Event-Driven

China Traditional Chinese Medicine (570 HK)’s monthly update reinforces the bull case. The gross spread has remained uncomfortably high since falling on no news on 26 June.
The monthly update will relieve the bulls, as the consortium has finally made the regulatory submissions. The update stresses that the filing delay is due to an unwieldy consortium.
Potential stumbling blocks remain, which should not be an issue. Nevertheless, the risk (17.7% downside to the undisturbed price)/reward (21.4% gross spread) remains attractive.

Examining the September Reshuffle of the KOSPI Size Index Series

The September KOSPI Size Index rebalancing could bring back the typical price impacts seen over the past decade, unlike the March rebalancing.
The previous rebalancing had anomalies due to newly listed stocks in LARGE and a stronger downward trend in LARGE-to-MID transitions, disrupting the expected price impact.
For September’s rebalancing, fewer distortions are expected compared to March. The NPS Mid to Small Cap fund, a key influence, shows no significant changes in benchmark or AUM.

TCM (570 HK): A Spoonful Of Sugar …

A 14.8% gain month-to-date, including this past Monday’s 6.5% pop – you just knew something positive was taking place behind closed doors. And leaking its way into the public.
So it was no real surprise to read in the latest monthly update announcement on the HKEx that various regulatory approvals are almost, but not quite, satisfied.
The wording in the announcement strikes a positive tone. Even remaining conservative on the timeline, this could be wrapped up before year-end.

Midea Group (000333 CH): Index Implications at US$3bn Issue Size

Midea Group Co Ltd A (000333 CH) has got approval to list on the HKEX (388 HK) and reports are that the listing could be up to US$3bn.
That issue size is around half of the maximum that the company can issue. But it would still need cornerstone investors and a nice discount on the H-shares.
The stock will still get included in some indices even with the scaled down size, and inclusion in Southbound Stock Connect is a given.

Namoi Cotton (NAM AU): Louis Dreyfus Has This Stitched Up

Since Louis Dreyfus Company (LDC) first announced a A$0.51/share Offer, by way of a Scheme, on the 28 November 2023, and Olam Agri countered, there have been significant developments.
Both suitors have now tabled off-market Offers (A$0.67/share from LDC, and A$0.70/share from Olam Agri). Both Offers are open for tendering. Both have extended their closing dates numerous times.
And both suitors have also faced ACCC scrutiny. As of today, only LDC, currently holding a 20.2% stake in Namoi, is in the clear.

Hankook Tire & Technology: M&A of Hanon System Falling Apart?

There are increasing signs that Hankook Tire & Technology’s M&A of Hanon Systems could be falling apart.
The deadline for signing the main M&A contract to purchase a 25% stake in Hanon Systems has been postponed indefinitely.
New contingent liabilities at Hanon Systems have been uncovered during the 10 week due diligence process of Hanon Systems by Hankook T&T.

Porsche Automobile Holding: H1, Model Update, Discount to NAV

By Jesus Rodriguez Aguilar

Porsche SE is trading at a 35.3% discount to NAV, vs. 32.4% long-term average, implying a 68% probability that Porsche SE will be liable for c. €6.5 billion legal claims.
I think this is too harsh. Shares are trading at a Fwd P/E of 2.5x and a dividend yield of 7.8%, which I consider very attractive.
Porsche SE presents an attractive opportunity to gain exposure to Volkswagen and Porsche AG. Porsche SE is focusing on deleveraging which should drive a reduction in the discount.

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Aug 15

Daily Brief Event-Driven: Tax-Loss Selling In Australia 2024: Trade Reversed Is Tale of Two Hedges and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Tax-Loss Selling In Australia 2024: Trade Reversed Is Tale of Two Hedges, Time To Unwind
J Tower (4485) – Once Ambitious, Still High Growth, Sells Itself Low/Cheapish.
JTOWER (4485 JP): DigitalBridge’s 162% Takeover Premium Offer Is Opportunistic
Quiddity Leaderboard MV Jr Gold Miners Sep 24: Mergers Mean Possible Up-And-Out DELETEs
SET50 Index Rebalance Preview: Four Changes & A Few Close Names
Piolax (5988 JP): Murakami Becomes a Substantial Shareholder
BusinessOn Communication (138580 KS): SkyLake’s Delisting Offer
Midea A/H Listing – Getting Closer to the US$3bn+ Raising, Has a Narrow Window

Tax-Loss Selling In Australia 2024: Trade Reversed Is Tale of Two Hedges, Time To Unwind

The theory is that stocks which are down hard FY-to-date by end-April end up being good sells because Australians will harvest their losses into end-June.
The idea is then to buy those oversold names and hold them for 30-40 trading days. That has worked 10 out of the last 12 years hedged vs ASX200.
This year, the “sold-down” list is very heavily weighted to miners. They have continued to fall since end-June so it’s down. But hedged vs a basket of miners? It’s up.

J Tower (4485) – Once Ambitious, Still High Growth, Sells Itself Low/Cheapish.

JTower (4485 JP) IPOed itself Dec-2019 at ¥1,600/share. An 8-bagger in a year, fell by half, doubled, fell 70%, then doubled, fell 35%, up 50%. That’s the first 3yrs.
Since then, the trend has been lower. The stock is down 80+% in 2 years, especially painful after an equity raise at just under ¥5,000 6 months ago.
But the stock today closed at ¥1,430, and the Tender Offer is at ¥3,600. A 150% premium. That’s big, but it may be “too low.” An interesting case.

JTOWER (4485 JP): DigitalBridge’s 162% Takeover Premium Offer Is Opportunistic

JTower (4485 JP) has recommended a tender offer from DigitalBridge Group (DBRG US) at JPY3,600, a 161.8% premium to the undisturbed price of JPY1,375 (13 August).
Despite the hefty takeover premium, the offer is light (compared to historical trading ranges and the recent placement) and opportunistically timed (the share price has fallen 61% since 9 May).
Nevertheless, barring a spurt of activism, the offer should succeed as the required 40.7% minority acceptance rate is not onerous and should be comfortably met by Japanese cross-holders.

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

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

SET50 Index Rebalance Preview: Four Changes & A Few Close Names

Couple of weeks from the start of the review period for the December rebalance of SET 50 Index, we see four potential index changes.
There are a few stocks that are close to the inclusion zone and there could be a reordering among the non-constituents as stock prices move around.
The potential adds have outperformed the potential deletes since the start of the year with most of the outperformance coming over the last 6 weeks.

Piolax (5988 JP): Murakami Becomes a Substantial Shareholder

Murakami’s entities, City Index Eleventh and City Index Third, reported a 5.05% position in Piolax Inc (5988 JP). The purchases were from 11 June to 6 August over 60 days.
Murakami’s average buy-in price over the last 60 days was JPY2,286.61 per share, a 0.7% discount to the last close price.
Murakami’s disclosure suggests two possibilities: the start of an activist campaign or a short-term pump-and-dump play. The former is likely as Piolax is cash-rich with a P/B less than 1x.

BusinessOn Communication (138580 KS): SkyLake’s Delisting Offer

On the 25th July, SkyLake Equity Partners acquired a 46.9% stake from Praxis Capital Partners in BusinessOn Communication (138580 KS), Korea’s leading B2B SaaS company; plus 24.3% from BusinessOn’s management.
SkyLake has now launched a Tender Offer for 28.94% of BusinessOn. The Tender offer price is ₩15,849/share.
Super clean deal. SkyLake will acquire all shares tendered. There is no minimum tendering % condition.

Midea A/H Listing – Getting Closer to the US$3bn+ Raising, Has a Narrow Window

By Sumeet Singh

Midea Group Co Ltd A (000333 CH) one of the world’s largest home appliance producers, aims to raise up to US$3bn in its H-share listing.
Midea Group is one of the world’s largest home appliance manufacturing companies with a presence in over 200 countries. Its A-shares have been listed since 2013.
We have covered the company and deal background in our previous notes. In this note, we talk about the updates since then.

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Aug 14

Daily Brief Event-Driven: To Tender Or Not – Gauging The Future of Sun Corp (6736) and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

To Tender Or Not – Gauging The Future of Sun Corp (6736)
HSCEI/HSTECH/HSIII Index Rebalance Preview: Potential Changes, Flow & Positioning
CPMC Holdings (906 HK): A Carefully Caveated Board Recommendation of Changping Industrial’s Offer
Greatview Aseptic Packaging (468.HK) – The Story Behind The “Hostile Offer”
Orora Ltd (ORA AU) Rejects A$2.55/Share Offer From Lone Star
Quiddity Leaderboard HSTECH Sep 24: Expected ADD and DEL Have 10+ Days to Trade
Tencent to Report 2Q FY24 Results (What Is Priced?), MSC Index Changes for Aug Rebalance Published
Quiddity Leaderboard HSCEI Sep 24: Announcement Soon; Updated Flow Expectations and Trade Idea
Orora (ORA AU): Lone Star’s Opportunistic A$2.55 Offer
DB Hitek: Buying a Golf Course Overshadows Corporate Value Up Efforts

To Tender Or Not – Gauging The Future of Sun Corp (6736)

The revised/final True Wind Tender Offer for up to 19% of Sun Corp (6736 JP) ends this week. With the “excitement” the last two weeks, the SunCorp/CLBT ratio is higher.
The minimum threshold is relatively low. The Tender will most likely succeed with very high pro-ration.
For those on the edge, I discuss possibilities on the back end. It will be less liquid, but that may not be bad.

HSCEI/HSTECH/HSIII Index Rebalance Preview: Potential Changes, Flow & Positioning

The constituent changes for the Hang Seng China Enterprises Index (HSCEI INDEX), Hang Seng TECH Index (HSTECH INDEX) and HSIII Index will be announced after market close on Friday.
We forecast 2 changes for the Hang Seng China Enterprises Index (HSCEI INDEX), 1 change for the Hang Seng TECH Index (HSTECH INDEX) and 3 changes for the HSIII Index.
With same-way and opposing flow on stocks from different passive trackers, the one-way trade is currently estimated at HK$5.2bn (US$672m). That will change with final capping done on 3 September.

CPMC Holdings (906 HK): A Carefully Caveated Board Recommendation of Changping Industrial’s Offer

The CPMC Holdings (906 HK) Board recommends that shareholders accept Changping Industrial’s HK$6.87 offer, which the IFA opines is fair and reasonable.
The Board’s carefully crafted and suitably caveated recommendation acknowledges that shares continue to trade through terms and ORG Technology Co., Ltd. A (002701 CH)’s HK$7.21 offer is higher but preconditional.
Based on ORG’s shareholding/irrevocable and volume traded above terms, Changping Industrial’s offer has little chance of success. It remains a question of when, not if, Changping Industrial will bump.

Greatview Aseptic Packaging (468.HK) – The Story Behind The “Hostile Offer”

By Xinyao (Criss) Wang

The connection between Newjf and Greatview is deep. Newjf expressed an interest in acquiring Greatview early on, but the two parties didn’t reach an agreement. Greatview is not entirely “innocent”.
Newjf’s decision to forcibly acquire Greatview at this moment should be made after careful consideration. Mengniu may not necessarily oppose this merger. Mengniu is likely to take a neutral stance.
Newjf’s Offer is attractive. In the absence of a more realistic action by Greatview to make a higher Offer, we advise investors not to walk away from Newjf’s Offer easily.

Orora Ltd (ORA AU) Rejects A$2.55/Share Offer From Lone Star

Sustainable packaging play Orora Ltd (ORA AU) has “received and has rejected an opportunistic, conditional and non-binding indicative proposal from Lone Star Fund“.
The A$2.55/share Offer (less any dividends declared or payable), by way of a Scheme, was a 33.9% premium to last close. Orora was down 25% YTD, prior to the proposal.
Orora’s FY24 results will be released tomorrow. Expect more commentary on the rejection of Lone Star’s approach in the Q&A.

Quiddity Leaderboard HSTECH Sep 24: Expected ADD and DEL Have 10+ Days to Trade

By Janaghan Jeyakumar, CFA

The HSTECH Index tracks the performance of the top 30 technology companies listed in Hong Kong that have high business exposure to certain technology themes.
There could be one index change during the September 2024 index rebal event. The official results will be announced after market close on 16th August 2024.
In this insight, we take a look at our latest flow expectations based on closing prices on Monday 12th August 2024.

Tencent to Report 2Q FY24 Results (What Is Priced?), MSC Index Changes for Aug Rebalance Published

By Charlotte van Tiddens, CFA

Last night, MSC published index changes due at the August rebalance. There will be no changes to SA constituents.
The rebalance is set to take place at the end of the month on Friday the 30th.
Tomorrow after the HK close, Tencent is expected to report results for 2Q FY24.

Quiddity Leaderboard HSCEI Sep 24: Announcement Soon; Updated Flow Expectations and Trade Idea

By Janaghan Jeyakumar, CFA

The HSCEI serves as a benchmark to reflect the overall performance of the top 50 “Mainland China” securities listed in Hong Kong.
The index changes and indicative weights for the September 2024 index rebal event is expected to be announced after market close on Friday 16th August 2024.
In this insight, we take a look at our latest expectations for capping flows based on current prices.

Orora (ORA AU): Lone Star’s Opportunistic A$2.55 Offer

In response to media speculation, Orora Ltd (ORA AU) disclosed that it had rejected Lone Star’s indicative non-binding proposal at A$2.55 per share, a 33.5% premium to the undisturbed price.
The offer is opportunistically timed to take advantage of the share price collapse precipitating from the profit warning on 2 April.
The Lone Star offer is unattractive and could also draw other suitors. If Lone Star walks, the downside is low, as Orora’s valuation is undemanding compared to peer multiples.

DB Hitek: Buying a Golf Course Overshadows Corporate Value Up Efforts

DB Hitek’s investment in a golf course operating company is a poor investment, one that destroys shareholder value.
Most investors would rather have DB Hitek increase shareholder returns through share buybacks/cancellations and dividends as well as invest in its core semiconductor business rather then buy a golf course.
Given DB Inc’s lack of cash, there is a growing possibility that it will use the proceeds from selling its DB World shares to increase its stake in DB Hitek.

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Aug 13

Daily Brief Event-Driven: Select Sector Indices – HUGE Impact of Proposed Constituent Weighting Changes and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Select Sector Indices – HUGE Impact of Proposed Constituent Weighting Changes
Macquarie Korea Infrastructure Fund: Rights Offering of About 500 Billion Won
Private Equity Examining Ramsay Health (RMC AU). Again.
Hang Seng Index (HSI) Rebalance Preview: Inclusion Candidates for September
HK Connect SOUTHBOUND Flows (To 9 Aug 2024); Tencent the Big Buy Again
KOSDAQ150 Adhoc Index Rebalance: Webzen to Replace Connectwave
CPMC (906 HK) Responds To Champion’s Offer
A/H Premium Tracker (To 9 Aug 2024): Global Market Vol. SB Bought. NB Sold. Premia Down.
Tender Offer of BusinessOn Communications by Skylake Equity Partners
Selected European HoldCos and DLC: July-Aug. 9 ’24 Report

Select Sector Indices – HUGE Impact of Proposed Constituent Weighting Changes

S&P DJI have started a market consultation to change the index weighting methodology for the Select Sector Indices to reduce concentration and avoid reverse turnover.
There is US$281bn tracking the Select Sector Indices from the SPDR ETFs. The market consultation will have a larger impact on indices where there is a high degree of concentration.
The largest inflows are expected in Apple, Conocophillips, Amazon.com and Netflix while the largest outflows will be from Microsoft, NVIDIA, Chevron, Procter & Gamble, Exxon Mobil, Costco Wholesale and Meta Platforms.

Macquarie Korea Infrastructure Fund: Rights Offering of About 500 Billion Won

Macquarie Korea Infra Fund (088980 KS) announced that it is proceeding with a rights offering capital increase of 500 billion won, which represents about 9.4% of its current market cap.
MKIF plans to use higher liquidity increase in the following main areas: Seoul East Underground Expressway – 215 billion won Acquisition of Hanam Data Center – 423 billion won
In the next 6-12 months, we believe MKIF has a solid chance of outperforming KOSPI (on combined capital gains/dividends basis).

Private Equity Examining Ramsay Health (RMC AU). Again.

Back in April 2022, Australia’s largest private hospital operator Ramsay Health Care (RHC AU) announced an unsolicited, non-binding Offer from KKR at A$88.00/share. Arguably, KKR dodged a bullet.
RHC’s share price took another leg down last week after RHC announced weaker-than-expected FY24 earnings; plus a write-down of its European/UK ops. RHC is now ~50% adrift of KKR’s NBIO.
Not altogether surprisingly, various media sources are reporting private equity outfits are (again) running a diagnostic check on RHC.

Hang Seng Index (HSI) Rebalance Preview: Inclusion Candidates for September

Post market close on Friday, Hang Seng Indexes will announce the changes for the Hang Seng Index (HSI INDEX) that will be implemented at the close on 6 September.
With no constituent changes in March and 1 add/1 delete in June, there could be more changes in September with Health Care stocks among the potential inclusions.
Changes to the Hang Seng Industry Classification System (HSICS) will be implemented from the September rebalance and that will alter industry coverage.

HK Connect SOUTHBOUND Flows (To 9 Aug 2024); Tencent the Big Buy Again

SOUTHBOUND was again a net buyer, for HK$15.2bn this week (now 27wks in a row of net buying), on smallish two-way volumes. Better than the previous month but still low.
Bank net buying, which had spiked the previous week, didn’t follow through.
There were three ETFs in the top 15 SOUTHBOUND net buys this past week, reversing last week, which reversed the week before’s flows.

KOSDAQ150 Adhoc Index Rebalance: Webzen to Replace Connectwave

Webzen Inc (069080 KS) will replace Connectwave (119860 KS) in the KOSDAQ 150 Index (KOSDQ150 INDEX) effective 16 August.
There is over 2 days of ADV to trade on both stocks though the flows are not very large.
The Connectwave (119860 KS) delisting will also have an impact on the changes to the KRX New Deal Internet Index in September.

CPMC (906 HK) Responds To Champion’s Offer

On the 30th July 2024, packaging play CPMC Holdings (906 HK) dispatched the Composite Document for the HK$6.87/share, in cash, Offer from SASAC/NCSSF-backed Champion.
The Response Document, including the IFA opinion (with a fair & reasonable conclusion) has now been dispatched.
However, the focus remains on ORG Technology Co., Ltd. A (002701 CH)‘s superior HK$7.21/share Offer, which is currently negotiating the necessary regulatory approvals.

A/H Premium Tracker (To 9 Aug 2024): Global Market Vol. SB Bought. NB Sold. Premia Down.

Delayed this week because of the long (Japanese holiday, which I took for myself) weekend, as were the SOUTHBOUND and NORTHBOUND monitors.
SOUTHBOUND inflow strong. Tencent strong inflows. Net buying every day for two weeks. NORTHBOUND outflows large. Record foreign investor outflows from China’s capital markets this year.
As expected (with AH 20d Premia returns at multi-year highs last week), AH Premia fell slightly, with narrow premia falling more than wide premia. I’d expect more H-vs-A gains.

Tender Offer of BusinessOn Communications by Skylake Equity Partners

On 12 August, Skylake Equity Partners announced a tender offer of 6.58 million shares (28.9% stake) of BusinessOn Communication. The tender offer price is 15,849 won.
BusinessOn is one of the leading digital tax invoice software providers in Korea. It also provides digital contracts, market intelligence, banner advertising, and supply chain management services.
Skylake plans to purchase all of the shares subscribed in this deal, regardless of the subscription rate. If the public offering target quantity is successful, Skylake plans to delist BusinessOn.

Selected European HoldCos and DLC: July-Aug. 9 ’24 Report

By Jesus Rodriguez Aguilar

Discounts to NAV of covered holdcos generally tightened during July and first week of August. Discounts to NAV: C.F.Alba, 45.3% (vs. 44.5% as of end of June);
GBL, 42.2% (vs. 43.6%); Heineken Holding, 16% (vs. 18.4%); Industrivärden C, 2.2% (vs. 2.4%); Investor B, 7.5% (vs. 9.9%); Porsche Automobile Holding, 34.6% (vs. 35.8%), Porsche SE reports 13 August.
Rio DLC spread tightened to 22.1% (vs. 20.7%). What seems interesting: Porsche SE vs. listed assets and the Rio DLC (long RIO LN/short RIO AU).

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Aug 12

Daily Brief Event-Driven: Merger Arb Mondays (12 Aug) – China TCM and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Merger Arb Mondays (12 Aug) – China TCM, Canvest, GA Pack, Fuji Soft, Fancl, Descente, Takiron
Flow Developments to Watch as the Release of the Value-Up Index Approaches
Swire Properties (1972 HK): Buyback to Offset Passive Selling
Lineage (LINE): Year’s Biggest IPO Failed Fast-Entry. Addition Coming Soon.
Taiwan Top 50 ETF Rebalance Preview: One Change Right at the Cusp

Merger Arb Mondays (12 Aug) – China TCM, Canvest, GA Pack, Fuji Soft, Fancl, Descente, Takiron

We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), China Traditional Chinese Medicine (570 HK), Canvest Environmental Protection Group (1381 HK), Malaysia Airports Holdings (MAHB MK), Asia Cement China (743 HK).
Lowest spreads: Fuji Soft Inc (9749 JP), Second Chance Properties (SCE SP), Descente Ltd (8114 JP), C.I. TAKIRON Corporation (4215 JP), Fancl Corp (4921 JP).

Flow Developments to Watch as the Release of the Value-Up Index Approaches

The plan is to select 20 large-cap companies from around 30 with value-up disclosures by late August, then gradually expand the index’s constituents.
Investors seeking both dividends and value-up benefits must buy stocks individually, as ETFs lack tax advantages, potentially triggering fund shifts from dividend ETFs to value-up stocks.
We can target stocks in dividend ETFs not making value-up disclosures, as they may face overhang risk during fund migration to the value-up index.

Swire Properties (1972 HK): Buyback to Offset Passive Selling

Swire Properties (1972 HK) was trending lower on expectations of deletion from a global index in August. Short interest has jumped a lot over the last few months.
The announcement of the buyback last week took the stock higher. The increased real float from the index deletion will be offset by the buyback.
Swire Pacific (A) (19 HK)‘s ownership of Swire Properties (1972 HK) will increase from 82% to 83.5% following the buyback and cancellation of the shares. Privatisation at some point?

Lineage (LINE): Year’s Biggest IPO Failed Fast-Entry. Addition Coming Soon.

By Dimitris Ioannidis

Lineage (LINE US) , with an IPO market cap of ~$18bn failed the fast-entry threshold of both main global indices with the threshold being more than ~$28bn.
Based on the listing date of 25 July 2024, its addition is forecasted for September 2024, December 2024 and February 2025 in US and Global indices.
Lineage (LINE US) is expected to get added to the Top 1000 US companies index with forecasted demand of ~$340m and ~1.3 ADV at close of 20 September 2024.

Taiwan Top 50 ETF Rebalance Preview: One Change Right at the Cusp

Using the last close, there could be one change for the Taiwan Top 50 ETF in September with Pharmaessentia Corp (6446 TT) replacing Nanya Technology (2408 TT).
There is one other constituent that is close to deletion zone while there are a couple of non-constituents that could move into inclusion zone over the next couple of weeks.
Short interest has been dropping in Pharmaessentia Corp (6446 TT) and increasing in Nanya Technology (2408 TT) over the last few weeks.

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Aug 11

Daily Brief Event-Driven: Trend Micro (4704 JP): Evaluating the Privatisation Rumours and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Trend Micro (4704 JP): Evaluating the Privatisation Rumours
Last Week in Event SPACE: Toyota, Swire, Fancl, Barito Complex, Descente
(Mostly) Asia-Pac M&A: Fuji Soft, C.I. TAKIRON, Pacific Smiles, GaPack, Asia Cement, Shinko Electric
Weekly Deals Digest (11 Aug) – GA Pack, Trend Micro, Descente, Fancl, Fuji Soft, C.I. TAKIRON

Trend Micro (4704 JP): Evaluating the Privatisation Rumours

Trend Micro Inc (4704 JP) shares rose 14.8% on Friday after Reuters reported that it is exploring a sale after attracting buyout interest.
The interest is unsurprising due to the weak share price. Since ValueAct disclosed a stake on 8 August 2022, the shares are down 0.7% vs the Nikkei 225’s 23.6% increase.
The lack of a controlling shareholder and increased cybersecurity M&A activity support the buyout interest. A privatisation price is likely to be around JPY9,000. Valuation is undemanding at last close.

Last Week in Event SPACE: Toyota, Swire, Fancl, Barito Complex, Descente

The trade in Toyota Motor (7203 JP)‘s Tender offer Buyback is to understand what YOU can do in your particular position.
Despite Swire Properties (1972 HK)‘s recent share buyback, Swire Pacific (A) (19 HK) is still preferable on a look-through P/B of 0.34x.
Kirin bumps the Offer for Fancl (4921 JP). Given market gyration, it may represent enough of a switching opportunity to let those who still object in principle to re-allocate elsewhere.

(Mostly) Asia-Pac M&A: Fuji Soft, C.I. TAKIRON, Pacific Smiles, GaPack, Asia Cement, Shinko Electric

I tally 46 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Three new deals were discussed this week on Smartkarma: KKR’s tilt for Fuji Soft (9749 JP); and Itochu’s Tenders Offers for Descente (8114 JP) and C.I. TAKIRON Corporation (4215 JP).
Key updates took place on Pacific Smiles (PSQ AU), Greatview Aseptic Packaging (468 HK), L’Occitane (973 HK), Fancl Corp (4921 JP), Shinko Electric Industries (6967 JP), and Isetan Singapore (ISET SP).

Weekly Deals Digest (11 Aug) – GA Pack, Trend Micro, Descente, Fancl, Fuji Soft, C.I. TAKIRON

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: BrainBees Solutions (0172540D IN) and WeRide (WRD US) IPOs.
Event-Driven developments: Greatview Aseptic Packaging (468 HK), C.I. TAKIRON Corporation (4215 JP), Descente Ltd (8114 JP), Fancl Corp (4921 JP), Fuji Soft Inc (9749 JP), Trend Micro Inc (4704 JP).

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Aug 10

Daily Brief Event-Driven: Thoughts On Swire Properties (1972 HK)’s Buyback and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Thoughts On Swire Properties (1972 HK)’s Buyback
Trend Micro (4704) Up For Sale? Would Be a HUGE Buyout But How Huge? And Who?
Targeting Spreads by Leveraging the High Predictability of the Celltrion Merger
Block Deal Sale of About 98 Billion Won Worth of Acushnet Holdings by Fila Holdings
Reddit (RDDT): Post-IPO Inclusion in US & Global Indices
EQD | The HSI Rebound Can Reach Higher Prices in August

Thoughts On Swire Properties (1972 HK)’s Buyback

Swire Pacific (A) (19 HK), 82%-held Swire Properties (1972 HK), and Cathay Pacific Airways (293 HK) all announced interim results this week.
Of interest was Swire Prop announcing a HK$1.5bn share buyback. Shares popped 12% on the news.
Swire Pac remains cheap on a look-through P/B of 0.34x. However, the implied stub and simple ratio (Pac/Props) have just rolled over from multi-year peaks.

Trend Micro (4704) Up For Sale? Would Be a HUGE Buyout But How Huge? And Who?

A Reuters article overnight says Trend Micro might be up for sale. This caused the ADRs to jump 10% overnight. The remaining co-founders are 65 and 70 this year.
The stock has effectively gone sideways the last few years as Value Act has been activisting. Now one has to exercise one’s imagination to think about a possible sale price.
On a DCF basis, a PE fund couldn’t reasonably do this. Multiples are too high. That means a strategic buyer would be more likely. But Who? Why? And How much?

Targeting Spreads by Leveraging the High Predictability of the Celltrion Merger

Local market views Celltrion’s shareholder survey as the start of the merger process, with a decision expected from the boards within two to three months if there’s no major opposition.
Under Korean law, if Celltrion Pharm’s market cap is under one-tenth of Celltrion’s, the merger can proceed as a small-scale merger, allowing Celltrion to avoid shareholder approval and appraisal rights.
We should leverage the merger’s high predictability to proactively target merger swap and appraisal rights spreads and build a strategy in advance.

Block Deal Sale of About 98 Billion Won Worth of Acushnet Holdings by Fila Holdings

Fila Holdings announced that its subsidiary Magnus Holdings plans to sell a 1.8% stake in Acushnet Holdings in a block deal sale worth about 98 billion won.
Our NAV valuation of Fila Holdings suggests an implied value per share of 49,192 won, representing 18.2% upside from current levels. Fila Holdings’ 51.9% stake in Acushnet Holdings.
The block deal sale of Acushnet Holdings by Magnus Holdings is likely to have a positive impact on Fila Holdings as it could result in higher capital returns to shareholders.

Reddit (RDDT): Post-IPO Inclusion in US & Global Indices

By Dimitris Ioannidis

Reddit (RDDT US) is ineligible for inclusion for the upcoming August review because of fcap failing the fcap threshold if it qualifies for the standard segment.
Reddit (RDDT US) is ineligible for inclusion for the upcoming September review because of failing the minimum public voting rights threshold.
The IPO lock-up expiry increases the probability for inclusion in November and December review for US and Global indices. Forecasted demand in December is ~$360m and 2.1 ADV.

EQD | The HSI Rebound Can Reach Higher Prices in August

By Nico Rosti

In a previous insight we forecasted a rally for the Hang Seng Index in August. The picture has not changed, a positive close above 17344.60 is still possible.
Looking at our MRM SHORT WEEKLY model for the HSI we can see that it has not yet reached overbought levels, so it could rise further in the next weeks.
Conversely a SHORT trade will be possible from the levels we will indicate below.

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Aug 09

Daily Brief Event-Driven: StubWorld: Barito Renewables Rolling Over – More To Come. Also Kyocera/KDDI and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

StubWorld: Barito Renewables Rolling Over – More To Come. Also Kyocera/KDDI
KKR ¥8,800 Takeover of Fuji Soft (9749) – Details and Arb Grid
Trading Opportunities from the Rise of Sector Pairs Trading Using SSFs & MM Unwinding at Expiry
Fuji Soft (9749 JP): KKR Pre-Conditional Tender Offer at JPY8,800
Tata Motors (TTMT IN): Index Impact of DVR Cancellation
SK Innovation: Considering on Using Its Treasury Shares to Inject Capital into SK On
Quiddity Leaderboard F100/250 Sep 24: High-Impact F250 Potential ADDs Could Outperform the Index

StubWorld: Barito Renewables Rolling Over – More To Come. Also Kyocera/KDDI

Barito Renewables Energy (BREN IJ) is down 19% in the past month. But still accounts for ~730% of parent Barito Pacific (BRPT IJ)‘s market cap. Still unsustainable.
Preceding my comments on the Barito complex AND the Kyocera Corp (6971 JP) / KDDI Corp (9433 JP) Holdco, are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation (sub/parent) >20%.

KKR ¥8,800 Takeover of Fuji Soft (9749) – Details and Arb Grid

KKR has announced its previously leaked takeover of Fuji Soft Inc (9749 JP). Two activists with 30+% between them have agreed to tender at ¥8,800.
Given what the founder, crossholders, and other arbs own, this gets done easily. Congrats on the win to the activists.
We will see more activism and more pressure on under-earning companies to go private to clean themselves up outside the public eye. Big opportunities for years.

Trading Opportunities from the Rise of Sector Pairs Trading Using SSFs & MM Unwinding at Expiry

Trading opportunities arise when overseas traders’ SSF positions face unwinding by local market makers, who enter SSF positions and take opposing spot positions, unwinding at expiry.
August-Expiry SSF data shows reverse flow impact by local market makers today, with varying degrees of impact per stock but an observable overall trend.
With ongoing market volatility in Korea, consider setups targeting price impacts from reverse flows of sector pairs trading on the next SSF expiration date.

Fuji Soft (9749 JP): KKR Pre-Conditional Tender Offer at JPY8,800

Following media reports, Fuji Soft Inc (9749 JP) announced a pre-conditional tender offer from KKR at JPY8,800 per share, a 1.0% discount to the last close price of JPY8,890 (8 August).
The pre-condition is approvals under competition laws of Japan, Vietnam and possibly Belgium. The offer is anticipated to commence in mid-September.
The offer is a knockout bid and the culmination of an auction process. The board’s recommendation and the irrevocables from activist shareholders ensure this deal is done.

Tata Motors (TTMT IN): Index Impact of DVR Cancellation

The Tata Motors Ltd (TTMT IN) / Tata Motors DVR (TTMT/A IN) scheme of arrangement has received shareholder approval and regulatory approvals and should be implemented in the short-term.
There will be small buying from global passive trackers while there will be much bigger buying from NIFTY Index (NIFTY INDEX) and S&P BSE SENSEX Index (SENSEX INDEX) trackers.
In total, we estimate passive trackers will need to buy 25.2m shares (US$308m; 1.9x ADV) of Tata Motors Ltd (TTMT IN) with buying coming in at different times.

SK Innovation: Considering on Using Its Treasury Shares to Inject Capital into SK On

SK Innovation is considering on using its treasury shares to inject capital into its EV battery making subsidiary SK On.
The appraisal rights exercise price is 111,943 won per share (15% higher than current price). Many minority shareholders are likely to exercise their appraisal rights in SK Innovation.
We remain Bearish on SK Innovation. We continue to be negative on the SK Innovation and SK E&S merger. Plus, we are concerned about the continued weakness at SK On.

Quiddity Leaderboard F100/250 Sep 24: High-Impact F250 Potential ADDs Could Outperform the Index

By Janaghan Jeyakumar, CFA

In this insight, we take a look at the potential index changes for F100 and F250 in the run-up to the September 2024 index rebal event.
There could be up to three M&A-related intra-review changes in the next few weeks.
Apart from that, there could be two changes for the F100 index and two other changes for the F250 index during the September 2024 review.

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Aug 08

Daily Brief Event-Driven: JPX Nikkei 400 Index Rebalance: A Bunch of Chunky Adds & US$6bn Trade and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

JPX Nikkei 400 Index Rebalance: A Bunch of Chunky Adds & US$6bn Trade
Alibaba (9988 HK/BABA) Dual Primary Listing: Are We There Yet?
Fuji Soft (9749 JP): A Rumoured KKR-Sponsored MBO
JPX-Nikkei 400 Rebal Aug 2024 – 44 IN, 41 OUT, ¥500bn of Capping, Just Under ¥1trn to Trade
China: Passive Selling Expected Later This Month
EURO STOXX 50: Exclusion by Sector
[JAPAN ACTIVISM] KKR Reportedly Plans Takeover of Fuji Soft (9749) – Relief from Activist Pressure
MSC Aug 24 Rebalance: South Africa Post-Election Tailwind? MRP, ARI Potential Adds
CR Sanjiu (000999.CH) To Acquire Tasly Pharma (600535.CH) – SOEs Have High Enthusiasm for TCM Assets

JPX Nikkei 400 Index Rebalance: A Bunch of Chunky Adds & US$6bn Trade

There are 44 adds/41 deletes for the JPX Nikkei 400 Index to bring the number of index constituents back to 400. There are stocks with multiple days ADV to trade.
Based on the adds, deletes and capping changes, we estimate one way turnover of 7.9% and a round-trip trade of JPY 880bn (US$6bn).
The adds have outperformed the deletes over the last year though that has been faded over the last couple of months. Breaking with history, there could be outperformance near-term.

Alibaba (9988 HK/BABA) Dual Primary Listing: Are We There Yet?

In its last update, Alibaba Group announced that the company was preparing for its primary listing in Hong Kong and the process was expected to complete by the end August.
The Board meets on 14 August to approve results for the three months ending June. Could there be an announcement on the dual primary listing too?
Mainland Chinese own between 3.5%-15.5% of companies that converted from Secondary to Dual-Primary in the last few years. Similar buying in Alibaba could take the stock higher from here.

Fuji Soft (9749 JP): A Rumoured KKR-Sponsored MBO

Nikkei and Bloomberg report that Fuji Soft Inc (9749 JP) will be privatised through a KKR-sponsored MBO at a price just below JPY9,000, a 21.8% premium to the last close.
The rumoured privatisation proposal is the culmination of a sale process initiated by 3D Investment Partners, the largest shareholder, in September 2023.
The Board will meet tomorrow to discuss the proposal. The rumoured offer represents an all-time high and a knockout bid, suggesting a done deal if a binding proposal materialises.

JPX-Nikkei 400 Rebal Aug 2024 – 44 IN, 41 OUT, ¥500bn of Capping, Just Under ¥1trn to Trade

Janaghan Jeyakumar, CFA who does the predictions for this index got 10/10 of his high conviction names, 8/10 of his medium conviction, and 50% of low conviction ADDs.
This year, there are fewer caps but some big ones. Nearly ¥500bn of capping flow to sell.
I see just over $6.3bn in buying and selling to be done. A half dozen names with both high ADV impact to buy and decent size.

China: Passive Selling Expected Later This Month

The China equity markets have continued to trade lower with the CSI 300 Index outperforming other mainland indices as the National Team continues to pump money into ETFs tracking the index.
We currently estimate selling of around US$1.39bn across 74 stocks listed on the mainland and in Hong Kong. There could be fewer deletions depending on the review date chosen.
The potential deletes have dropped a lot since the start of the calendar year with big underperformance versus the HSCEI Index, CSI 300 Index and CSI Smallcap 500 Index.

EURO STOXX 50: Exclusion by Sector

By Dimitris Ioannidis

Cap Gemini SA (CAP FP) is estimated to be excluded from the selection list in the long-run due to being pushed way above 60% coverage in the Technology sector.
Merck KGaA (MRK GR) switches between in and out of the selection list because it fluctuates close to the 60% coverage of the Health Care sector.
Nokia OYJ (NOKIA FH) has a higher probability of deletion from SX5E if Merck KGaA (MRK GR) qualifies to the selection list. Forecasted passive fund supply is ~15 ADV.

[JAPAN ACTIVISM] KKR Reportedly Plans Takeover of Fuji Soft (9749) – Relief from Activist Pressure

Last year into early 2024, Fuji Soft Inc (9749 JP) – partially at the prodding of 3D Investment Partners – took in 4 subs and conducted a strategic review.
In January, I explored the situation here suggesting the stock had run, FujiSoft needed to liquidate more assets, but a PE firm would look at a valuation of ¥600bn.
Last night, the Nikkei reported that US PE Firm KKR planned to take Fuji Soft private with a TOB valued at ¥600bn. Limit up will take us to ¥560bn+.

MSC Aug 24 Rebalance: South Africa Post-Election Tailwind? MRP, ARI Potential Adds

By Charlotte van Tiddens, CFA

MSC indices are due for rebalancing in the closing auction on Friday the 30th of August. Constituent changes will be announced after the close next week Monday.
In this note we flag Mr Price Group Ltd (MRP SJ) & African Rainbow Minerals (ARI SJ) as possible additions to the MSC SA index.
Since our last discount update on the 22nd of July, Prosus has underperformed Naspers. The discount has widened by 1.7 percentage points to 39.6%.

CR Sanjiu (000999.CH) To Acquire Tasly Pharma (600535.CH) – SOEs Have High Enthusiasm for TCM Assets

By Xinyao (Criss) Wang

China Resources Sanjiu plans to acquire 28% stake in Tasly for RMB6.21 billion at RMB14.85/share. The acquisition of Tasly is in line with the strategic direction of 14th Five-Year Plan.
China Resources is positioned as a leading enterprise in modern industrial chain of TCM by the SASAC.Due to policy support, TCM assets are more likely to be favored by SOEs.
The deal is positive for Tasly, whose valuation has room to rise further, but the market seems “skeptical” about China Resources Sanjiu’s decision, leading to a lackluster share price reaction.

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Aug 07

Daily Brief Event-Driven: Thinking About The Toyota Tender Offer Buyback and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Thinking About The Toyota Tender Offer Buyback
Go-To Arbs Amid Market Carnage
Technology Select Sector Index (XLK US): Market Consultation to Avoid Reverse Turnover (NVDA/AAPL)
Fancl (4921 JP): Kirin (2503 JP) Relents and Bumps to JPY2,800
Doosan Group Revises Merger Report and Increasing Probability of Merger Getting Cancelled
How Has the Index Rebalance Strategy Performed During Market Turmoil?
GA Pack (468 HK): Stalemate Broken as Management Considers a Possible Counteroffer
The Unusual Flow Trading Development Caused by SK Innovation’s Appraisal Rights Premium
GAPack (468 HK)’s Co-Founders (Almost) Walk The Walk
Sapporo Holdings: Investor Activism Sparks Short-Term Gains, Tax Reforms Ensure Long-Term Success

Thinking About The Toyota Tender Offer Buyback

In May when shares were trading near ¥3,500-3,600, Toyota announced a ¥1trln buyback. When shares fell, they announced a Tender Offer Buyback at a large discount (¥2,781/share).
Subsequently, the shares fell very sharply on Thursday 1 August, then again Friday and yesterday. That put shares WELL below the Tender Offer Price. That creates possible opportunity.
This insight discusses modalities (talk to your advisor for specific advice/info) who might do what and why. It sets parameters. But I think Toyota is cheap here.

Go-To Arbs Amid Market Carnage

As global market roil, clean M&A deals come into focus.
This insight briefly summarises those transactions in Asia/Oceania which are expected to comfortably complete, irrespective of the background noise.
Standout deals include APM Human Services (APM AU), Huafa Property Services Group (982 HK), Alps Logistics (9055 JP), I’Rom Group (2372 JP), and Arvida (ARV NZ).

Technology Select Sector Index (XLK US): Market Consultation to Avoid Reverse Turnover (NVDA/AAPL)

NVIDIA Corp (NVDA US) and Apple (AAPL US) switched positions in June setting off huge flows. Those flows could reverse in September if the current index methodology is used.
To avoid frequent reverse turnover, S&P DJI have started a market consultation to change the index weighting methodology. We believe feedback will be positive and the proposals will be approved.
Apple (AAPL US) will have inflows in September while there will be outflows from Microsoft Corp (MSFT US) and NVIDIA Corp (NVDA US).

Fancl (4921 JP): Kirin (2503 JP) Relents and Bumps to JPY2,800

Kirin Holdings (2503 JP) has increased the Fancl Corp (4921 JP) tender offer price by 4.1% to JPY2,800 and extended the offer period to 28 August. The price is final.
Kirin tried to get the required acceptances by refusing to bump and extending the offer period. However, these tactics failed, as the shares continued to trade above terms.
The Board twice asked Kirin to raise its offer higher than JPY2,800, but eventually recommended the revised offer. Nevertheless, the bump should be sufficient for Kirin to succeed.

Doosan Group Revises Merger Report and Increasing Probability of Merger Getting Cancelled

On 6 August, the Doosan Group announced a revised merger report. Despite some changes in the merger report, there was no change the merger ratios.
Many minority shareholders of Doosan Enerbility and Doosan Bobcat are likely to oppose this merger. The net result is an increasing probability that this merger gets cancelled, in our view.
Doosan Enerbility has set aside about 600 billion won for exercise of appraisal rights and if it exceeds this amount, the merger may be cancelled.

How Has the Index Rebalance Strategy Performed During Market Turmoil?

The market turmoil over the last few trading sessions has not been kind to a simple index rebalance strategy of buying the forecast adds and selling the forecast deletes.
The overall returns and stock specific returns indicate that trades are more crowded in some indices as compared to others and traders should consider that when position sizing.
Anecdotally, periods of negative returns are followed by periods of strong returns for the strategy as weak hands are shaken out of their positions.

GA Pack (468 HK): Stalemate Broken as Management Considers a Possible Counteroffer

Greatview Aseptic Packaging (468 HK) disclosed that Mr Bi Hua Jeff (CEO) and Mr Hong Gang (co-founder) are contemplating a possible voluntary conditional offer. The terms and conditions were not disclosed.
Due to the recent AGM protest votes, management needed to provide a credible alternative to shareholders to ensure that Shandong Xinjufeng Technology Packaging (301296 CH)’s offer failed.
Shandong Xinjufeng’s likely game plan is to wait for a binding counteroffer, focus on satisfying the preconditions, and requisition an EGM again to get Board representation.

The Unusual Flow Trading Development Caused by SK Innovation’s Appraisal Rights Premium

Exceeding the ceiling doesn’t cancel the merger; SK Innovation can still proceed. With their decision confirmed, focus should shift to appraisal rights flows rather than cancellation risk.
We should focus on flow trading given the notable exercise size and potential for unprecedented market activity if institutions, including the NPS, exercise their rights due to the juicy premium.
The large exercise size and SK Innovation’s KOSPI large-cap status may create unique flow trading opportunities, with potential repurchases after new shares list.

GAPack (468 HK)’s Co-Founders (Almost) Walk The Walk