown – Big Changes on Softie’s Balance Sheet and BABA Index Implications

Softbank today confirmed that the stories circulating about Softbank having hedged a decent portion – 200+mm shares – of its BABA position were true.
The market expectation had been that these pre-paid forwards would be held for another two years. The announcement today is that they will be physically settled early.
This means the entire accounting effect – worth ¥4.6trln – will hit the income statement (and balance sheet) in the current quarter. There are investment and index implications

FTSE TWSE Taiwan Dividend+ Index Rebalance Preview: BIG Capping Changes in September

We do not expect any deletions from the FTSE TWSE Taiwan Dividend+ Index in September, but there will be a lot of passive flow due to capping changes.
Based on the closing prices from 9 August, we estimate one-way turnover of 11.2% at the September rebalance resulting in a one-way trade of TWD 15,754m (US$525m).
Most stocks with expected passive inflows are trading near their recent lows (leading to higher dividend yield), while most stocks with expected passive outflows have rallied recently (lower dividend yields).

Shinoken (8909) MBO – Decent Premium, Still Light, Will Someone Push?

Today Shinoken Group (8909 JP) announced it was the subject of an MBO where the CEO-founder invited Integral – a local PE fund – to help him restructure and grow.
It is at a 45% premium to last, and management negotiated the price from a relatively insulting initial bid of ¥1,300 to ¥1,600 in the end, but it’s still light.
It is not hugely light, but it is not a full price. It could definitely be a bit higher. The question is whether active foreigners will push.

Looking at Canon Buyback Dynamics History – Patterns Vs Peers Gives Execution Hints

Canon Inc (7751 JP) has just started its 17th buyback in 15 years. Like the 16 before, this one is for ¥50bn.
The patterns/dynamics of the canon buybacks in the past are remarkable when compared to buybacks of other companies.
There are outperformance and under-performance patterns vs Peers, and it is worth taking note if you have a position to trade.

Kakao Games: Announces A Rights Offering Worth 197 Billion Won

Kakao Games Corp (293490 KS) announced today a rights offering worth 197 billion won, representing 4.4% of its market cap.
Lionheart Studio’s founder and CEO Kim Jae-Young is expected to purchase 3.1 million shares of the rights offering (177 billion won), representing 90% of the total rights offering shares.
The issue with Kakao Games and Lionheart Studio remains the fact that many investors would rather invest in Lionheart when it completes its IPO, rather than indirectly through Kakao Games.

Hong Kong CEO & Director Dealings – 10th August 2022

The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. However, such disclosures are by no means an absolute.
These insights also flag those companies where shares have been pledged, both recently and ongoing.

STI Index Rebalance Preview (Sep): Close to the Cutoffs

Emperador (EMI SP) currently is just outside the inclusion zone for the FTSE Straits Times Index (STI) (STI INDEX) and a small price bump is needed for index inclusion.
If Emperador (EMI SP) is added to the index, Comfortdelgro Corp (CD SP) could be deleted as the lowest ranked index constituent.
Emperador (EMP PM) is a high probability inclusion to the FTSE All-World Index at the September SAIR and the stock could move higher over the next couple of weeks.

True/DTAC: Merger Support Increasingly Tenuous

Reportedly, the board of the National Broadcasting and Telecommunications Commission (NBTC), Thailand’s telco regulator, has called for a more detailed analysis of the deal’s impact on competition, consumers and industry.
This follows recent calls by Thailand’s opposition Move Forward party urging the NBTC to block Total Access Communication (DTAC TB) / True Corp Pcl (TRUE TB)‘s merger.
Both DTAC and True are trading tight to terms – especially True. Time to take down borrow.

Siemens Energy/Siemens Gamesa: Downwards Guidance

Q3 2022 results were received as weak by the market. Guidance was (again) revised downwards. Otherwise, the takeover bid continues in the process of authorization by the CNMV.
I don’t expect any relevant changes in the offer: Siemens Energy already has control, operating problems persist and the financial position continues to deteriorate. Downwards risks to consensus estimates persist.
Gross spread is 0.33%. The estimated annual return is 1.63% (assuming settlement on 24 October). Sell on strength/tender during the offer in case there’s a (low probability) improvement in the offer.

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Aug 10

Daily Brief Event-Driven: S&P Global Water Index: Market Consultation Driven Potential Changes and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

S&P Global Water Index: Market Consultation Driven Potential Changes
Magic Empire Global – Not Clear Who Is Driving and Who Is Being Taken For a Ride
Nexon Q2 In-Line, New Buyback Plan Too Small To Matter Near-Term
MSCI Korea: Potential Inclusions & Exclusions in August 2022 Highlighted by Locals
Selected European Holdcos and DLCs: July ‘22 Report
Appraisal Rights (& Possibly Preemptive Too) To Be Granted in an ECO in Korea
Tencent Looking to Raise Its Stake in Ubisoft at a Huge Premium
NHN: Cancellation of Treasury Shares Equivalent to 10% of Outstanding Shares Over Next 3 Years

S&P Global Water Index: Market Consultation Driven Potential Changes

S&P DJI commenced a market consultation for the S&P Global Water Index on 29 July and that could lead to quite a few changes to the index in October.
We currently see 14 deletions and 10 inclusions for the index in October. Most of the changes will have a high impact from passive fund trading.
There could be more changes in April 2023 once stocks listed in Emerging Markets are included in the index.

Magic Empire Global – Not Clear Who Is Driving and Who Is Being Taken For a Ride

Just days after AMTD Digital (HKD US) was ramped 30,000% to a ridiculous valuation only weeks after its IPO, Magic Empire Global (MEGL US) IPOed and rose 2000+ on Day1.
MEGL is a corporate advisory, helping smallcaps IPO then helping them comply with listing rules. 2 principals, 2 professionals, 5 staff with no moat had US$2.16mm in revenue in 2021.
And it is worth US$2.3bn – 1000 x revenues and 10,000x earnings? This is not OK. And it smacks of something unsavoury.

Nexon Q2 In-Line, New Buyback Plan Too Small To Matter Near-Term

Nexon (3659 JP) reported Q2 earnings and Q3 forecasts today. Everything is generally “in-line” to tilting slightly light. But USD/yen volatility matters a lot.
The company announced a small dividend hike, from largely meaningless to ever-so-slightly less meaningless. And a plan to buy back ¥100bn of shares over 3 years.
The inheritance tax issue remains a big one, but overhang appears delayed and buyback accretion is small, and also appears delated. And there’s an index sell at end-September.

MSCI Korea: Potential Inclusions & Exclusions in August 2022 Highlighted by Locals

We discuss the potential inclusions and exclusions in the next MSCI Korea Index rebalance announcement (12 August) that are being highlighted by the locals.
The potential inclusion candidates in the MSCI Korea Index emphasized by the locals in August 2022 include LG Energy Solution and Kakao Pay; potential exclusion candidate include SK Telecom.
The overall assessment of the MSCI Korea Index rebalance in August is rather mixed. There are two potential inclusions (LG Energy Solution and Kakao Pay) and one exclusion (SK Telecom).

Selected European Holdcos and DLCs: July ‘22 Report

Discounts to NAV of covered holdcos haven’t shown a clear trend during July/beginning of August. Investors have favored Swedish hodlcos, disliked GBL’s results and avoided the Heineken/Heineken Holdings trade.
Discounts to NAV: Alba, 42.8%; GBL, 34.5%; Heineken Holdings to 21.5%; Industrivärden C, 7.8%; Investor B, 14.3%; Porsche Automobile Holding to 29.4%. Rio Tinto DLC tightened to 16.2%.
Spreads tend to widen in bear markets but short term recoveries provide opportunities on tightening discounts. If anything, recommended trades are: Industrivärden C vs. listed assets, Porsche, Rio Tinto (DLC).

Appraisal Rights (& Possibly Preemptive Too) To Be Granted in an ECO in Korea

By Shifara Samsudeen, ACMA, CGMA

The Korea FSC disclosed the policy agenda, which was presented to President Yoon. The implementation will likely be in the fourth quarter.
The FSC stated that it would grant appraisal rights to the shareholders of a parent company in an ECO (equity carve-out).
This rule will likely be applied to DB Hitek and Foosung. Hence, our trading setup targeting these ECO events will require more sophisticated modifications.

Tencent Looking to Raise Its Stake in Ubisoft at a Huge Premium

Reuters and several other news media outlets reported that Tencent (700 HK) is looking to raise its stake in French game publisher Ubisoft as it seeks to expand overseas.
Tencent owns approx. 5.0% of Ubisoft which was acquired in 2018 and is said to have reached out to the founding family Guillemot to buy a stake from their ownership.
As we mentioned in our previous insight, Tencent has been excluded for the fourth time from new game approvals which had impacted its online games biz.

NHN: Cancellation of Treasury Shares Equivalent to 10% of Outstanding Shares Over Next 3 Years

After the market close on 9 August, NHN Corp announced that it will cancel treasury shares equivalent to 10% of outstanding shares in the next three years.
This is a tremendous management move to improve shareholder return policy.
A 10% share cancellation of outstanding shares is a major move and this is likely to result in a sharp appreciation of NHN’s share price in the next several weeks.

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Aug 09

Daily Brief Event-Driven: Oz Minerals Rejects BHP’s Opportunistic Foray – Expect More and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Oz Minerals Rejects BHP’s Opportunistic Foray – Expect More
Inpex (1605 JP) – Earnings, Forecasts and a BIGLY Buyback
EVOC’s Privatisation Offer of HK$1.75 a Case of Third Time’s the Charm?
FTSE Japan: Potential Inclusions in March Following TSE Restructure
Introducing KRX Sector Indices: SK Square & Iljin Hysolus Deserve Attention for Rebalancing
Foosung: Excessive Decline in Share Price Due to Spin-Off & IPO of Its Foosung Global Subsidiary
EVOC (2308 HK)’s Merger By Absorption

Oz Minerals Rejects BHP’s Opportunistic Foray – Expect More

Early 8 August, OZ Minerals Ltd (OZL AU) announced it had rejected BHP Group Ltd (BHP AU)‘s indicative acquisition proposal at A$25.00/share, after BHP had bought less than 5%.
The Board took a quick look over the weekend and decided “the Indicative Proposal significantly undervalues OZ Minerals” and rejected it out of hand.
It has been an obvious deal for years. This may not be BHP’s last go, but they will probably need to pay more like A$30/share to get it.

Inpex (1605 JP) – Earnings, Forecasts and a BIGLY Buyback

Today Inpex Corp (1605 JP) announced Q2 earnings (results, presentation), a revised full-year forecast due to higher crude and lower yen, an 11%-above-guidance dividend, and a big buyback.
The buyback is for up to 120mm shares spending up to ¥120bn, to run through year-end. Practically speaking, it is limited to 80mm shares or so at current price.
This should be a non-negligible portion of Real World Float, and I expect the buyback to have impact over the next five months.

EVOC’s Privatisation Offer of HK$1.75 a Case of Third Time’s the Charm?

EVOC Intelligent Technology Company Limited H (2308 HK) announced a privatisation offer from Mr Chen Zhi Lie, the ultimate controlling shareholder, at HK$1.75 per H share.
The key conditions are approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders’ rejection). There is no minimum acceptance condition.
The offer price is final. The offer is attractive in comparison to long-term historical share prices and multiples. We think that Mr Chen’s third privatisation attempt will likely succeed.

FTSE Japan: Potential Inclusions in March Following TSE Restructure

Stocks that migrated from the JASDAQ and Mothers Boards to the Standard Market in April will be eligible for inclusion in the FTSE All-World/All-Cap indices at the March 2023 SAIR.
Currently, we see 4 potential inclusions to the All-World Index and 12 potential inclusions to the All-Cap Index. There are some close adds on market cap and liquidity.
The potential adds underperformed the TOPIX Index from April to June, but there has been a significant outperformance since then.

Introducing KRX Sector Indices: SK Square & Iljin Hysolus Deserve Attention for Rebalancing

The correlation and sensitivity between passive flow and price impact have been significantly high for adds/deletes. So, we need a basket-trade setup focusing on potential adds/deletes.
We will see 12 changes for Semicon and 6 for Autos. Bank won’t present any change.
SK Square and Iljin Hysolus are the most prominent names to join the KRX Sector Indices this time. They will have a passive impact of 2.03x and 3.97x ADTVs, respectively.

Foosung: Excessive Decline in Share Price Due to Spin-Off & IPO of Its Foosung Global Subsidiary

On 4 August (after market close), it was reported that Foosung Co plans to IPO its subsidiary Foosung Global. The timing is to complete the IPO in 2023.
After this news came out, Foosung’s share price has declined by 17%. Since its share price peak in May 2022, its share price has declined by 42%.
Recent share price decline has presented a more attractive investment opportunity. Foosung is currently trading at EV/EBITDA multiple of 7.7x in 2022, which is much lower than 20.9x in 2021.

EVOC (2308 HK)’s Merger By Absorption

After shares were suspended on the 1 August, electronics play and property developer EVOC Intelligent Technology Company Limited H (2308 HK) has announced a privatisation at HK$1.75 per H-share.
This Offer is by way of a Merger by Absorption, which incorporates a Scheme-like vote. There is no tendering condition.
The premium to last close is just 15.13%; however, it is a 42.28% premium to the five-day closing average. This is EVOC’s third privatisation attempt in the past five years.

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Aug 08

Daily Brief Event-Driven: Lifestyle International’s HK$5.00 Privatisation Bid and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Lifestyle International’s HK$5.00 Privatisation Bid
Merger Arb Mondays (08 Aug) – Yashili, Lifestyle, Link, Infomedia, Ramsay, ResApp, Alliance Aviation
Marui (8252 JP) – Increases Size of Delayed-Start Buyback, Cuts Yutai
SAIC Completes Dongzheng Stake Acquisition, Unconditional MGO
Weekly Deals Digest (07 Aug) – Hongjiu Fruit, Link, Infomedia, Atlas Arteria, ResApp, DTAC/True
OZ Minerals (OZL): BHP Offer Swiftly Rejected
Lifestyle (1212 HK): Thomas Yau’s Scheme
Kinetic&Globalvia/Go-Ahead: Increased Offer

Lifestyle International’s HK$5.00 Privatisation Bid

Lifestyle International Holdings (1212 HK) announced a privatisation offer from Mr Lau, the controlling shareholder and Chairman, at HK$5.00 per scheme share, a 62.3% premium to the undisturbed price.
The offer price is final. Key conditions include approval by at least 75% of independent shareholders (<10% of independent shareholders rejection). No shareholder holds a blocking stake.
The offer price is unattractive for long-term shareholders and below average sell-side price targets. Nevertheless, this deal likely goes through as the headcount test is not applicable.

Merger Arb Mondays (08 Aug) – Yashili, Lifestyle, Link, Infomedia, Ramsay, ResApp, Alliance Aviation

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
Highest spreads are Lifestyle International Holdings (1212 HK), 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Ramsay Health Care (RHC AU), Infomedia Ltd (IFM AU), Yashili, ResApp.
Lowest gross spreads are Excelpoint Technology (EXLP SP), Frasers Hospitality Trust (FHT SP), MyDeal.com.au Ltd (MYD AU), Cocoaland Holdings (COLA MK), True Corp Pcl (TRUE TB), China VAST.

Marui (8252 JP) – Increases Size of Delayed-Start Buyback, Cuts Yutai

Marui Group (8252 JP) was a long-suffering Japanese retailer with generally sub-standard locations and “different” customer base, and much of its income came from consumer credit.
Since a decade ago, helped by the rise of foreign tourism income, Marui has been redeveloping itself. Michael Causton‘s insights are a great help to understanding the background.
They are aiming at non-stuff retailing. Friday saw earnings, cancellation of the yutai program, a slight div hike, and an increase in the already large buyback program. It’s interesting!

SAIC Completes Dongzheng Stake Acquisition, Unconditional MGO

SAIC Motor (600104 CH) completed the auction procedures for acquiring a 71.04% stake in Dongzheng Automotive Finance (2718 HK). This will trigger an unconditional MGO at HK$1.2430 per H Share.
The offeror and Dongzheng are required to issue the composite document on or before 11 August jointly. However, an application has been made to the Executive to extend the deadline.
At last close and for an end of September completion, the gross and annualised spread to the MGO price is 3.6% and 20.9%, respectively.

Weekly Deals Digest (07 Aug) – Hongjiu Fruit, Link, Infomedia, Atlas Arteria, ResApp, DTAC/True

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments – Chongqing Hongjiu Fruit (CHF HK) is pre-marketing a US$200-300m IPO.
Event-Driven developments at Atlas Arteria (ALX AU), Genex Power Ltd (GNX AU), Infomedia Ltd (IFM AU), Link Administration (LNK AU), Ramsay Health Care (RHC AU), ResApp, DTAC/True, Dongzheng AFC.

OZ Minerals (OZL): BHP Offer Swiftly Rejected

BHP Group Ltd (BHP AU) made a non-binding indicative proposal to acquire all shares in OZ Minerals Ltd (OZL AU) at A$25/share and was swiftly rejected.
We feel an offer around the A$28.5-A$29/share range would get the OZ Minerals Ltd (OZL AU) Board to open up its books for due diligence.
3.25% of the outstanding shares have been shorted and the stock could trade higher than the BHP offer price. We’d wait for a price around A$25/share to enter.

Lifestyle (1212 HK): Thomas Yau’s Scheme

Thomas Yau, Lifestyle International Holdings (1212 HK)‘s controlling shareholder, is offering to take the company private by way of a Scheme at HK$5/share, a 62.3% premium to last close.
Independent shareholders comprise 23.51% of shares out, therefore the blocking stake at the forthcoming Court Meeting is 2.351% of shares out.
The Offer price is final. No dividends will be paid during the Offer period.

Kinetic&Globalvia/Go-Ahead: Increased Offer

On 4 August, the consortium sweetened the offer by 50p, 3.3%, to 1,550p/share, comprising 1,450p+100p special dividend (conditional upon Scheme becoming Effective); 13.3x Fwd P/E and 7.9x EV/Fwd EBIT.
Still below below the 8.6x EV/Fwd EBIT offered by DWS for Stagecoach, but the market believes that the deal will complete. Irrevocable undertakings plus letters of intent represent 26.86%.
Gross spread is 1.04%, 8.66% estimated annual return (assuming settlement and paying of the special dividend on 22 September). Reiterate long GOG LN.

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Aug 07

Daily Brief Event-Driven: JPX Nikkei 400 Index Rebalance: Some Biggish Impact Stocks and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

JPX Nikkei 400 Index Rebalance: Some Biggish Impact Stocks
Last Week In Event SPACE: SJM, Yashili, Cayman Headcount, ResApp, Honda Tsushin Kogyo
(Mostly) Asia-Pac Weekly Risk Arb Wrap: ResApp, Honda Tsushin Kogyo, Yashili, Link Admin, Lifestyle
Index Rebalance & ETF Flow Recap: NKY, JPXNK400, FTSE CH50/A50/TW50, SenseTime, Orica

JPX Nikkei 400 Index Rebalance: Some Biggish Impact Stocks

There are 36 adds and 34 deletes for the JPX Nikkei 400 Index to bring the number of index constituents back to 400. Some of the changes are interesting.
Based on the adds, deletes and capping changes, we estimate one way turnover of 4.75% and a two-way trade of JPY 444.45bn (US$3.3bn).
Oriental Land (4661 JP) is a delete from the JPX Nikkei 400 Index but a high probability inclusion to the Nikkei 225 (NKY INDEX) at the September rebalance.

Last Week In Event SPACE: SJM, Yashili, Cayman Headcount, ResApp, Honda Tsushin Kogyo

Participate in SJM Holdings (880 HK)‘s Excess Application Auction, though one would need to bid for a fantastically large quantity of shares to get anything, because everyone else will
At a 11% gross spread to terms, and potential 4Q22 completion, Yashili(1230 HK) IS A CLEAR BUY. The world is a bit risk averse and it shows up in spreads.
The ‘headcount test‘ for Cayman-incorporated companies failed to move with the times and address the fact that the majority of shares of Hong Kong-listed companies were held by HKSCC Nominees.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: ResApp, Honda Tsushin Kogyo, Yashili, Link Admin, Lifestyle

There are 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.
One new deal was discussed this week on Smartkarma. Honda Tsushin Kogyo (6826 JP)‘s Tender Offer.
Key updates took place for: Resapp Health (RAP AU), Link Administration (LNK AU), and Yashili International Holdings (1230 HK).

Index Rebalance & ETF Flow Recap: NKY, JPXNK400, FTSE CH50/A50/TW50, SenseTime, Orica

The rebalances of the Philippines Stock Exchange PSEi Index (PCOMP INDEX) and NIFTY100 Index were implemented at the close on Friday.
MSCI will announce the results of the August QIR pre-market on 12 August (Asia time). This is the last QIR to use the current methodology before we move to QCIRs.
There were large outflows from KraneShares CSI China Internet ETF (KWEB US) during the week as investors pulled US$267m from the ETF.

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Aug 06

Daily Brief Event-Driven: Canon (7751) – Second Buyback This Year – Last Happened in 2014 and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Canon (7751) – Second Buyback This Year – Last Happened in 2014
Lifestyle Int’l (1212 HK): Thomas Yau Offer?
NortonLifeLock/Avast: CMA Announces Provisional Clearance
Link Admin: Dye & Durham Offers To Sell Aussie Ops To Appease ACCC
2022 JPX Nikkei 400 Rebal – 36 IN, 34 OUT, 4.9% One Way
Banamex – Now There Are Three Potential Bidders, Still Including Banorte

Canon (7751) – Second Buyback This Year – Last Happened in 2014

Canon Inc (7751 JP) reported Q2 earnings early last week. Shares dropped 4% the next day but closed down only 1%. Now they are above the prior close.
They biked the dividend nicely (was ¥45/share last year, guided to ¥50 this year, but made ¥60/share instead.
And now they have announced another ¥50bn buyback on top of the one announced in May. Fourth time in 14 years a second tranche is announced in one year.

Lifestyle Int’l (1212 HK): Thomas Yau Offer?

Lifestyle International Holdings (1212 HK) was suspended this morning pursuant to Hong Kong’s Takeovers Code.
Thomas Lau is the largest shareholder with 74.97%, as he has been since April 2019.
A possible Offer ahead of a (potentially) improving retail outlook and the imminent opening of its Kai Tak project?

NortonLifeLock/Avast: CMA Announces Provisional Clearance

British competition regulator surprises by provisionally approving the acquisition of Avast by NortonLifeLock; Avast’s share price reacted by increasing by 43%. Now the deal will complete.
If the planned procedures are fulfilled, the purchase of Avast would become effective on 12 September. The Majority cash option should be preferred vs. the majority stock option.
The spread on the majority cash option is 0.87% (tightened from 43.7% prior to the CMA announcement), with a 6.3% estimated annual return.

Link Admin: Dye & Durham Offers To Sell Aussie Ops To Appease ACCC

The ACCC is seeking views on whether Dye & Durham’s proposed sale of GlobalX and the Australian operations of SAI Global, is sufficient to approve Link Administration (LNK AU)‘s takeover.
Separately, the postponed Scheme meeting will be held on the 22 August. The Independent Expert continues to conclude that the Revised Scheme is fair and reasonable.
The proposed date for the announcement of ACCC’s findings is the 8th September, one day prior to the Second Court Date.

2022 JPX Nikkei 400 Rebal – 36 IN, 34 OUT, 4.9% One Way

The Ninth Annual JPX Nikkei 400 Index Review was announced on Friday 5 August. There are 36 Inclusions, 34 Deletions. They are mostly in line with Janaghan Jeyakumar, CFA‘s predictions.
The “BIG SELL” is Oriental Land (4661 JP). The “BIG BUY” is Softbank Corp (9434 JP) as he predicted 11 months ago. There are some down-weights from capping.
Oriental Land is also a potential Nikkei 225 Inclusion as discussed in Nikkei 225 Sep22 Annual Review; Data Final, Predictions Unch’d; Strategy Involved.

Banamex – Now There Are Three Potential Bidders, Still Including Banorte

By Victor Galliano

Santander’s USD6bn offer for Banamex was rejected by Citi as too low, according to press reports; the estimated valuation range for Banamex is now from USD7bn to USD8bn
This leaves Inbursa, the Mifel-Grupo Mexico consortium and Banorte as contenders, with Banorte still a leading contender
We continue to be cautious on Banorte, as its potential M&A success would mean big challenges in terms of capital requirements, along with portfolio de-risking and unpopular cost-cutting

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Aug 05

Daily Brief Event-Driven: SJM Holdings (880 HK) Rights Issue – Capital Raise and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

SJM Holdings (880 HK) Rights Issue – Capital Raise, Unappreciated, but Interesting Trading Dynamics
Hoya (7741) – Record Revenues/Earnings, a Small Buyback, but Nikkei 225 Flows May Dominate
CK Group Wants to Sell Its Stake in AMTD Group
MicroStrategy (MSTR US): Saylor Mirrors Bitcoin’s Fall
ResApp’s Revised Offer from Pfizer Still Faces Headcount Test Risk
FTSE China 50 Index Rebalance Preview: One Change in Range, Couple Others Close
Della Valle/Tod’s: Lowball Minorities Buyout
Bunka Shutter (5930 JP) – Big Buyback Vs Big CB Means No Accretion, Minimal Flow Impact

SJM Holdings (880 HK) Rights Issue – Capital Raise, Unappreciated, but Interesting Trading Dynamics

SJM Holdings (880 HK) announced earnings on Monday and a HK$3bn Rights Issue last night designed to inject capital into Macau gaming licensee SJM Resorts.
An increase in share capital is required to pre-qualify for then tender process where the Macau Govt would allocate a 10-year gaming concession starting 1 Jan 2023.
54.7% SJM Holder/Parent Sociedade de Turismo e Diversões de Macau (STDM) had previously extended a loan to SJM designed to allow SJM to inject capital to SJM Resorts.

Hoya (7741) – Record Revenues/Earnings, a Small Buyback, but Nikkei 225 Flows May Dominate

Hoya Corp (7741 JP) today announced great Q1 earnings and a bullish above-consensus revenue forecast for this fiscal year. It also announced a small share buyback.
However, the dominant factor in flows near-term will be pre-positioning for a possible Nikkei 225 inclusion in September. That is what will push the stock around. In or not.
Hoya has recently outperformed a Peer Basket despite forward expected EPS and EBIT not seeing relative improvement. That suggests some relative risk if it doesn’t get selected for Nikkei 225.

CK Group Wants to Sell Its Stake in AMTD Group

AMTD Digital’s stock price has started to sink and now there are news that the Cheung Kong (CK) Group (HK) wants to sell its stake in AMTD Group Co.
The discussion of the CK Group disposing its stake in AMTD Group altogether is likely to further negatively impact AMTD Digital’s share price.
Li Ka-Shing and his family probably want to distance themselves from all the unnecessary media attention given to AMTD Digital (HKD US) and AMTD Idea Group (AMTD US).

MicroStrategy (MSTR US): Saylor Mirrors Bitcoin’s Fall

Microstrategy Inc (MSTR US)‘s Michael Saylor will now assume the new role of Executive Chairman and Phong Le, MSTR’s President, will serve as the company’s new CEO.
As Executive Chairman, Saylor will focus more on MSTR’s bitcoin acquisition strategy and related bitcoin advocacy initiatives.
With one of the most bullish and influential players in the industry now focusing on crypto, this should be considered bullish, according to some media reports. That’s a desperate takeaway.

ResApp’s Revised Offer from Pfizer Still Faces Headcount Test Risk

Pfizer Inc (PFE US) upped its Resapp Health (RAP AU) offer from A$0.146 per share to A$0.208 per share, in line with the independent expert’s preferred value of A$0.208 per share.
The NO vote camp from defiant retail shareholders forced Pfizer to up its offer. Unfortunately, a vocal NO camp is still present despite Pfizer’s revised higher offer.
At the last close, the gross spread is 9.5%. The risk/reward profile is unfavourable as ResApp is a highly-held retail stock, posing a headcount test risk to the scheme.

FTSE China 50 Index Rebalance Preview: One Change in Range, Couple Others Close

Shenzhou Intl Group Holdings (2313 HK) is a high probability deletion in September, while JD Health (6618 HK) is currently the highest ranked non-constituent stock.
There are a couple of other stocks that are close to the inclusion/exclusion thresholds and price changes over the next few weeks will determine if there are any more changes.
Short interest on JD Health (6618 HK) is high in terms of days to cover and as a percentage of free float. Covering could take the stock higher.

Della Valle/Tod’s: Lowball Minorities Buyout

The Della Valles offer €40/share (1.8 EV/Fwd Sales, c.20% premium) to buy out the minorities (LVMH stays a 10% shareholder). Minimum acceptance condition is 90%, aiming at 60.9% of float.
Tod’s is in turnaround mode (my valuation assumes it’ll be successful). A DCF valuation gives €52.21/share, a break-up valuation could reach €57.12/share, while a simpler 2.0x EV/Fwd Sales throws €43.02/share.
The shares trade above the offer and a sweetening may be needed; the offer price seems cheap on any measure. A template could be the acquisition of Creval. Long.

Bunka Shutter (5930 JP) – Big Buyback Vs Big CB Means No Accretion, Minimal Flow Impact