In this briefing:
- Best World (BEST SP): Not the Best Financials to Disprove The Business Times Allegations
- M1 Offer Unconditional as Axiata Tenders
- Hansae Holdco/Sub Trade: Huge Divergence Now, Sub Price Rally Should Be Resisted Here
- The Panalpina Conundrum
1. Best World (BEST SP): Not the Best Financials to Disprove The Business Times Allegations
Best World International (BEST SP) is a direct-selling company that distributes premium skincare and wellness products. On Monday, The Business Times claimed that it is difficult to verify Best World’s strong sales in China based on “an unimpressive online and offline footprint.” On the back of the Business Times article, Best World shares slid 17% before the company was granted a trading halt pending a clarification announcement.
Checking the accuracy of the Business Times’ facts and figures is beyond the scope of this note. Instead, the aim is to analyse alternative financial metrics to judge if Business Times’ allegations have some substance. Overall, our analysis suggests that Business Times’ claims have some substance and investors should not be so quick to dismiss it.
2. M1 Offer Unconditional as Axiata Tenders
Friday 15 February after the close, the Offerors for M1 Ltd (M1 SP)announced that their Offer had been declared Unconditional In All Respects as the tendered amount was 57.04% and the total held by concert parties was 76.35%.
Axiata Group (AXIATA MK) made an announcement to the Bursa Malaysia that it had accepted the Offer as required because it was a significant asset disposal. The reasoning for the disposal was that given the long-term view required because of changes in the Singaporean telecom market structure and the inability of Axiata to exert management control, the disposal fit within Axiata’s portfolio rebalancing strategy and would serve to mitigate short- to medium-term risks associated with the changes in the Singaporean market.
Going unconditional has triggered an extension of the Closing Date to 4 March 2019 at 5:30pm Singapore time (our estimate pre-Offer Despatch was closing of 7 March).
If you are going to tender, you might as well do it now. Consideration (the offer price) will be despatched to those Shareholders who have already tendered within 7 business days, and those who accept the Offer starting now will get their funds within 7 business days of the Offer acceptance being validated.
3. Hansae Holdco/Sub Trade: Huge Divergence Now, Sub Price Rally Should Be Resisted Here
- Hansae Holdco/Sub duo is giving a very wide price divergence right now. They are now at -227% of σ. This is a 120D low. Holdco discount is 50% to NAV. Sub is 55% of the sub holdings and 60% of Holdco NAV. Sub has made a run lately mainly on improving outlook. Local long-term funds have led the recent Sub buying. They like Sub’s 4Q results. They also expect this trend to continue at least for this year.
- Valuation wise, Sub price is at a little over 17x PER on already adjusted FY19 earnings. This is pretty much in line with the yearly average in the past 3 years. Sub price rally should be resisted at this point. Holdco/Sub price ratio is at the lowest in 120D on a 20D MA. It has also fallen to near 2 year low.
- Local short-term money managers do not seem to be joining the current Sub buying. Shorting on Sub is still at a significant level (nearly 10%). I’d make a trade at this point. I’d go long Holdco and short Sub for a short-term mean reversion. Again, Holdco liquidity can be an issue to some of us.
4. The Panalpina Conundrum
For years, Panalpina Welttransport Holding (PWTN SW) has underperformed expectations, and investors such as Artisan and Franklin Templeton have held stakes of a few percent to more (Artisan now owns 12%) and have complained more or less publicly. Swedish activist investor Cevian has also owned shares for years (now at 12.3% approximately) and complained quite publicly last October about the governance structure and management and suggested that management be open to a takeover. The company pooh-poohed that, but a week later announced that Chairman Peter Ulber – one of Cevian’s governance targets – would not stand for re-election in May 2019 at the AGM.
A week after that, Kuehne + Nagel International A (KNIN VX) CEO Detlef Trefzger said in Swiss finance magazine Finanz und Wirtschaft (German) it would be happy to open talks with Panalpina but would not pursue a hostile merger. Fast forward less than 8 weeks and DSV A/S (DSV DC) made a public proposal of a takeover for cash and scrip valued at CHF 170/share, which came at a 24% premium to last and +31% vs 1-month VWAP but was even better by day end and by Friday’s close was 8.5% higher.
A couple of weeks after Panalpina shares spiked, the Chairman of K&N Klaus-Michael Kühne was quoted in the press saying Panalpina was “hopelessly overvalued” and the company did not want to either overpay, or undertake a “megafusion” (large M&A) because of the difficulty in integrating companies. He IS chairman, AND his name is on the door, AND he indirectly controls 53% of the stock so his word carries weight.
A body of Panalpina workers came out against the idea of a DSV acquisition, and the board of major shareholder The Ernst Göhner Foundation apparently told Panalpina it supported Panalpina management’s model of growing by its own consolidator strategy, which Panalpina CEO Stefan Karlen said on the 13th in a phone interview with Bloomberg could involve taking on debt.
A day later, interviews with the Thomas Gutzwiller, chairman of the Göhner Foundation’s Panalpina committee, said the Foundation doesn’t fundamentally oppose a takeover of Panalpina and would be prepared to reduce its stake in “any transactions within the scope of implementing the strategy,” (Luzerner Zeitung). He also said that the foundation had supported the company’s major investments (in IT) in recent years and wanted to reap the benefits.
It wasn’t clear whether which approach takes priority. Does the foundation want to wait? Is it just looking for a higher price? I think the two are not incompatible.
Frustrated by the lack of transparency on whether Panalpina was considering DSV’s approach or not, major shareholder Artisan Partners earlier this week wrote an open letter to Panalpina’s board explicitly asking Panalpina to entertain the bid and open negotiations, and to ensure that conflicted members of the board recuse themselves.
This puts the #2, #3, and long-time #4 shareholders (Franklin Templeton was a long-time #4) firmly and publicly in the camp of trying to get something done. In fact, a fund manager at Franklin Templeton was quoted in a Bloomberg article recently saying the Foundation was perhaps the only shareholder against the deal. There is an enormous amount of frustration at these holders who have held for years (9, 10+, and several) have not seen margins improve. Since the deal was announced, two major risk arb funds have purchased a combined 5+%, and others appear to be in as well.
The New News
On Friday, Panalpina confirmed media scuttlebutt that it was in preliminary talks with Kuwait-listed logistics company Agility Public Warehouse which has a market cap of about US$3.7bn. A Bloomberg report suggested a deal could be reached as early as this week for its logistics business (presumably leaving the infrastructure business in Agility’s hands. The same article suggested the Göhner Foundation is supportive of the new talks.
Also on Friday, DSV announced a new all cash CHF 180/share offer for Panalpina, and Panalpina shares rebounded from CHF 149.00 to CHF 156.10/share that day. That leaves 15.3% to the cash offer, though the original cash and scrip offer is now worth CHF 184.5/share, which is an even better premium to pre-offer terms.
It’s all still in play, but for the moment, EVERYTHING comes down to the Foundation – for one simple reason embedded in the Panalpina Articles of Association.
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