In today’s briefing:
- Swire A Vs Swire B – Regulatory Nuances REALLY Matter
- Posco International Merger: Deal Structure & Arbitrage Dynamics
- WSP Global/RPS Group: More Consolidation In Engineering Consultancy
- POSCO Holdings: Treasury Shares Cancellation Worth 3% of Outstanding Shares
Swire A Vs Swire B – Regulatory Nuances REALLY Matter
- Yesterday Swire Pacific (A) (19 HK) (and Swire Pacific Ltd-Cl B (87 HK)) announced a buyback of shares according to the 2022 AGM mandates approved in May, limited to HK$4bn.
- A reader question prompted me to look more closely at the rules. There are nuances NOT covered in the announcements. So I work through them.
- The conclusions are surprising, and lead to one clear trading idea.
Posco International Merger: Deal Structure & Arbitrage Dynamics
- We still have the chance to become eligible. We will still receive the rights if we buy Posco International next Tuesday. But we will exercise them at ₩20,590, NOT ₩27,801.
- Given that there is little cancellation risk, we can capitalize on the price falling below the appraisal price by opening both Long and Short at the same price.
- We close Short if the price goes under ₩20,590 and fix the arb spread by exercising the rights with Long.
WSP Global/RPS Group: More Consolidation In Engineering Consultancy
- WSP agreed to acquire RPS Group at a (generous) 206/share (+0.45p interim), in a well-timed transaction at 76% premium, 17.2x EV/Fwd EBIT and 24x Fwd P/E. Irrevocable undertakings are 18%.
- The offer represents a 43% premium to mean consensus TP. My fair value estimate DCF (WACC 9%, 1.6% terminal growth) is 190.5p/share, 1.5% below the offer price.
- The shares trade just below the offer. This seems a low risk/low return deal. Gross spread is 0.7% and the estimated annual return is 2.2% assuming settlement by 8 December.
POSCO Holdings: Treasury Shares Cancellation Worth 3% of Outstanding Shares
- On 12 August, POSCO Holdings announced that it will cancel treasury shares worth 3% of outstanding shares involving 2.6 million shares worth 672 billion won.
- The cancellation of treasury shares is a shareholder friendly policy that will improve the company’s ROE and P/E ratios. The treasury shares cancellation will be completed on 22 August 2022.
- The combination of treasury shares cancellation and high dividend yield is likely to lead to higher probability of POSCO Holdings outperforming KOSPI on a total returns basis this year.
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