In this briefing:
1. Minebea-Mitsumi Underpriced Tender for U SHIN (6985 JP) Launched
Three months ago, Minebea Mitsumi (6479 JP) announced that it would launch a Tender Offer for U Shin Ltd (6985 JP) and it would take just under three months until the approvals were received and it could officially start the Tender Offer process. It took a couple of weeks longer, as proposed by U Shin’s update on 30 January, which indicated anti-trust approvals had been received.
The background to the Tender Offer was discussed in Minebea Mitsumi Launches Offer for U-SHIN in early November.
My first conclusion in November was that this was the “riskiest” straight-out non-hostile TOB I had seen in a while.
This is a wide-open deal. The buyer owns 1 round lot. The largest holder is an activist. The deal is being proposed at not such a super-high multiple (8x forecast FY earnings for the year ending 31 December 2018) and 4.9x EV/EBITDA. It is 3.7-4.0x when taking into account the 67 different equity positions they held at the end of last year, some of which they have recently liquidated.
from (8 Nov 2018) Minebea Mitsumi Launches Offer for U-SHIN
In the interim, the activist dropped their position in half (necessitating a filing of a Large Shareholder Report for going below 5% – and they may have completely liquidated by now), and an investment bank has gone above 5% since then.
The financial advisory “valuations” at the time were more than questionable. A discussion of the valuation levels can be found in the previous insight (I don’t need to repeat them here, just go there).
Today, the company raised its OP and Ordinary Income forecasts for the year ended 31 December 2018, but lowered its Net Income forecast by 98.8% due to writeoffs at many overseas facilities. Then the promptly reported earnings (also only in Japanese) a few seconds later (only available in Japanese).
Op is now forecast to drop 2% in 2019 vs 2018, but the 2019 forecast is 11+% higher than the 2018 forecast was just yesterday. The forecast for Net Income is ¥99.35/share, putting the deal at <10x forecast PER. And even less if one considers that the cross-shareholdings could be reduced.
The New News
Today Minebea Mitsumi announced the launch of its Tender Offer, to commence tomorrow, at the same price as originally planned (¥985/share), and to run for 38 days.
This deal is still perplexing to me. It’s easy enough from an industrial standpoint. I mean, why not buy relatively cheap assets then see if you can cross-sell or assume some attrition. But for investors… I wonder why they put up with this.
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