In today’s briefing:
- Outsourcing (2427 JP): Bain-Backed Preconditional MBO Tender Offer at JPY1,755
- TOPIX Inclusions: Who Is Ready (Dec 2023)
- MVIS Global Junior Gold Miners Index Rebalance: Few Large Weight Changes
- MVIS US Listed Semiconductor 25 Index Rebalance: TSMC Is the Big Sell
- MVIS Global Rare Earth/Strategic Metals Index Rebalance: Albermarle (ALB US) Finally Added
- Merger Arb Mondays (11 Dec) – Benefit One, Outsourcing, Tokyo Rakutenchi, CPMC, Weiqiao Textile
- HK Connect SOUTHBOUND Flows (To 8Dec23); CNOOC & China Mobile Both Now To The Buy Side, Tencent Not
- A/H Premium Tracker (To 8 Dec 23): H Down Vs A, Again, Despite SOUTHBOUND Buying; Pharmas Weak
- Bain Deal for Outsourcing (2427): Cheeky, Opportunistic, Too Low
- MVIS Australia Equal Weight Index Rebalance: Three Deletions & Other Changes
Outsourcing (2427 JP): Bain-Backed Preconditional MBO Tender Offer at JPY1,755
- Outsourcing Inc (2427 JP) has recommended a Bain-backed preconditional MBO tender offer of JPY1,755 per share, a 52.1% premium to the undisturbed (8 December).
- The offer is light vs. peer and historical multiples and opportunistically takes advantage of the 20% price fall due to the disclosure of employment adjustment subsidies issues on 1 August.
- Based on the irrevocables, the minimum acceptance condition requires a 61.9% minority acceptance rate. The acceptance rate could prove challenging. The tender offer is to start by late January 2024.
TOPIX Inclusions: Who Is Ready (Dec 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.
- One of our TOPIX Inclusion Pre-event names Visional (4194 JP) confirmed it has received approval to move to the Prime Market in December 2023.
- Currently, we are expecting one TOPIX Inclusion at the end of December 2023 and two more at the end of January 2024 (including Visional).
MVIS Global Junior Gold Miners Index Rebalance: Few Large Weight Changes
- There are no constituent changes for the VanEck Vectors Junior Gold Miners ETF (GDXJ US) in December, but there are float and capping changes for some stocks.
- Estimated one-way turnover is 2.8% and that leads to a one-way trade of US$122m.
- There are 13 stocks with over US$5m to trade from passive trackers, though the impact is not very big on the stocks.
MVIS US Listed Semiconductor 25 Index Rebalance: TSMC Is the Big Sell
- There are no constituent changes for the VanEck Vectors Semiconductor (SMH US) in December but there are a lot of float and capping changes.
- Taiwan Semiconductor (TSMC) – ADR (TSM US) is the biggest sell while NVIDIA Corp (NVDA US) is the biggest buy.
- Estimated one-way turnover is 6.6% resulting in a one-way trade of US$682m. Couple of stocks have greater than 0.2x ADV to trade.
MVIS Global Rare Earth/Strategic Metals Index Rebalance: Albermarle (ALB US) Finally Added
- Albemarle Corp (ALB US) will replace ioneer (INR AU) in the VanEck Rare Earth/Strategic Me (REMX US) at the close on 15 December.
- Constituent changes, float changes and capping changes result in an estimated one-way turnover is 13.4% and in a one-way trade of US$50m.
- The mainland China stocks in the index have been the biggest laggards and this rebalance will reduce their weight in the index significantly.
Merger Arb Mondays (11 Dec) – Benefit One, Outsourcing, Tokyo Rakutenchi, CPMC, Weiqiao Textile
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads – Outsourcing Inc (2427 JP), Healius (HLS AU), Irc Ltd (1029 HK), Orecorp Ltd (ORR AU), Hollysys Automation Technologies (HOLI US), Tokyo Rakutenchi (8842 JP).
- Lowest spreads Toyo Construction (1890 JP), IJTT Co., Ltd. (7315 JP), Tietto Minerals Ltd (TIE AU), Azure Minerals (AZS AU), T&K Toka Co Ltd (4636 JP), Benesse Holdings (9783 JP).
HK Connect SOUTHBOUND Flows (To 8Dec23); CNOOC & China Mobile Both Now To The Buy Side, Tencent Not
- SOUTHBOUND flows showing reversion tendencies continues for a second or third week after weeks of momentum.
- SOUTHBOUND saw HK$11.2bn of INFLOWS on the week, a chunk of which was net buys on HK-listed ETFs, but Hs underperformed their A counterparts in the H/A pairs once again.
- High-Div SOEs again saw action. This time with both CNOOC Ltd (883 HK)andChina Mobile (941 HK) seeing strong net buying as a percentage of volume. Tech was sold.
A/H Premium Tracker (To 8 Dec 23): H Down Vs A, Again, Despite SOUTHBOUND Buying; Pharmas Weak
- The New and Better (5mos old) A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
- Hs with H/A pairs under-perform their As on average by 70+bp. Liquid HK H/A Pairs saw H/As -66bp. H/A Pair intracorrelation is down but it feels like liquidation.
- SOUTHBOUND and NORTHBOUND flows were buys, and sells, respectively, but Hs have had two bad weeks in a row, and high premia A/H pairs have seen premia rise significantly.
Bain Deal for Outsourcing (2427): Cheeky, Opportunistic, Too Low
- On Friday 8 December, Bain announced an MBO with Outsourcing Inc (2427 JP) Chair Haruhiko Doi to take the company private at a 51% premium. Looks good at first glance.
- It is, however, an offer at ~6.6x Management Forecast derived Dec 2024 EBITDA. This for a top player in a fast-growing market where Street/mgmt both see up-and-to-the-right results from here.
- This is a delayed start (late-Jan) for regulatory approvals. It is too cheap. It is blockable. But Doi-san is young at 64yrs old and he could come back years later.
MVIS Australia Equal Weight Index Rebalance: Three Deletions & Other Changes
- A2 Milk Co Ltd (A2M AU), AMP Ltd (AMP AU) and Charter Hall (CHC AU) will be deleted from the MVIS Australia Equal Weight Index at the close 15 December.
- Constituent changes plus capping and float changes result in a one-way turnover of 5.05% and will result in a one-way trade of A$99m.
- There is a fair amount of short interest on the deletions and shorts could look to cover against the passive flow.
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