In this briefing:
- GrainCorp (GNC AU): Better Late than Never Move to Get an LTAP Binding Proposal
- POSCO Chemtech: Merger, Renaming, KOSPI Move & Joining KOSPI 200
- Nexon Controlling Stake Sale: Names Included in Short List
- Rakuten (4755 JP): Lyft IPO’s Big Lift Unlikely to Lead to a Sustained Re-Rating
- Hopewell Holdings (54 HK): A Reasonable but Not Great Exit for Shareholders
1. 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.
2. 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.
3. Nexon Controlling Stake Sale: Names Included in Short List
- Korea’s local news house Hankyung reported the names that should be included in the short list. They are Kakao, MBK Partners (with NetMarble), Tencent, Bain Capital and another foreign PE whose name isn’t disclosed. Apparently, Amazon, Comcast and EA, didn’t make the short list. Those in the short list now get a chance to do due diligence. They will then participate in the main bidding round that is scheduled for early April.
- It is being reported that only Kakao and NetMarble (with MBK Partners) are truly interested in taking over Nexon’s management right. Tencent is expected to join either Kakao or NetMarble-led consortium in the end. Bain is looking into possible investment opportunities that may be created if this sale leads to a mandatory tender offer to Nexon minority shareholders. It seems safe to say that this comes down to a two-horse race: either Kakao or NetMarble.
4. Rakuten (4755 JP): Lyft IPO’s Big Lift Unlikely to Lead to a Sustained Re-Rating
Lyft Inc (0812823D US) has kicked off its IPO by posting its S-1 filing last Friday. Rakuten Inc (4755 JP) is Lyft’s single largest shareholder with a 13.05% stake. Rakuten has invested around $700 million to acquire its current Lyft stake and stands to make 3-4 times its investment if Lyft achieves its rumoured IPO valuation range of $20-25 billion.
Lyft’s IPO valuation range was first reported by Reuters on 20 February 2019. On the back of the news, Rakuten’s shares have so far risen around 10%. Notably, at the IPO valuation range, the Lyft stake would account for 20-25% of Rakuten’s current market cap. While the Lyft IPO will prove to be a big winner for Rakuten from an ROI perspective, we believe that from a valuation perspective, the upside is modest.
5. Hopewell Holdings (54 HK): A Reasonable but Not Great Exit for Shareholders
Hopewell Holdings (54 HK), an infrastructure and property developer, is subject to a privatisation proposal from its Chairman, Sir Gordon Wu. The privatisation price of HK$38.80 cash per share is a 46.7% premium over the closing price on 30 November 2018, the day before the announcement of the privatisation proposal.
While predicting the success of Hong Kong privatisations is a challenge due to the high threshold of shareholder approval, we believe that the Hopewell privatisation proposal has a good chance of success as it offers a reasonable (but not great) exit for shareholders.
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