Brief Consumer: Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO and more

In this briefing:

1. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO
2. Nintendo Offering & Buyback: The Import & The Dynamics

1. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO

In this version of the GER weekly research wrap, we assess the controversy surrounding potentially inflated revenue concerns for Best World International (BEST SP) . Secondly, we dig into the latest M&A situation for Graincorp Ltd A (GNC AU) amidst a testy AGM and a slow resolution to a binding bid which may limit a bump. In addition, we update on the KKR bid for MYOB Group Ltd (MYO AU) which Arun contends is unlikely to receive a counter bid due to KKR’s blocking stake. Finally, we initiate on the IPO of hotelier Zhejiang New Century Hotel Management Group (ZHEKAIH HK).  A calendar of upcoming catalysts is also attached. 

More details can be found below. 

Best of luck for the new week – Rickin, Venkat and Arun

2. Nintendo Offering & Buyback: The Import & The Dynamics

On Friday 22 February 2019 after the close, Nintendo Co Ltd (7974 JP)announced (J) a Secondary Shares Uridashi Offering of 2,428,700 shares by five shareholder banks, with an overallotment of 364,300 shares. This will be a little bit over 2% of shares outstanding. 

Applying a hypothetical 4% discount to the last traded price of ¥30,030/share, this is an ¥80bn Offering including greenshoe. 

On the same day, Nintendo announced (E) a share buyback program to buy up to 1 million shares or up to ¥33 billion worth (whichever is reached first) to last from the business day immediately following the delivery date of the Offering shares (practically speaking, a day on or between 13 March and 18 March 2019) to 12 April 2019. Based on an average daily volume traded of 2.2mm shares, 10% participation would mean the buyback would take 5 days to complete. 5% would take 9 days. The company also announced (E) it would cancel 10 million shares on 29 March 2019. That may only be 45% of the post-buyback treasury share position, but it leads to another event investors should watch.

This is the first buyback Nintendo has announced in five years. The Nikkei article discussing the situation suggests that the possibility of supply/demand being weak is the reason for the buyback. The stated reason for the Offering as proposed by Nintendo in its Offering announcement, suggested a goal of increasing and diversifying the shareholder base.

The real reason why this selldown is happening – also noted in the Offering Document “reason for the offering” – is because of the heightened focus on policy cross-holdings highlighted in the changes to the Corporate Governance Code (especially Principle 1.4) which went live June 1 2018. The major changes were discussed in Japan’s Corporate Governance Code Amendments – A Much Bigger Stick for Activists and Stewards at that time, but the hint of how this might play out was discussed in Japan Crossholdings: Japan Exchange’s Sale of SGX Shares Sets A Precedent – Watch Closely from 1 April 2018. In an announcement after the close on the last day of the last fiscal year, Japan Exchange Group (8697 JP) announced it would sell down its 4.95% stake in Singapore Exchange (SGX SP) over the space of three years. 

The fact that JPX was selling the shares was not important. The reasoning was. And JPX provided an example of how it should be done (as explained in the insight). 

My words then still stand.

And JPX provided an example of how it should be done (as explained in the insight). The ramifications are significant.

The ramifications of this Offering are significant too. This is a lot more than just an offering by entities looking to take profits.