In today’s briefing:
- Carlyle Reportedly To Buy KFC Japan (9873) From MitCorp (8058) – Deal Likely Imminent
- KFC Holdings Japan (9873 JP): Carlyle Edging Towards a Tender Offer
- Mimasu Semiconductor (8155 JP): Shin-Etsu (4063 JP)’s Pre-Conditional Tender Offer
- Toyo Suisan: Activist Advocates For Legacy Divestiture & More Capital for Global Expansion
- Quiddity JPX-Nikkei 400 Rebal 2024: End-Apr 2024 Estimates
- Keisei Electric Railway’s Problems Are Part of a Cross-Shareholding Dissolution Process
- M3 4Q Results: Earnings Miss and Further Slowdown Seems Unavoidable
- Simplex Holdings (4373) – Compounding Business with a Consulting Growth Engine
Carlyle Reportedly To Buy KFC Japan (9873) From MitCorp (8058) – Deal Likely Imminent
- On 28 Feb, the Nikkei reported (an article I missed) Mitsubishi Corp (8058 JP) would seek to unload its 35% stake in Kfc Holdings Japan (9873 JP)
- The stock popped, then continued to rise further. After the close Friday, the Nikkei reported MitCorp was close to a deal with Carlyle. A deal is apparently expected imminently.
- I expect this could be a “Split Price Deal” (like Hitachi Transport and Pasona).
KFC Holdings Japan (9873 JP): Carlyle Edging Towards a Tender Offer
- The Nikkei reports that Carlyle is in the final stages of buying Mitsubishi Corp (8058 JP)’s 35% stake in Kfc Holdings Japan (9873 JP), which will result in a tender offer.
- The structure will likely be similar to the KDDI Corp (9433 JP)/ Lawson Inc (2651 JP) tender, where MitCorp provides an irrevocable NOT to accept but vote for share consolidation.
- The shares have been up 33.6% since Nikkei flagged the sale on 28 February. KFC Japan will trade in line with peers’ multiples at a JPY5,700 offer.
Mimasu Semiconductor (8155 JP): Shin-Etsu (4063 JP)’s Pre-Conditional Tender Offer
- Mimasu Semiconductor Industry (8155 JP) recommended a pre-conditional tender offer from Shin Etsu Chemical (4063 JP) at JPY3,700, a 14.4% and 35.4% premium to the last close and undisturbed price, respectively.
- The pre-condition, which cannot be waived, is approval under the competition laws of Japan and Taiwan. The tender offer is expected to start in late July.
- While the offer is below the mid-point of the IFA DCF valuation range and the requested price, it is 7.7% higher than the all-time high of JPY3,435. This is done.
Toyo Suisan: Activist Advocates For Legacy Divestiture & More Capital for Global Expansion
- Japanese instant noodle manufacturer Toyo Suisan Kaisha (2875 JP) has become the newest target for activist investors in Japan.
- Nihon Global Growth Partners Management, Inc argues that Toyo Suisan’s investments are overly concentrated in its legacy businesses, despite these ventures yielding low returns.
- Therefore, they are recommending that Toyo Suisan exit its legacy businesses, increase the payout ratio to 40%, and use some of its excess cash for a share buyback of ¥20bn.
Quiddity JPX-Nikkei 400 Rebal 2024: End-Apr 2024 Estimates
- JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
- A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the rankings of the potential ADDs/DELs every month.
- Below is a look at potential ADDs/DELs for the JPX-Nikkei 400 index rebal event to come in August 2024 based on trading data as of end-April 2024.
Keisei Electric Railway’s Problems Are Part of a Cross-Shareholding Dissolution Process
- A solution for Keisei, similar to case of parent-subsidiary listing, is cashing OLC shares to raise profitability and growth potential of its business, to eliminate the distortion in market capitalization.
- There is a corporate governance issue in that OLC is accepting board members from Keisei, which has below 20% equity and does not clearly explain the synergies of the business.
- This can be viewed as part of dissolving cross-shareholdings where the company wants to obtain voting advantage without business synergies and cannot find opportunities to spend the cash it sells.
M3 4Q Results: Earnings Miss and Further Slowdown Seems Unavoidable
- M3 Inc (2413 JP) reported 4Q and Full-year FY03/2024 results. Earnings missed both guidance as well as consensus due to slowdown in Medical Platform and Overseas businesses.
- Medical Platform’s earnings declined further in 4Q with spending cuts by pharma companies, and it seems that the segment’s earnings will further decline going forward.
- M3’s share price is down 18% YTD, and we do not see many catalysts to drive a rally in the company’s share price.
Simplex Holdings (4373) – Compounding Business with a Consulting Growth Engine
- Positioned for sustained growth – Q1-4 FY3/24 results were in line with guidance, with the company generating consistent and sustainable double-digit growth for sales and earnings demonstrating the company’s characteristics as a compounding business.
- We believe its brand, human capital, and technological innovation are competitive advantages that generate shareholder value, with free cash flow recovering YoY to ¥7.34bn from ¥3.26bn in FY3/23.
- Future capital allocation points to business investment in staff and R&D and scope for M&A to support growth and improve shareholder returns.
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