Brief Event-Driven: Hyundai Motor Share Class: Time to Short Common & Long Pref and more

In this briefing:

1. Hyundai Motor Share Class: Time to Short Common & Long Pref
2. Yungtay Noises Haven’t Produced a Result Yet
3. Kosaido (7868 JP) TOB Extended

1. Hyundai Motor Share Class: Time to Short Common & Long Pref

• Common is widening pref discount today as it is generating the highest gain mainly on the Elliott pushing. As of now (1PM in Korea time), Common and 1P/2PB gain difference is nearly 1.5%p. This is putting price ratio at nearly 120D high. On a 20D MA, both Common/1P and Common/2PB are above 200% of σ. We see this level for the first time since mid Dec last year.
• It is unlikely that Elliott’s ₩4.5tril dividend demand will get shareholder approval in the upcoming Mar 22 AGM. But it is enough to create a market mood that Hyundai Motor will hand out more generous shareholder friendly measures. Generally, common gets favored market sentiment as we move into AGM cycle. This time should be different. Each time Elliott factor came in, HM Pref tended to outperform Common.
• This should be time again for HM Pref to shine more. Both 1P and 2PB are sufficiently undervalued relative to Common. Div yield difference to Common is also at the highest for both pref types. I’d go short Common and long 1P or 2PB now. 1P seems a little more safe bet. But 2PB is more liquid. Either way wouldn’t go terribly wrong.

2. Yungtay Noises Haven’t Produced a Result Yet

After almost three months of preparation after the initial news came out in October, Hitachi Ltd (6501 JP) launched its Tender Offer for Yungtay Engineering (1507 TT) in mid-January 2019. 

The background of the two companies’ relationship, the board kerfuffle last year, and some detail on the financials and the growth of the Chinese mainland elevator market was discussed extensively in Going Up! Hitachi Tender for Yungtay Engineering (1507 TT)at the end of October. When the Tender Offer was confirmed as launched, additional details were provided in Hitachi Tender for Yungtay Engineering Launches.

Since then, there has been a litany of small “nuisance” events which so far have not resulted in any changes to the terms of the Tender Offer, but keeping a watchful eye is recommended.

3. Kosaido (7868 JP) TOB Extended

As discussed in previous insights, Kosaido Co Ltd (7868 JP) is currently the subject of a TOB (Takeover Bid) by an SPV established by Bain to acquire all the shares outstanding. This has been discussed in three different insights so far.
  ❖ Smallcap Kosaido (7868 JP) Tender Offer: Wrong Price But Whaddya Gonna Do?
  ❖ Kosaido: Activism Drives Price 30+% Through Terms
  ❖ Kosaido TOB: Situation Gets Weird – Activists+Independent Opposition to MBO 

The TOB started as a lowball price TOB with the explanation that the MBO was needed to rehabilitate the printing/information business which makes up three-quarters of consolidated revenue of the company and is the basis upon which the company was founded decades ago.

A read between the lines showed quite quickly that the more ostensible reason for taking the company private was to be able to own 61% of the company which provided the other 25% of consolidated revenue and made up materially all of the operating profit of Kosaido over the past few years. And that business was being bought at just over half of book while the rest of the business was being bought for effectively zero.

My first insight questioned that despite “independent directors” not doing so, and an activist in the form of Yoshiaki Murakami’s firm Reno KK did something about it, quickly buying just under 10% of the company in the two weeks after announcement. On that news, the stock shot up to 30-40% through terms, and fell back, but since it started rising above terms and peaking, it has not fallen below about 15% through terms.

The New News

YESTERDAY, the directors of Kosaido released an amendment to their Statement of Support of the Tender Offer adding a phrase to the effect that “subsequent to the initial meeting where all the statutory auditors had expressed support, at the Board Meeting on the 25th of February, Independent Statutory Auditor Nakatsuji-[san] expressed his opposition to the Tender Offer.” This follows his notice of opposition on the 19th.

TODAY, the Offeror announced an Amendment to the Tender Offer and was extending its Tender Offer by 7 business days – from 30 business days to 37 business days – which has the effect of changing the Closing Date from March 1 to March 12.

With the shares 20% through terms (¥738/share as I write) despite what appears to be no increase by the main activist in the last two weeks, the likelihood retail will tender at ¥610/share this looks like a situation where the deal may fail unless there is a bump.

But it would still be up for grabs.