In today’s briefing:
- Thinking About The Toyota Tender Offer Buyback
- Go-To Arbs Amid Market Carnage
- Technology Select Sector Index (XLK US): Market Consultation to Avoid Reverse Turnover (NVDA/AAPL)
- Fancl (4921 JP): Kirin (2503 JP) Relents and Bumps to JPY2,800
- Doosan Group Revises Merger Report and Increasing Probability of Merger Getting Cancelled
- How Has the Index Rebalance Strategy Performed During Market Turmoil?
- GA Pack (468 HK): Stalemate Broken as Management Considers a Possible Counteroffer
- The Unusual Flow Trading Development Caused by SK Innovation’s Appraisal Rights Premium
- GAPack (468 HK)’s Co-Founders (Almost) Walk The Walk
- Sapporo Holdings: Investor Activism Sparks Short-Term Gains, Tax Reforms Ensure Long-Term Success
Thinking About The Toyota Tender Offer Buyback
- In May when shares were trading near ¥3,500-3,600, Toyota announced a ¥1trln buyback. When shares fell, they announced a Tender Offer Buyback at a large discount (¥2,781/share).
- Subsequently, the shares fell very sharply on Thursday 1 August, then again Friday and yesterday. That put shares WELL below the Tender Offer Price. That creates possible opportunity.
- This insight discusses modalities (talk to your advisor for specific advice/info) who might do what and why. It sets parameters. But I think Toyota is cheap here.
Go-To Arbs Amid Market Carnage
- As global market roil, clean M&A deals come into focus.
- This insight briefly summarises those transactions in Asia/Oceania which are expected to comfortably complete, irrespective of the background noise.
- Standout deals include APM Human Services (APM AU), Huafa Property Services Group (982 HK), Alps Logistics (9055 JP), I’Rom Group (2372 JP), and Arvida (ARV NZ).
Technology Select Sector Index (XLK US): Market Consultation to Avoid Reverse Turnover (NVDA/AAPL)
- NVIDIA Corp (NVDA US) and Apple (AAPL US) switched positions in June setting off huge flows. Those flows could reverse in September if the current index methodology is used.
- To avoid frequent reverse turnover, S&P DJI have started a market consultation to change the index weighting methodology. We believe feedback will be positive and the proposals will be approved.
- Apple (AAPL US) will have inflows in September while there will be outflows from Microsoft Corp (MSFT US) and NVIDIA Corp (NVDA US).
Fancl (4921 JP): Kirin (2503 JP) Relents and Bumps to JPY2,800
- Kirin Holdings (2503 JP) has increased the Fancl Corp (4921 JP) tender offer price by 4.1% to JPY2,800 and extended the offer period to 28 August. The price is final.
- Kirin tried to get the required acceptances by refusing to bump and extending the offer period. However, these tactics failed, as the shares continued to trade above terms.
- The Board twice asked Kirin to raise its offer higher than JPY2,800, but eventually recommended the revised offer. Nevertheless, the bump should be sufficient for Kirin to succeed.
Doosan Group Revises Merger Report and Increasing Probability of Merger Getting Cancelled
- On 6 August, the Doosan Group announced a revised merger report. Despite some changes in the merger report, there was no change the merger ratios.
- Many minority shareholders of Doosan Enerbility and Doosan Bobcat are likely to oppose this merger. The net result is an increasing probability that this merger gets cancelled, in our view.
- Doosan Enerbility has set aside about 600 billion won for exercise of appraisal rights and if it exceeds this amount, the merger may be cancelled.
How Has the Index Rebalance Strategy Performed During Market Turmoil?
- The market turmoil over the last few trading sessions has not been kind to a simple index rebalance strategy of buying the forecast adds and selling the forecast deletes.
- The overall returns and stock specific returns indicate that trades are more crowded in some indices as compared to others and traders should consider that when position sizing.
- Anecdotally, periods of negative returns are followed by periods of strong returns for the strategy as weak hands are shaken out of their positions.
GA Pack (468 HK): Stalemate Broken as Management Considers a Possible Counteroffer
- Greatview Aseptic Packaging (468 HK) disclosed that Mr Bi Hua Jeff (CEO) and Mr Hong Gang (co-founder) are contemplating a possible voluntary conditional offer. The terms and conditions were not disclosed.
- Due to the recent AGM protest votes, management needed to provide a credible alternative to shareholders to ensure that Shandong Xinjufeng Technology Packaging (301296 CH)’s offer failed.
- Shandong Xinjufeng’s likely game plan is to wait for a binding counteroffer, focus on satisfying the preconditions, and requisition an EGM again to get Board representation.
The Unusual Flow Trading Development Caused by SK Innovation’s Appraisal Rights Premium
- Exceeding the ceiling doesn’t cancel the merger; SK Innovation can still proceed. With their decision confirmed, focus should shift to appraisal rights flows rather than cancellation risk.
- We should focus on flow trading given the notable exercise size and potential for unprecedented market activity if institutions, including the NPS, exercise their rights due to the juicy premium.
- The large exercise size and SK Innovation’s KOSPI large-cap status may create unique flow trading opportunities, with potential repurchases after new shares list.
GAPack (468 HK)’s Co-Founders (Almost) Walk The Walk
- To say Greatview Aseptic Packaging (468 HK)‘s management and Shandong Xinjufeng (301296 CH) (XJF) don’t get along is an understatement. GAPack has labelled XJF’s pre-conditional Offer hostile and unwelcome.
- Last night (6th August), co-founders Jeff Bi and Gang Hong tabled a non-binding Offer. No price was mentioned. Collectively they hold 14.72% of shares out compared to XJF’s 26.8%.
- A firm Offer (and price) would have been welcome, and this probably reflects on-going funding negotiations. But the announcement will give minorities pause if/when tendering into XJF’s Offer.
Sapporo Holdings: Investor Activism Sparks Short-Term Gains, Tax Reforms Ensure Long-Term Success
- Sapporo Holdings (2501 JP)‘s strategic position in the domestic market, coupled with untapped potential in international markets, makes the company an interesting prospect for the long-term.
- 3D Investment Partners’ July 2024 letter praising Sapporo’s intention to divest its real estate business has reignited investor interest in Sapporo as a play focusing on Japan’s investor activism.
- Therefore, Sapporo seems interesting both in the short term and long term, as we think shares could break out to a new high with trading volumes showing signs of improvement.
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