In this briefing:
- Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer
- StubWorld: Matheson’s Strategic Buying of Strategic
- Orion Holdco/Sub Trade: Holdco’s Price Catching up Was Overworked, Time for Sub to Catch Up
- GrainCorp (GNC AU): Better Late than Never Move to Get an LTAP Binding Proposal
- POSCO Chemtech: Merger, Renaming, KOSPI Move & Joining KOSPI 200
1. Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer
Delta Electronics (2308 TT) (DEI) launched the conditional voluntary tender offer for Delta Electronics Thai (DELTA TB) (Delta), an electronics contract manufacturer, on 26 February 2019. The tender offer of THB71.00 cash per share values Delta at an EV of THB72 billion ($2.2 billion).
Delta and DEI have close links as they were both founded by billionaire Bruce Cheng. Consequently, the tender offer could be viewed as a mechanism for the Chen family to sell their stake to a “friendly” DEI. For minority shareholders, we believe that DEI’s tender offer is reasonable and it makes little sense for minority shareholders to hold on to their shares.
2. StubWorld: Matheson’s Strategic Buying of Strategic
This week in StubWorld …
- Jardine Matheson Hldgs (JM SP)‘s recent buying of Jardine Strategic Hldgs (JS SP) is nothing new and follows a long-term plan to fortify the cross-holding structure.
Preceding my comments on Jardine and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.
3. Orion Holdco/Sub Trade: Holdco’s Price Catching up Was Overworked, Time for Sub to Catch Up
- Orion Holdco/Sub duo is now above +2σ on a 20D MA. They made nearly 2σ jump in just two trading days. Price ratio is currently at a 120D high. Holdco discount to NAV dropped 4%p from 50% to 46% since last time we checked on Jan 24.
- China easing wind began to blow into Korea since late last year. This China expectation had pushed up both Holdco and Sub. Sub had reacted more sensitively to it. Sub has undergone a price correction lately. Holdco has done a lot of catching up during this period. Now, Holdco surpassed Sub in terms of price return. Holdco climbed 32% from its 52W low. Sub went up 30% from its 52W low.
- Holdco is preparing its own business operation, water purifier, in China. This may act as a divergence factor. But at this point, Holdco’s own business in China has no meaningful substance that can shake its NAV radically. They must be reverted back to mean. Their price return got reversed in favor of Holdco. Holdco’s price catching up should be done now. It is time to go long Sub and short Holdco.
4. GrainCorp (GNC AU): Better Late than Never Move to Get an LTAP Binding Proposal
Graincorp Ltd A (GNC AU)‘s ability to generate shareholder value remains in doubt as LTAP enters its fourth month of due diligence. Yesterday, GrainCorp announced the first result (but overdue) of its portfolio review – the deal to sell its Australian bulk liquid terminals business to ANZ Terminals for A$350 million.
The option with the highest potential to unlock shareholder value remains the LTAP bid. The sale of the Australian bulk liquid terminals business would represent 13% of the current EV which in the absence of an LTAP bid, is unlikely to sustain GrainCorp’s current rating. However, we believe that the proposed sale is a necessary step to push LTAP towards a binding proposal.
5. POSCO Chemtech: Merger, Renaming, KOSPI Move & Joining KOSPI 200
- POSCO Chemtech (003670 KS) is to merge with one of the affiliated companies, POSCO ESM through stock swap at a ratio of 1 to 0.2172865. It will change its corporate name from POSCO Chemtech to POSCO Chemical. It is also planning KOSPI move.
- KOSPI 200 inclusion is a done deal. Just, timing is in question. New passive money flowing into POSCO Chemtech is estimated at ₩68bil. This represents 1.69% of MC and 4.82% of float MC. This is less than twice total daily trade value.
- If KOSPI 200 inclusion happens for this annual rebalancing cycle, it will be June. If not, we will have to wait another year. This explains current ‘dull’ price movement. I’d keep an eye on this event. ₩68bil passive money would still become a price shaker.
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