In today’s briefing:
- Woodside / BHP Petroleum Merger – Thinking About Flows (Still a Flowback Sell)
- FTSE China A50 Index Rebalance Preview: PetroChina, Gree Out Due to Ground Rule Change
- Qantas Enters Scheme With Alliance Aviation
- Korean Air Will Likely Face an HMM-Like CB Conversion Overhang Risk
- Qantas Aims to Fully Acquire Alliance Aviation
- DAX Index: Quiddity Leaderboard for June 2022 (2.0): Rheinmetall Looks Interesting
- CapVest Scheme Meeting on 6 Jun, CapVest Takeover Offer Open 6 May to 5 July
- Solvency Risk Short Candidates: Carvana, Life Time Group, Bed Bath & Beyond, Surgery Partners
- CPI/S IMMO: Agreement Regarding EGM and Offer
Woodside / BHP Petroleum Merger – Thinking About Flows (Still a Flowback Sell)
- The Merger of Woodside Petroleum (WPL AU) with BHP Group Ltd (BHP AU) subsidiary BHP Petroleum sees a vote 19 May and likely Effective Date by 1 June.
- BHP would go ex-dividend on 25 May, with the in-specie dividend payment WPL shares delivered on 1 June and tradable one day later.
- As discussed in Woodside / BHP Petroleum Merger On Tap; Index Impact Minimal but Flowback May Not Be, major index impact is minimal, but monsters lurk beneath the tranquil surface.
FTSE China A50 Index Rebalance Preview: PetroChina, Gree Out Due to Ground Rule Change
- A Ground Rule change to the index universe will result in the deletion of PetroChina (601857 CH) and Gree Electric Appliances (000651 CH) from the FTSE China A50 Index (XIN9I).
- Potential inclusions at the June rebalance are Poly Real Estate Group Co., Ltd (600048 CH) and Anhui Conch Cement (600585 CH). China Citic Bank Corp (601998 CH) is close.
- Assuming three changes are implemented, one-way turnover at the rebalance is estimated at 3.05% and will result in a one-way trade of CNY 1,484m.
Qantas Enters Scheme With Alliance Aviation
- Qantas Airways (QAN AU) has entered into a Scheme to buy smaller airline Alliance Aviation Services (AQZ AU).
- Alliance shareholders will receive $4.75 in Qantas shares or a 35% premium to last close. The consideration implies an equity value of A$764.5mn and an enterprise value of A$919.2mn.
- The Scheme is subject to shareholder and ACCC approval. The ACCC recently cleared Qantas’19.9% stake in Alliance after a three-year investigation.
Korean Air Will Likely Face an HMM-Like CB Conversion Overhang Risk
- Korean Air will request the KDB and the KEXIM for early repayment before the step-up kicks in. Then, the creditors decide conversion using Korean Air’s claim as an excuse.
- This is exactly the same as the case of HMM, whose stock price began to face corrections 7-10 trading days before the conversion announcement and peaked on the announcement date.
- So, aiming at the possibility of a conversion announcement coming out in the third week of May, I recommend gradually building up short positions starting next week.
Qantas Aims to Fully Acquire Alliance Aviation
- Alliance Aviation Services (AQZ AU) entered a SID with Qantas Airways (QAN AU). Shareholders will receive A$4.75 in Qantas shares for each Alliance share, 35.3% premium to 4 May close.
- The key risk is approval from the ACCC, which will start a public review. On 5 April, the ACCC closed an investigation into Qantas’ acquisition of its 19.9% Alliance stake.
- Alliance Aviation can pay an additional special cash dividend if ACCC approval takes time. The offer is attractive in the context of historical share prices and multiples.
DAX Index: Quiddity Leaderboard for June 2022 (2.0): Rheinmetall Looks Interesting
- DAX is a German blue-chip index that tracks the 40 largest companies listed on the Regulated Market of the Frankfurt Stock Exchange.
- The DAX Index is reviewed on a quarterly basis in March, June, September, and December.
- In this insight, we take a look at the potential constituency changes for the June 2022 review. This is a follow-up insight to DAX Index: Quiddity Leaderboard for June 2022
CapVest Scheme Meeting on 6 Jun, CapVest Takeover Offer Open 6 May to 5 July
- The CapVest scheme meeting is scheduled for 6 June and the CapVest takeover offer runs from 6 May to 5 July. The BGH takeover is open and ends 20 May.
- The independent expert has concluded that both CapVest and BGH’s proposals are fair and reasonable. Virtus Health (VRT AU) shares currently trade above both proposals.
- With BGH unwilling to concede to CapVest, it is likely that BGH increases its 20.02% stake at a higher price than its takeover offer, resulting in a higher offer price.
Solvency Risk Short Candidates: Carvana, Life Time Group, Bed Bath & Beyond, Surgery Partners
- This model seeks companies facing dangerously high leverage coupled with negative or declining cash flows. It considers interest expense, capex and short term maturities for additional input.
- The companies may not be viable given cash flows and capital structures. These shorts tend to have higher betas and can have strong down moves as the crisis is recognized.
- This week we flag: Carvana, Life Time Group, Bed Bath & Beyond, Surgery Partners
CPI/S IMMO: Agreement Regarding EGM and Offer
- CPI, directly and indirectly, owns 42.6% in S Immo and seeks to launch a €23.5 mandatory offer if a 15% voting cap in S IMMO’s by-laws is removed.
- CPI has Board support. AGM will take place on 1 June. Although S IMMO trades at a large discount to NAV, interloper risk is low.
- Gross spread is 1.3%. Assuming clearances are obtained, and offer settled by 1 August, estimated annual return would be 5.5%. Long SPI AV.
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