Brief Consumer: LG Uplus – CJ Hello Acquisition: Current Yield Is 10%, CJH Overhang Concerns Will Push It Up and more

In this briefing:

1. LG Uplus – CJ Hello Acquisition: Current Yield Is 10%, CJH Overhang Concerns Will Push It Up
2. Ab InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China

1. LG Uplus – CJ Hello Acquisition: Current Yield Is 10%, CJH Overhang Concerns Will Push It Up

• LG Uplus Corp (032640 KS) actually pays ₩800bil (not ₩1tril) for the controlling stake of CJ Hello (037560 KS) from CJ ENM (035760 KS). LG Uplus gets not all of the shares owned by CJ ENM. It gets a total 38,723,433 shares. This is 50% + 1 share. Cost per share is ₩20,659. This is a 107% premium.
• I suggested a long/short trade on LGU+/CJH starting this Monday on the grounds that their MC ratio should revert back to above 10. This trade is paying off very handsomely now. Current yield stands at 10.5%. But I wouldn’t close this position yet.
• CJ ENM still owns nearly 4% CJH stake. SKT owns 8.61%. Neither of them has any reason to retain these shares. LG Uplus doesn’t seem to be interested in getting any of these additional shares. This means one thing. It is very likely that CJH will suffer huge stock overhang concerns.
• Not only that, merger between them is inevitable. The LGU+/CJH MC ratio should be reverted back to 10. The MC ratio is now at 8.4. We still have more room on this. I expect it to reach at least near 9 level in very near future. I’d hold onto this position until then.

2. Ab InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China

Anheuser Busch Inbev Sa/Nv (ABI BB), the world’s largest brewer, is looking to list its Asian operations in order to lighten its debt burden. The listing will probably be in Hong Kong and the company could raise around US$5bn at a valuation of around US$70bn, as per media reports, which will make it one of the largest listings for 2019. Earlier this month, the company picked JPM and MS to lead the deal.

When listed, the company will be the third biggest brewer in China and the largest in South Korea and Australia.

While we have to wait for the application proof to be filed later this year to get more details on the operations, in this insight I’ll take a early look at the Asian operations using the data already available in the parent’s annual and quarterly reports. I’ll primarily address where the business is now and how it has shaped up over the past few years.