In today’s briefing:
- Allkem/Livent (AKE AU | LTHM US) Merger Of Lithium Equals Has Index Surprises
- Allkem (AKE AU) & Livent (LTHM US) In a Merger of Equals: Index Implications
- HDFC/HDFCB Merger: Impact on Bank Nifty
- MitCorp (8058 JP) Earnings and Buyback – Shareholder Structure Matters
- TOPIX Inclusions: Who Is Ready (May 2023)
- Allkem (AKE AU): Merger of Equals with Livent (LTHM US)
- ZUIKO (6279 JP) Move to TSE Prime and TOPIX – Again, Shareholder Structure Matters
- Overlooked Aspects of KG Mobility’s Passive Flow Trading Opportunities: KOSPI 200 & KRX Auto
- Rocket Software (Bain) Ups the Game
Allkem/Livent (AKE AU | LTHM US) Merger Of Lithium Equals Has Index Surprises
- Today, after the close, ASX-listed Allkem Ltd (AKE AU) (formerly known as Orocobre, which merged with Galaxy Resources in 2021) announced it would merge with Livent (LTHM US).
- At US$10bn, this “merger-of-equals” NEWCO (pro-forma US$1.9bn revenue, US$1.2bn EBITDA), with NYSE primary listing and foreign entity listing on the ASX, would be a global lithium player. Deal closing end-2023.
- The doc (243 pages) and presentation (42p) are worth reading. There are interesting index effects, and there may be “Lithium Risk” in this deal for arbs, but it looks good.
Allkem (AKE AU) & Livent (LTHM US) In a Merger of Equals: Index Implications
- Allkem Ltd (AKE AU) and Livent (LTHM US) are combining in an all-stock merger of equals to create a global lithium chemicals producer.
- Allkem Ltd (AKE AU) shareholders will receive 1 NewCo share for each Allkem share held while Livent (LTHM US) shareholders will receive 2.406 NewCo shares for each Livent share held.
- The merger will have implications for the stocks in the MSCI, S&P/ASX, thematic, and other global indices at the time of implementation.
HDFC/HDFCB Merger: Impact on Bank Nifty
- The HDFC Bank (HDFCB IN) / HDFC Limited (HDFC IN) merger will result in capping and funding changes on the Nifty Bank Index (NSEBANK INDEX) constituents.
- We estimate one-way turnover of around 8.4% resulting in a one-way trade of INR 21,865m (US$266m) at the time of merger implementation.
- The impact in terms of ADV is less than 1x on all stocks, but the impact in terms of delivery volume is higher than 1x on a few stocks.
MitCorp (8058 JP) Earnings and Buyback – Shareholder Structure Matters
- Mitsubishi Corp (8058 JP) yesterday announced earnings, forecast for FY23, higher dividend guidance, and a buyback. The headline number is 6% of shares and ¥300bn (which is nearer 4% now).
- ¥200bn of that ¥300bn is actually FY2022 “Additional Return” tacked onto a ¥100bn buyback for this year (FY23).
- As is often the case, Shareholder Structure Matters. Because Berkshire Hathaway owns a large chunk of stock (7.4% according to interviews), that carves out a fair chunk not for sale.
TOPIX Inclusions: Who Is Ready (May 2023)
- Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
- CELSYS (3663 JP) (formerly known as “Artspark”) is a name we have been Bullish on in the last few months as it was a high-probability TOPIX Inclusion candidate.
- In the last couple of trading days, the stock has popped more than 30%. In this insight, we take a closer look at this situation.
Allkem (AKE AU): Merger of Equals with Livent (LTHM US)
- Allkem Ltd (AKE AU) and Livent (LTHM US) announced a merger of equals. AKE shareholders receive 1 NewCo share per AKE share, LTHM shareholders get 2.406 NewCo shares per LTHM share.
- The transaction is expected to close by the end of calendar year 2023 subject to shareholder (AKM and LTHM) and regulatory approvals.
- The merger is sensible as NewCo will have scale, synergies and capital efficiency. AKE shareholders benefit from an attractive merger ratio and potential rerating from a US listing.
ZUIKO (6279 JP) Move to TSE Prime and TOPIX – Again, Shareholder Structure Matters
- Diaper-Making machine maker Zuiko Corp (6279 JP) late last year introduced a shareholder benefit coupon program, and the stock has flown. Earnings improved from the trough too.
- Now that the market cap is high enough, the company has applied to, and is now approved, to join TSE Prime, which means a TOPIX inclusion at end-June 2023.
- With 30 days of 6mo ADV, and much more of longer average ADV, this looks like a win, but there are…. considerations. Shareholder structure matters. Yet again.
Overlooked Aspects of KG Mobility’s Passive Flow Trading Opportunities: KOSPI 200 & KRX Auto
- KG Mobility belongs to the Consumer Discretionary sector, and if we consider its market cap on April 28th, it comfortably qualifies for inclusion in KOSPI 200 in the upcoming review.
- Although the KOSPI 200 eligibility rules do not explicitly prohibit a stock based on such short trading periods, there is a chance that KRX might exercise its discretionary provision (6.1.2).
- There is another significant event approaching us. As per current market cap levels, there is a high chance of KG Mobility being included in the KRX Auto Index in September.
Rocket Software (Bain) Ups the Game
- Bain goes mildly hostile, with a €34/share indicative offer (20.5x EV/Fwd EBIT on IBES consensus), above 11.1x last-10y average. Further, if it fully succeeded, it’d raise to €36/share (21.6x).
- Software AG dislikes the improved indicative offer. The situation reminds of the battle for Caverion Corp (CAV1V FH), now being played, in which precisely Bain has been the unexpected loser.
- At this point, it seems Silver Lake will have to raise its offer again. I raise my TP to €34. Long (possible upside to Bain’s €36/share, 6.1% gross).
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