In today’s briefing:
- EOFLOW/Medtronic Tender: Trading Suspension Lifted, Now for the Hard Part
- FRTIB Switches Benchmarks: +EM/-DM; US$56bn Trade as Asia EM Benefits & HK Loses Out
- StubWorld: Pasona’s Expanding Cash Pile
- Aeon/DCM/Keiyo Deal Changes on DCM TOB for Keiyo – Watch for Market Impact
- Eoflow: Outlook After Trading Resumes on 16 November
- Atlantic Lithium (A11 AU) Knocks Back Major Shareholder’s Offer. Again
- Haitong International (665 HK): Pre-Condition Satisfied
- US Fed. Rtir’mt Thrift Board Changes Intl Benchmark, Excludes HK, US$1.6bn HK to Sell, $20bn 1-Way
- Danaher/Abcam: Balanced Risk/Return
- Aercap Secondary Offer: Overhang No More and It Is Cheap, BUY
EOFLOW/Medtronic Tender: Trading Suspension Lifted, Now for the Hard Part
- The KRX has completed its review and excluded Eoflow (294090 KS) from the substantive review for listing eligibility. Therefore, trading will resume tomorrow, 16 November.
- The shares should rise on trading resumption as Medtronic’s tender remains in play, KRX’s review supported Eoflow’s business continuity and the short-selling ban-driven market rally.
- Deal break risks remain significant. Medtronic Plc (MDT US)’s long-dated closing date and lack of Eoflow integration job postings suggest it remains concerned about near-term unfavourable court rulings.
FRTIB Switches Benchmarks: +EM/-DM; US$56bn Trade as Asia EM Benefits & HK Loses Out
- The FRTIB has decided to switch its benchmark for the International Stock Index Investment Fund from the EAFE Index to the ACWI IMI ex-USA ex-China ex-Hong Kong Index.
- With around US$68bn invested in the I Fund, this will set off churn among the constituent stocks in 2024. One-way trade is around US$28bn with DM outflows and EM inflows.
- The benchmark shift could be done over a 4 month period with higher trading during periods where liquidity opportunities arise.
StubWorld: Pasona’s Expanding Cash Pile
- A double dose of StubWorld this week as Pasona Group (2168 JP) finally takes the hint to sell (if not exit altogether) its holding in Benefit One Inc (2412 JP).
- Preceding my comments on Pasona/Benefit One are the current setup/unwind tables for Asia-Pacific Holdcos.
- These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.
Aeon/DCM/Keiyo Deal Changes on DCM TOB for Keiyo – Watch for Market Impact
- DCM Holdings (3050 JP) and Keiyo Co Ltd (8168 JP) and Aeon Co Ltd (8267 JP) signed capital and business tie-up agreements 30+yrs ago. Recently, DCM bought Keiyo.
- Aeon got some money from this and has decided to put that money back into DCM shares.
- That changes both the current dynamics and future shareholder structure. And that leads to interesting questions about the outcome.
Eoflow: Outlook After Trading Resumes on 16 November
- On 15 November, the Korea Exchange announced that Eoflow (294090 KS) will start trading again on 16 November.
- The fact that KRX has allowed Eoflow to trade again will be viewed positively by many investors. Plus, the recent temporary ban on short selling should also positively impact Eoflow.
- We believe a higher probability event is for Medtronic to complete a tender offer of Eoflow sometime in 2Q 2024 at about 26,000 won.
Atlantic Lithium (A11 AU) Knocks Back Major Shareholder’s Offer. Again
- Livent (LTHM US)‘s CEO recently said, regarding its merger with Allkem Ltd (AKE AU), that while falling lithium prices put pressure on marginal producers, the sector’s fundamental outlook remains strong.
- And so, another week goes by, and another lithium Offer Down Under unfolds.
- African-Focused lithium play Atlantic Lithium (A11 AU) announced this morning it has twice rejected Offers from South African-based Assore International, its major shareholder. Shares spiked 43% on the news.
Haitong International (665 HK): Pre-Condition Satisfied
- The pre-condition relating to Haitong International Securities Group (665 HK)’s privatisation offer from Haitong Securities Co Ltd (A) (600837 CH) is satisfied. The offer is at HK$1.52 per share.
- The key conditions are approval by at least 75% of independent shareholders (<10% of independent shareholders rejection) and the headcount test. The high takeover premium facilitates approval.
- This is a done deal. At the last close and for an estimated early February 2024 payment, the gross and annualised spread is 5.6% and 26.4%, respectively.
US Fed. Rtir’mt Thrift Board Changes Intl Benchmark, Excludes HK, US$1.6bn HK to Sell, $20bn 1-Way
- The Federal Retirement Thrift Investment Board which manages the four major funds in the Thrift Savings Plan for US federal government employees will change benchmark for its International Fund
- This was announced on 14 November. The transition will take place “in 2024.” It entails moving from MSCI EAFE to MSCI All Country World ex-USA ex-China ex-HongKong Investable Market Index.
- The explanation: double the countries, lots more stocks, BUT CHINA! This means selling ~US$1.6bn of HK stocks but US$20bn of one-way flow in total (lots of Japan/UK/Europe to sell)
Danaher/Abcam: Balanced Risk/Return
- Shareholders of Cambridge (UK)-based Abcam (ABCM US) followed Glass Lewis and ISS recommendations and approved (>84%) the scheme resolutions at both the Court Meeting and the GM.
- The $24/share cash offer represents 10x EV/Fwd Revenue, 25x EV/Fwd NTM EBITDA. Danaher Corp (DHR US) and Abcam have guided that the transaction is expected to close by mid-2024.
- Spread is 3.21%/6.21% (gross/annualised, assuming settlement by 30 May). From the current levels, I see a balanced risk/reward.
Aercap Secondary Offer: Overhang No More and It Is Cheap, BUY
- General Electric intends to offload its entire shareholding via a secondary offer, a positive development as it removes the share overhang
- Opportune time to own Aercap as aircraft is in high demand and supply chain disruptions mean limited supply over the medium-term, ensuring high lease rates and strong profits
- BUY with target price of $81.45 (+21% UPSIDE) pegged to FY24 P/BV of 0.94x, Aercap is the best in the pack with superior net lease margin, finance cost, and ROE
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