In today’s briefing:
- Sumitomo Elec Buys Out Sub Techno Associé) At ¥1,695/Share – Insulting Explanation. Deserves More.
- Sumitomo Electric Buys Out Sub Nissin Electric (6641) At ¥1,700/Share – ATH But Still Too Low
- Quiddity Primer: The Ongoing Evolution of the Hang Seng Index
- Keisei Electric: Needs Activists to Push the Market
- Nissin Electric (6641 JP): JPY1,700 Tender Offer from Sumitomo Electric
- O2Micro Shareholders Approve Merger. Completion Remains Opaque
- Bendigo Adelaide Bank & Bank of Queensland’s Rumoured Merger
- Dentium: An Undervalued Corporate Activist Target + Likely Inclusion Candidate for KOSPI 200 in 2023
- Selected European Holdcos and DLC: January‘23 Report
- Pertamina Geothermal Energy IPO: Offering Details & Index Inclusion
Sumitomo Elec Buys Out Sub Techno Associé) At ¥1,695/Share – Insulting Explanation. Deserves More.
- Sumitomo Electric Industries (5802 JP) is taking over to subs through tender offers. Both are light. Both this one for Techno Associe (8249 JP) and the one for Nissin Electric.
- Both deals are light -slightly offensive, but in different ways. The Board decisions are more offensive than the actual prices, but it’s Sumi Elec buying, so those are offensive too.
- There’s a history here. Sumi Elec went to 51% at an offensively low price (EV/EBITDA below zero) in 2019. But this is probably a done deal anyway.
Sumitomo Electric Buys Out Sub Nissin Electric (6641) At ¥1,700/Share – ATH But Still Too Low
- Sumitomo Electric Industries (5802 JP) has announced a takeover of two of its subsidiaries today. The larger one is Nissin Electric (6641 JP).
- This deal, done for governance purposes, hits an all-time high price. But, like others, it ignores synergies in pricing, has an inadequate premium, and process is just bad.
- But given the shareholder structure, this is highly likely to sail through un-molested.
Quiddity Primer: The Ongoing Evolution of the Hang Seng Index
- The Hang Seng Index (HSI INDEX) is a blue-chip index that represents the performance of the large cap stocks listed in the Hong Kong Stock Exchange.
- The index is undergoing some significant composition changes and the index provider currently uses a highly subjective constituent selection process which is quite challenging to decode.
- In this insight, we take a look at Quiddity’s approach to solving this Hang Seng constituent selection puzzle and the historical performance of past rebalance events.
Keisei Electric: Needs Activists to Push the Market
- We think there’s something fundamentally wrong with Keisei Electric Railway Co (9009 JP)’s current valuation.
- Its core business with an estimated fair value of ¥720bn, currently has an implied valuation of negative ¥942bn (stub value).
- If investors can convince the management to dispose its stake in Oriental Land (4661 JP), we think there’s more than a 200% upside to Keisei Electric’s valuation.
Nissin Electric (6641 JP): JPY1,700 Tender Offer from Sumitomo Electric
- Nissin Electric (6641 JP) has recommended Sumitomo Electric Industries (5802 JP)’s tender offer of JPY1,700 per share, an 22.7% premium to the undisturbed price (2 February).
- The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the offer has been set to meet the 66.67% ownership ratio.
- The tender offer is attractive in comparison to peer multiples and historical price ranges. Excluding the offeror, there are no substantial shareholders. This suggests a done deal.
O2Micro Shareholders Approve Merger. Completion Remains Opaque
- At the EGM held on January 31, O2Micro International (OIIM US)’s shareholders voted in favoor of the Merger Agreement.
- The Offerors didn’t have the necessary two-thirds for the voter to be a foregone conclusion, therefore the outcome wasn’t assured. Although it was an okay offer. With proxy advisor support.
- Yet even after the vote, this is still trading 7.1% below terms. The drawn-out completion of Glory Star New Media Group Holdings (GSMG US) is evidently uppermost in investors’ minds.
Bendigo Adelaide Bank & Bank of Queensland’s Rumoured Merger
- The Aussie local press is discussing renewed merger talks for Bendigo And Adelaide Bank (BEN AU) and Bank Of Queensland (BOQ AU).
- Talks of a merger are not new. And we have been here before when BOQ twice made overtures to Bendigo in 2007, but was rejected.
- The swift removal of BOQ’s CEO, a lifetime high ratio – BEN/BOQ – and ANZ (ANZ AU)‘s tilt for Suncorp Bank – suggests a merger makes a lot of sense.
Dentium: An Undervalued Corporate Activist Target + Likely Inclusion Candidate for KOSPI 200 in 2023
- We believe Dentium is an attractive stock to own right now. It has an excellent combination of strong growth in sales and profits and discounted valuations.
- Driven by its strong share price appreciation in the past year, Dentium now has become a strong candidate for a potential inclusion in KOSPI 200 index in 2023.
- There is a growing probability that Dentium could be targeted by corporate activists to pressure the company to cancel treasury shares and provide higher dividends.
Selected European Holdcos and DLC: January‘23 Report
- Discounts to NAV of covered holdcos have generally tightened since New Year. Discounts to NAV (31 January): C.F.Alba, 49.7%; GBL, 35.3%; Heineken Holding, 17.4%; Industrivärden C, 13.8%; Investor B, 11.4%;
- Porsche Automobile Holding, 47.4%. The spread of Rio Tinto DLC widened to 14.8%. Spreads tend to widen in bear markets but short-term recoveries provide opportunities on tightening discounts.
- Recommended trades are: GBL, Porsche Automobile Holding, Rio Tinto (DLC), CF Alba (long position).
Pertamina Geothermal Energy IPO: Offering Details & Index Inclusion
- Pertamina Geothermal (0125738D IJ) is offering 10.35bn shares in its IPO at a price range of IDR 820-945/share to raise between US$567-653m and valuing the company between US$2.27-2.61bn.
- The stock will not get fast entry to the MSCI, FTSE or local Indonesia indices (IDX30 Index/ LQ45 Index/ IDX80 Index).
- The stock should be added to MSCI Small Cap in May and to the FTSE All-Cap in September bringing in some passive flow.
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