In today’s briefing:
- Mercari (4385 JP): Section Transfer Means TOPIX & FTSE Inclusion
- Mercari (4385) TOPIX Inclusion, Finally… And It’s Bigger Than It Looks
- Nikkei 225 Index Rebalance Preview: Market Consultation & Potential Changes
- (Mostly) Asia M&A: May 2022 Roundup
- Shimadzu (7701) To Buy Out Nissui Pharma (4550) In Tender Offer
- Dongfeng Auto (600006 CH): Dongfeng Motors’ Partial Offer
- Ardent Leisure’s EGM Related to Main Event Sale on 29 June; Unlock Value
- MergerTalk: Why We Think The Risk In Apollo’s Tenneco Buy Out Is Overpriced
- End of Mandatory Lock-Up Periods for 40 Companies in Korea in June 2022
- Itausa (ITSA4 BZ) – Historically Wide, and Potentially Understated, NAV Discount
Mercari (4385 JP): Section Transfer Means TOPIX & FTSE Inclusion
- Mercari Inc (4385 JP) was deleted from the MSCI Japan at the close today. Then the company announced that it would move to the Prime Market on 7 June.
- Transfer to Prime Market will require passive TPX INDEX trackers to buy stock end July and FTSE All-World trackers to buy in September – around 19% of free float together.
- Short interest is over 13% of free float. Some of the shorts would have covered against the passive MSCI selling today but the remaining shorts could look to cover.
Mercari (4385) TOPIX Inclusion, Finally… And It’s Bigger Than It Looks
- 4.5 months ago I wrote Mercari (4385) Applying for TSE Prime Means TOPIX Inclusion in 4-5 Months and today it was announced Mercari would move from TSE Growth to Prime.
- The move happens on 7 June, which means that the actual TOPIX inclusion will be at the close of 28 July.
- This will change things near-term, and going forward. As always, we dig deeper below.
Nikkei 225 Index Rebalance Preview: Market Consultation & Potential Changes
- The Nikkei 225 (NKY INDEX) market consultation released last week could lead to some tweaks to the index methodology and the stock selection process. Nothing really material enough though.
- Potential index inclusions in September are Renesas Electronics, Oriental Land and Pan Pacific International Holdings, while Toyobo Co Ltd, Nippon Light Metal and Oki Electric Industry are potential index deletions.
- Passive Nikkei 225 trackers will need to buy between 4-9% of the real float on the high/ medium probability names, while they need to buy between 2.5-14 days of ADV.
(Mostly) Asia M&A: May 2022 Roundup
- For the month of May, 10 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$26bn.
- The average premium for the new deals announced (or first discussed) in May was ~53%.
- This compares to the average premium for all deals in 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 33%, 31%, and 31.5% respectively.
Shimadzu (7701) To Buy Out Nissui Pharma (4550) In Tender Offer
- Nissui Pharmaceutical (4550 JP) has been cheap for years. Years and years and years.
- It has traded at negative Enterprise Value for almost all of the past year.
- Now Shimadzu Corp (7701 JP) is taking it over and heavily indebted parent Nippon Suisan Kaisha (1332 JP) is letting it go.
Dongfeng Auto (600006 CH): Dongfeng Motors’ Partial Offer
- Dongfeng Motor (489 HK) (DFMG) has entered into an agreement to buy back the controlling stake in Dongfeng Automobile (600006 CH) (DFAC) from Nissan Motor (7201 JP).
- DFMG and Nissan’s JV (split 50:50) holds a 60.1% stake in DFAC. Under the agreement, 29.9% of the JV’s stake in DFAC will be transferred to DFMG.
- Subsequent to the completion of the transfer, DFMG will launch a partial offer for 25.1% of DFAC, with a view to holding 55% of shares out in DFAC.
Ardent Leisure’s EGM Related to Main Event Sale on 29 June; Unlock Value
- The EGM to approve Dave & Buster’S Entertainment, Inc (PLAY US)‘s acquisition of Main Event is on 29 June. Ardent Leisure Group Ltd (ALG AU) will receive A$670.3 million.
- If the transaction is approved, shareholders will receive a total return of A$0.95 through capital return and special dividends. The independent expert opines that the transaction is fair and reasonable.
- At the last close price, the remaining business is valued at just 2 cents. Our SoTP valuation of A$1.65 per share is a 22% upside to the last close.
MergerTalk: Why We Think The Risk In Apollo’s Tenneco Buy Out Is Overpriced
- The 18% spread suggests there the Apollo Global Management Inc (APO US) / Tenneco Inc (TEN US) transaction is fraught with risks which, we believe, are more imaginary than real
- With TEN shareholders expected to approve the merger next week, we assess regulatory obstacles low and the risk of APO reconsidering the transaction unlikely except in the most unexpected circumstances
- Overall we believe the risk-reward for arbs skews to the attractive with the opportunity to game IRRs in excess of 30%
End of Mandatory Lock-Up Periods for 40 Companies in Korea in June 2022
- We discuss end of the mandatory lock-up periods for 40 stocks in Korea in June 2022, among which 5 are in KOSPI and 35 are in KOSDAQ.
- These 40 stocks on average could be subject to further selling pressures in June and could underperform relative to the market.
- Among these 40 stocks, HYBE (352820 KS) and Koreacenter.com Co Ltd (290510 KS) could face further selling pressures in the coming weeks.
Itausa (ITSA4 BZ) – Historically Wide, and Potentially Understated, NAV Discount
- Itausa is trading at a stated 24.4% discount to the HoldCo’s NAV, with the discount having widened sharply since last month; we turn positive on Itausa
- We believe that the discount under-estimates the stated NAV; separate from Itausa’s stake in XP, Itaú Unibanco, in which Itausa holds a 37.2% stake, has a direct 11.36% XP stake
- Adding its indirect XP stake share to Itausa’s NAV implies a discount of 26.1%; since December 2008, only on 11% of the month end datapoints has Itausa’s discount exceeded 25%
Before it’s here, it’s on Smartkarma
