Brief Event-Driven: MergerTalk:China Oceanwide/Genworth Financial (GNW US) – A Friend In The Spread and more

In this briefing:

1. MergerTalk:China Oceanwide/Genworth Financial (GNW US) – A Friend In The Spread
2. StubWorld: Amorepacific Is “Cheap”, Again; Kingboard Cleans House
3. Hanjin Kal Short Idea: Current Situation & Trade Approach
4. Wynn’s Whale Of A Deal For Crown Off the Hook
5. OUE Commercial REIT & Hospitality Trust Merger Proposed

1. MergerTalk:China Oceanwide/Genworth Financial (GNW US) – A Friend In The Spread

At AlphaSituations, we look for unusual spreads in announced US M&A deals of  >$400MN in size with the intention of identifying and highlighting misunderstood and/or under the radar risk arb opportunities. In our current list of unusual spreads, the most compelling relates to the China Oceanwide/Genworth Financial (GNW US) transaction which was announced more than two years ago. The merger spread currently stands at 40%. Below, we explain why we are confident that this deal will move to completion giving the arbs an opportunity to profit substantially.

Unusual Merger Spreads (As at April 9, 2019)

4Q 2016-1Q 2019 Live US M&A Announced Deals (>$400 MN) & Spreads

Source: AlphaSituations

2. StubWorld: Amorepacific Is “Cheap”, Again; Kingboard Cleans House

This week in StubWorld …

• Amorepacific Group (002790 KS)‘s discount to NAV veers towards its one-year wide level, however newsflow, liquidity and financial performance side with Amorepacific Corp (090430 KS).
• Kingboard Laminates Holdings (1888 HK)‘s more reasonable tilt for Kingboard Copper Foil Hldgs (KCF SP) has minimal bearing on the group, but one wonders when Elec & Eltek Int (ELEC SP) will similarly be taken out.

Preceding my comments on Amorepacific, Kingboard 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. Hanjin Kal Short Idea: Current Situation & Trade Approach

This post examines the current price pushing factors being laid on Hanjin Group holdco Hanjin Kal after the second generation owner’s sudden death. It then discusses the limitations of these price pushing factors.

4. Wynn’s Whale Of A Deal For Crown Off the Hook

After a brief pause in trading yesterday morning, Crown Resorts (CWN AU) announced it is in confidential discussions with Wynn Resorts (WYNN US) concerning an acquisition of Crown by way of a Scheme. The announcement states that Wynn has approached Crown on more than one occasion.

But it does not remove the reason for a deal. The Crown commentary clearly indicated that they were not averse to doing a deal. That would suggest James Packer is not either.

The proposal arrived at a unique time for both companies after the CEOs and major shareholders of both companies relinquished their roles in 2018: Packer for health reasons, and Steve Wynn after allegations of sexual harassment.

If Wynn wants to expand its footprint into the hemisphere and James Packer wants to arrange his affairs, a deal somewhere should be in the offing. This deal may just get pushed to the back burner before coming back to the fore. Several years ago, ADM launched a proposal at Graincorp. Months later there had been no apparent communication and the shares drifted off and then, all of a sudden, there was an agreed deal.

Or perhaps this opens up Crown to other suitors.

5. OUE Commercial REIT & Hospitality Trust Merger Proposed

After a WSJ article on Sunday suggesting as much, Monday morning 8 April 2018 saw the announcement of a Proposed Merger between OUE Commercial Real Estate Investment Tr (OUECT SP) and OUE Hospitality Trust (OUEHT SP) whereby OUEHT unitholders would receive a combination of cash and OUECT shares (S$0.04075 + 1.3853 shares of OUECT) for every share of OUEHT held. Investors in each would receive any “permitted distributions” (dividends, etc) declared by the respective managers in respect of the period from 1 Jan 2019 up to the day immediately before the date on which Trust Scheme becomes effective.

This would create a REIT with S$6.8bn of assets, a pro-forma market cap of ~S$2.9bn, and a free-float of S$1.1bn (up by 57%). OUE Group would continue to own 48.3% of the total. 

The benefits to investors would be increased scale (2.2mm square feet of commercial net lettable area, + 1,640 hotel rooms), more borrowing capacity, increased diversification as asset concentration would be lowered, and because the scope of NewREIT would be broader, it would allow REIT managers more flexibility. The above-mentioned points are advertised as being the fodder for a re-rating. The idea of possible index inclusion is mooted as well. 

The OUECT presentation says that the merger is “DPU accretive to unitholders” (+2.1% on a 2018 pro-forma basis) while the OUEHT presentation says that the merger is “value accretive to stapled securityholders” (+18.7% NAV uplift per stapled security). 

Details of how this all works below.

Separately, two other Singapore deals announced at the end of last week include:

• Kingboard Laminates Hldgs (1888 HK) buying out Kingboard Copper Foil (KCF SP) discussed in Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil

• China Everbright (165 HK) announces an MGO for Ying Li International Real Estate Ltd (YINGLI SP) as discussed in Everbright Mandatory Offer for Ying Li Intl Real Estate – Going Cheap

• To accompany these, there is a Quiddity Singapore M&A Guide 2019.