In today’s briefing:
- HDFC/HDFCB Merger: Mega Merger & Index Treatment
- Shocker! HDFC Bank To Merge With HDFC Limited
- MSCI India Index Rebalance Preview: Potential Changes in May
- Perpetual’s Indicative (& Opportunistic) Offer for Pendal Group: Details & Index Implications
- HDFC+HDFC Bank Merger – A Long Time Coming
- MSCI Japan Index Rebalance Preview: Only Deletions for Now
- Expect Pendal To Reject Perpetual’s Offer
- Pendal’s Indicative Bid from Perpetual Is Underwhelming
- SK Square: NAV Post IPOs of SK Shieldus/OneStore and a Major Investment in ARM Holdings?
- Royal Bank of Canada/Brewin Dolphin Holdings: Agreed Offer
HDFC/HDFCB Merger: Mega Merger & Index Treatment
- HDFC Limited (HDFC IN) and HDFC Bank (HDFCB IN) are looking at a mega-merger where HDFC shareholders will receive 42 shares in HDFCB for every 25 HDFC shares held.
- Regulatory and other approvals are expected to take around 18 months and the merger will create a US$145bn behemoth. Some regulatory approvals could be tougher to get than others.
- HDFC Limited (HDFC IN) is a member of the FTSE All-World and MSCI India indices, while HDFC Bank (HDFCB IN) is not. The index treatment is tricky.
Shocker! HDFC Bank To Merge With HDFC Limited
- This is at a time a shocker and at a time, not. Because of rising regulatory requirements for NBFCs, this was to be expected at some point.
- The deal pays Limited shareholders a slight premium vs previous close, but enables them to exit without a holdco discount.
- Early days yet regulatorily speaking, but accretive, and it makes a lot of sense. It will be appreciated.
MSCI India Index Rebalance Preview: Potential Changes in May
- As of the close on 1 April, we expect Tata Elxsi Ltd (TELX IN) and Jindal Steel & Power (JSP IN) to be included in the MSCI India Index.
- Potential deletions at the May SAIR are HDFC Asset Management Co Ltd (HDFCAMC IN), Indraprastha Gas (IGL IN), Mrf Ltd (MRF IN) and Petronet LNG (PLNG IN).
- Passive trackers will need to buy between 3-4 days of ADV on the inclusions and sell between 4-16 days of ADV on the deletions.
Perpetual’s Indicative (& Opportunistic) Offer for Pendal Group: Details & Index Implications
- Earlier today, Perpetual Ltd (PPT AU) made a conditional, non-binding indicative proposal for Pendal Group (PDL AU) to acquire 100% of the shares by way of a Scheme of Arrangement.
- Pendal Group (PDL AU) shareholders will receive 1 share of Perpetual Ltd (PPT AU) for every 7.5 shares of PDL plus A$1.67/PDL share in cash.
- This is a highly opportunistic offer and it is unlikely that Pendal Group (PDL AU)‘s Board will support the proposal. There could be further improved proposals that come in.
HDFC+HDFC Bank Merger – A Long Time Coming
- Today morning, HDFC Limited (HDFC IN) announced that it would merger with HDFC Bank (HDFCB IN).
- Investors have been asking the two companies about a possible merger for at least the past decade.
- In this note, we talk about the background for the merger and why now.
MSCI Japan Index Rebalance Preview: Only Deletions for Now
- As of the close on 1 April, we see 13 potential deletions from the MSCI Japan Index. There could be changes in the next couple of weeks as prices change.
- The potential deletions are Tokyo Century, Pola Orbis, Miura, Lion Corp, Tsuruha Holdings, Hino Motors, Benefit One, Stanley Electric, Ryohin Keikaku, Sohgo Security Services, Orix JREIT, Rinnai Corp and Lawson.
- Most of the stocks will have over 5 days of ADV to sell from passive funds and there has been an increase in short interest over the last month.
Expect Pendal To Reject Perpetual’s Offer
- Asset manager Pendal Group (PDL AU) has announced a non-binding proposal from investment firm Perpetual Ltd (PPT AU).
- Perpetual’s cash/scrip Offer provides an indicative price of $6.23/share. The proposal would see Pendal’s shareholders owning 48% of the merged entity and Perpetual the remainder.
- Pendal is assessing the proposal; however, the wording in the announcement suggests the bid is opportunistic and will be rejected.
Pendal’s Indicative Bid from Perpetual Is Underwhelming
- The scrip-heavy bid values Pendal Group (PDL AU) at A$6.23 based on the Perpetual Ltd (PPT AU) price on 1 April, a 39.2% premium to the unaffected price of A$4.48.
- The Pendal Board hints at opportunism. We agree as the Perpetual offer is unattractive in the context of historical multiples and share prices.
- The bid lays a marker of Pendal’s inherent value, and we think another bidding round is possible. The gross spread to the offer at the last close prices is 12.1%.
SK Square: NAV Post IPOs of SK Shieldus/OneStore and a Major Investment in ARM Holdings?
- Our updated NAV valuation of SK Square suggests an implied price of 82,167 won per share, which represents a 46% upside from current levels.
- For SK Shieldus and OneStore, we took the mid-points of the IPO price ranges and applied SK Square’s post IPO ownership stakes, respectively.
- SK Square’s CEO Park Jung-Ho announced that the SK Group is interested in investing in Arm Holdings. SK Group is well positioned to participate in the investment of ARM Holdings.
Royal Bank of Canada/Brewin Dolphin Holdings: Agreed Offer
- Brewin Dolphin Holdings (BRW LN) has agreed to be acquired by RBC (scheme of arrangement). Consideration is 515p/share in cash, cum dividend; it represents a 62% premium.
- The offer represents 3.2x forward sales vs. 2.9x for the median of comparables (source: Capital IQ consensus). The offer also represents 2.8% of AuM (vs. a common multiple of 2.5%).
- Consideration looks fair. The market believes there will be a deal; gross spread is an unexciting (in my view) 0.58%, 1.19% annualised (assuming settlement on 30 September).
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