In today’s briefing:
- Denso Corp Placement – Quick Update – In Better Shape Now, Size Concern Remains
- A Review of Tender Offers of Korean Companies in 2023
- Exploring the Possibility of an LG Energy Solution Block Deal
- Softbank (9984 JP): Adding a Strengthening JPY to the Mix
- SIG/CWG Merger: Back Door Entry to the ASX200; Other Index Implications
- Sigma Healthcare (SIG AU): Chemist Warehouse’s Reverse Takeover
- Costa Group (CGC AU): Wide Spread Ahead of the 30 January Vote
- Hollysys (HOLI US): Questionable Process Results in Ascendent’s Winning US$26.50 Bid
- Costa Group’s Shareholder Vote Set. Get Involved
- KKR/Smart Metering Systems: Agreed Cheap Offer
Denso Corp Placement – Quick Update – In Better Shape Now, Size Concern Remains
- On 28th Nov 2023, Toyota Motor (7203 JP) announced that it would sell around 9.4% of Denso Corp (6902 JP) in order to reduce its cross-shareholding.
- The shares hadn’t corrected much till our last note on 7th Dec 2023, they have since corrected by 6% .
- We have covered the deal background and deal dynamics in our earlier notes. In this note, we talk about the recent share price movement, as compared to prior deals.
A Review of Tender Offers of Korean Companies in 2023
- We review the major tender offers of Korean companies in 2023. Some of the major M&A tender offers that have closed this year include Osstem Implant and SM Entertainment.
- Among the 15 companies targeted for tender offers, there are 5 companies including Osstem Implant, SM Entertainment, Lutronic Corp where the purpose of the tender offers is for M&A.
- There were a total of 18 companies that submitted tender offer results announcements in 2023 (as of 11 December), up 157% YoY.
Exploring the Possibility of an LG Energy Solution Block Deal
- The prevailing sentiment in Yeouido signals a shift of companies, originally preparing for EB issuances, toward block deals. Local brokerages are competing to identify potential block deals involving major issuers.
- The local market anticipates LG Chem opting for a short-term block deal, considering the potential reduction of the LG Energy stake below 80% to alleviate global minimum corporate tax burdens.
- Timing is a challenge, but based on corrections before July’s EB issuance, we could proactively plan for January. Abundant liquidity in LG Energy’s futures eases trading instrument concerns.
Softbank (9984 JP): Adding a Strengthening JPY to the Mix
- In 1HFY23, a weak JPY – with it having depreciated from JPY132 to JPY149 to the USD – has actively supported the group’s valuation, contributing 12% to SoftBank group’s NAV
- The BoJ is looking to tighten monetary policy, whilst all other major central banks are set to cut rates; under this scenario, it is likely for the JPY to strengthen
- Softbank shares trade at a 51%+ stated NAV discount yet we believe that there is downside risk to at least Arm’s high valuations, which could tighten the discount significantly
SIG/CWG Merger: Back Door Entry to the ASX200; Other Index Implications
- Sigma Healthcare (SIG AU) has announced a potential merger with Chemist Warehouse Group (CWG) to create a leading healthcare wholesaler, distributor and retail pharmacy franchisor.
- With a market cap of ~A$8.5bn and a free float market cap of ~A$4bn, the merged company will make the cut for inclusion in the S&P/ASX 200 (AS51 INDEX).
- Inclusion in the S&P/ASX 100 Index looks just out of reach at the moment as does inclusion in some large global indices.
Sigma Healthcare (SIG AU): Chemist Warehouse’s Reverse Takeover
- Privately-Held Chemist Warehouse’s (CWG) “transformational merger” with pharmaceutical wholesaler and franchisor Sigma Healthcare (SIG AU) will result in CWG’s shareholders holding 85.75% of the merged company.
- CWG shareholders will receive A$700mn in cash plus new Sigma shares. Sigma will also undertake a $400mn equity raising to fund working capital needs.
- Sigma has the backing of its largest shareholder HMC. The risk to completion pivots off ACCC approval.
Costa Group (CGC AU): Wide Spread Ahead of the 30 January Vote
- The Costa Group Holdings (CGC AU) IE considers Paine Schwartz Partners’ A$3.20 offer fair and reasonable as it is towards the upper end of its A$2.62-3.28 valuation range.
- The scheme requires China SAMR and European Commission approvals. SAMR approval poses a timing risk but the scheduling of the scheme meeting reflects PSP’s confidence in securing the approvals.
- While not a knockout bid, the profit warning should help sway the retail vote in favour of the scheme. At the last close, the gross spread was 8.1%.
Hollysys (HOLI US): Questionable Process Results in Ascendent’s Winning US$26.50 Bid
- Hollysys Automation Technologies (HOLI US) has agreed to be acquired by Ascendent Capital, the largest shareholder, for US$26.50, a 16.7% premium to the last close.
- The Board’s claims of realising the highest shareholder value are not credible. The Board fails to explain why Ascendent’s offer is superior to Recco’s, although both have the same value.
- Deal fatigue (the process first started in December 2020) and the 42% premium to the undisturbed price suggests meeting the simple majority threshold for a statutory merger is achievable.
Costa Group’s Shareholder Vote Set. Get Involved
- On the 22 September, Costa Group Holdings (CGC AU) backed Paine Schwartz Partners’ (PSP) revised (and reduced) A$3.20/share best and final Offer.
- Costa’s Scheme Meeting has now been tabled for the 30 December, with implementation expected on the 26 February. The IE is supportive and Costa’s board unanimously recommends the transaction.
- This appears done. Key conditions are Costa’s shareholder vote and SAMR approval. I can’t see SAMR getting into a bind over berries.
KKR/Smart Metering Systems: Agreed Cheap Offer
- KKR takes advantage of a the depressed share price of Smart Metering Systems (SMS LN) that operates a stable, cash generating and misunderstood defensive business with revenues linked to inflation.
- KKR offers 955p (+8.31875p/share declared divi), a 40% premium 40%, 15x EV/24e EBITDA. 0.1% irrevocable undertakings is negligible (top ten shareholders own c.54%). A counteroffer and/or sweetening is possible.
- Spread is 0.45%/1.52% (gross/annualised, assuming settlement by 29 March, including declared dividend). Turnover has been high since announcement. Risk/return seems attractive. Recommendation is long SMS LN.
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