In this briefing:
- Samsung Electronics Share Class: Long 1P / Short Common on Falling Memory Prices
- Versum Materials – Entegris Beaten to the Punch by Merck KGaA
- The Mechanics of the Panalpina Vote
- Descente Descended and Itochu Angle Is More Hostile
- M&A: A Round-Up of Deals in February 2019
1. Samsung Electronics Share Class: Long 1P / Short Common on Falling Memory Prices
- SamE Common/1P price ratio gap is again above +100% of σ on a 20D MA in favor of Common. Deepening concerns about memory chip price hammered both SamE and Hynix yesterday. But SamE 1P couldn’t capitalize. 1P fell even further, almost reaching 120D high in Common/1P price ratio in favor of Common.
- We’ve recently heard rebounding demand for memory chips. This has pushed up both SamE and Hynix lately. Improving fundamentals coupled with the March AGM cycle factor have consistently supported SamE Common/1P price ratio above +0.5σ on a 20D MA since late Jan. This optimism is now facing a serious challenge probably for the first time since late last year.
- Opinions are still heavily divided on memory chip business outlook. The concerns reignited by the falling price news would be here with us in the coming few weeks at least. This’d outweigh even the March AGM factor. 1P starts placing itself ahead of Common. I’d go long 1P and short Common now. I’d hold onto the position until -150~200% of σ. This is a 5~6% yield.
2. Versum Materials – Entegris Beaten to the Punch by Merck KGaA
Merck KGaA (MRK GY), the German pharmaceutical and chemical company, gatecrashed the Entegris Inc (ENTG US) merger with Versum Materials (VSM US) the morning of February 27, 2019, with the announcement of a $48 per share cash acquisition proposal that was presented to Versum’s board of directors that same day. Versum, which was spun out of Air Products & Chemicals, Inc (APD US) in 2016, is a global provider of solutions (Materials and Delivery Systems and Services) to the semiconductor and display industries.
On January 28, 2019, a day after the WSJ broke the story that Versum and Entegris were in talks, the companies announced a $9 billion (combined value) merger of equals whereby each VSM share would receive a fixed exchange ratio of 1.12 ENTG shares, resulting in VSM holders owning 47.5% of the combined company and ENTG holders owning the other 52.5%. The deal was well received with both companies’ shares climbing steadily since the announcement.
However, these best laid plans took a Teutonic turn when the other Merck (Merck KGaA, the German pharmaceuticals and chemicals group unaffiliated with Merck & Co Inc. (MRK US) of the USA) threw its hat in the ring.
According to Merck, its Executive Board unanimously approved its proposal and is fully committed to pursuing the transaction. Merck said it is prepared to proceed immediately to due diligence and negotiations and to quickly agree to a merger agreement. It further stated the completion of the offer will be subject to customary closing conditions, including the receipt of necessary regulatory clearances.
The $48 per share proposed price is a 51.7% premium over VSM’s January 25, 2019 share price just prior to the announcement of the Versum/Entegris merger and a 15.9% premium over VSM’s closing price on February 26, 2019.
The ball is now in the VSM board of directors’ court and below we’ll look at how the board might react and where the chips may fall.
3. The Mechanics of the Panalpina Vote
This insight is a kind of public service announcement for investors looking at the Panalpina Welttransport Holding (PWTN SW) situation as it might affect the likely upcoming Extraordinary General Meeting that the Ernst Göhner Foundation requested of Panalpina, and to which Panalpina has acquiesced. The agenda item of the EGM requested is to implement a “One Share One Vote” system.
Activist Cevian has come out against the proposal by the Ernst Göhner Foundation. This sounds counterintuitive except for one odd legal angle.
The Foundation’s ostensible goal is to ensure that the vote is “fair” so that Cevian and Artisan Partners can vote their full stake after having been capped at 5% for many years because of Article 5 in the Panalpina Articles of Association. The more cunning aspect of this is that, as per the Panalpina announcement…
In a letter addressed to Panalpina’s Board of Directors, minority shareholder Cevian had recently questioned the practice to fully admit EGF with all its voting rights at the Company’s shareholders’ meetings. Cevian took the position that the voting restriction of 5% must be applied to all shareholders and, hence the voting power of EGF must be reduced to 5%. An ad hoc board of independent directors (BoiD) consisting of five directors (without representatives of EGF and Cevian) and chaired by Thomas E. Kern, is currently evaluating the situation based on expert opinions submitted by each of EGF and Cevian and based on independent expert advice obtained by the BoiD.
The Foundation knows that their position may be legally weak, and their position could be capped at 5% rather than grandfathered. Indeed, the “independent expert advice” obtained by Cevian includes the opinions of “four leading Swiss stockbrokers” who had come to the conclusion that the Foundation had been unlawfully excluded from the 5% cap, according to this Reuters article on the 26th. The company states that the Ernst Göhner Foundation is and has been exempted from this rule because of “grandfathering” because it owned the shares before the implementation of the rule, but there is nothing in the Articles of Association which grants the EGF that exemption. The full Cevian press releases in English and German are available through their spokesperson and are attached below (at the bottom of the insight).
Another Reuters article discussed the situation, with quotes from Cevian, and added this tidbit at the end.
An ad hoc board of independent directors consisting of five directors, without representatives of EGF and Cevian…will review the proposal and decide how the voting on it will take place at the extraordinary general meeting,” spokeswoman Edna Ayme-Yahil said.
Investors should note…..
The last paragraph of Article 5 of the Panalpina Articles of Association says “No entries shall be made in the register of shareholders following the dispatch of the convocation to the Shareholders’ Meeting until the day after the Shareholders’ Meeting.” This is a little different than is the case for many large Swiss companies where they give the convocation and investors may subsequently register their shares.
For Novartis AG (NOVN SW), which held its AGM today (28 Feb 2019), the deadline for registering shares was 3 days prior to the AGM as shown on p6 in the Organizational Notes on the AGM Notice.
Temenos Group Ag (TEMN SW) last year set their registration deadline 13 days ahead of the AGM, which is further away, but the Convocation Notice had been sent 47 days before the AGM.
In Panalpina’s case, if you are not registered by the time the company sends out the convocation, there is no requirement for the company to admit your shares to the register even if there is plenty of time to do so (though the Board can make exceptions to the entry restriction).
For investors interested in or concerned about the situation, there are measures which may be advisable to implement ASAP to ensure you can vote.
4. Descente Descended and Itochu Angle Is More Hostile
Descente Ltd (8114 JP) has been in the press quite a bit in recent days with management commentary about how the company and directors disagree with the Tender Offer launched by Itochu Corp (8001 JP) to raise their stake from 30% to 40% and how it could lead to conflict of interest and worsening management, lower morale for employees, and a loss of independence.
Management, former management, and former employees have all joined the party. Wednesday saw a significant sell-down of shares to a post-Tender Offer low, but it was not clear why.
Descente had, on the 26th, noted in a puff piece in the Nikkei that it would move up the release of its next Mid-Term (Three Year) Plan (normally due in May this year), and it would focus on growing direct sales in China through more stores, growing sales in the US through adding products to the list (currently the major product in North America is skiwear), selling LeCoq Sportif in Indonesia and Munsingwear in Vietnam. WHEN is unknown, but the explicit goal is to encourage shareholders to keep their shares rather than tender them to Itochu.
Today saw a new filing from Itochu in which it amended its original announcement, claimed Descente’s activity in the media was additional and additive to the Target Company Position Statement filed on 7 February, and for that reason, their activity had not been appropriately disclosed to shareholders. Furthermore, Itochu noted that while the jibber-jabber had been going on the last two-plus weeks, Descente had asked Itochu to negotiate post-Tender management structure plans, and Itochu had agreed. Itochu and Descente talked for 9 days from 11-20 Feb but Descente was bad-mouthing Itochu in the press at the same time. That induced Itochu to stop talks. And late today, the Nikkei has released a 27 February interview with the CEO of ANTA, Itochu’s longtime textile partner in China and a 6.86% holder of Descente shares, where he says that he supports Itochu’s tender offer, will not sell their shares in Descente, and would support Itochu efforts to restructure management.
These three new developments change things in interesting ways, in my opinion pushing Descente’s own plans closer to Itochu’s, and introducing the possibility of significantly more hostility to come, with a much higher likelihood Itochu can win the proxy wars to come.
In-depth analysis below the fold.
Previous insights on the situation and its runup are listed below.
Recent Insights on the Descente/Wacoal and Itochu/Descente Situations on Smartkarma | ||
Date | Author | Insight |
12-Sep-2018 | Michael Causton | Wacoal and Descente Agree Partial Merger to Head Off Itochu |
16-Oct-2018 | Michael Causton | Itochu Ups Stake in Descente – Refuses to Give up Dreams of Takeover |
21-Jan-2019 | Michael Causton | Itochu Confirms Intent to Deepen Hold over Descente |
31-Jan-2019 | Travis Lundy | No Détente for Descente: Itochu Launches Partial Tender |
10-Feb-2019 | Michael Causton | Itochu and Descente: Gloves Off |
10-Feb-2019 | Travis Lundy | Descente’s Doleful Defense (Dicaeologia) |
5. M&A: A Round-Up of Deals in February 2019
For the month of February, thirteen new deals were discussed on Smartkarma with an overall deal size of US$12.3bn.
This overall number includes the “offer” for Hanergy Thin Film Power (566 HK) which has no value, as yet, attached to the scrip component.
A firm number for Glow Energy Pcl (GLOW TB) has yet to be announced, which could result in a US$4bn+ deal.
The average premium to last close for the new deals was 27.5%.
New Deals | Industry | Deal size (US$mn) | Premium | Deal Type |
Australia | ||||
Ruralco Holdings (RHL AU) | Agriculture | 336 | 44.0% | Scheme |
HK | ||||
Hanergy Thin Film Power (566 HK) | Semiconductor Equipment | – | – | Scheme |
Xingfa Aluminium (98 HK) | Aluminum | 202 | 2.9% | Off-Mkt |
Japan | ||||
Veriserve Corp (3724 JP) | IT Consulting | 143 | 43.6% | Off-Mkt |
Jiec Co Ltd (4291 JP) | Software | 170 | 39.3% | Off-Mkt |
Nd Software (3794 JP) | Software | 270 | 28.7% | Off-Mkt |
U Shin Ltd (6985 JP) | Auto Parts and Equipment | 288 | 28.3% | Off-Mkt |
Thailand | ||||
Golden Land Prop Dvlp (GOLD TB) | Diversified Real Estate | 632 | 2.4% | Off-Mkt |
Glow Energy Pcl (GLOW TB) | IPP and Energy Traders | 4,000 | – | Tender Offer (?) |
UK | ||||
Dairy Crest (DCG LN) | Dairy Products | 1,272 | 12.0% | Scheme |
Ophir Energy (OPHR LN) | Oil & Gas E&P | 511 | 66.0% | Scheme |
RPC Group PLC (RPC LN) | Financials | 4,106 | 16.0% | Scheme |
China | ||||
Sichuan Swellfun Co Ltd A (600779 CH) | Alcoholic Beverages | 330 | 19.3% | Off-Mkt |
Brief Summary of News in February of Arb Situations On Our Radar
Australia | Comments (with links) |
At the Eclipx Group 2019 AGM, the Chairman mentioned that it was the board unanimously endorses this proposal and that a revised timetable will be announced when the contents of the Scheme Book are agreed upon with MMS. | |
At the GrainCorp 2019 AGM, the Chairman announced that the engagement between the two parties remains active, and the proposal is still indicative and non-binding. | |
On 6th February 2019, Greencross held a scheme meeting at which the shareholders approved the scheme of arrangement (99.67% of Greencross shareholders present and voting at the Scheme Meeting voted in favour). A dividend of AUD 0.19 was announced on 7th February (ex-date: 12-Feb-2019), to be paid on 20th February 2019, conditional on court approval of the scheme. The scheme received court approval on 11th February 2019, along with which the company suspended the trading of its shares on ASX from the close of trading on 11th February 2019. The Scheme was implemented on 27th February 2019. | |
On 1st February 2019 it was announced that Healthscope entered into an Implementation Deed with Brookfield, where Brookfield is to acquire all of the shares of Healthscope through a scheme at A$2.5/share and an off-market takeover offer A$4.2/share. A dividend of A$ 0.035 (ex-date:04-Mar-2019) announced on 14th February 2019, is included in the offer price. | |
The “go-shop” period in relation to the KKR Scheme, which allowed MYOB and its advisers to solicit a superior competing proposal, ended on 22nd February 2019, without any superior proposals emerging. As a result, the Directors of MYOB have reaffirmed their recommendation of the scheme. The Scheme Booklet is expected to be released in mid – late March 2019, with the Scheme meeting expected to be held in late April 2019. | |
On 18th February 2019, when the exclusivity period granted to BGH Consortium was to expire, Navitas announced that the exclusivity period is extended to 1st March 2019. This extension was granted in order to carry out a limited set of remaining due diligence, as per the announcement. The Directors of Navitas continue to unanimously recommend the Scheme. | |
On 20th February 2019, the company announced the offer becoming unconditional, along with which it was announced that ESR has an interest of 74.78% of Propertylink and that Centuria Capital Group in respect of their 19.51% ownership. The offer has been extended to the 8th March. | |
Ruralco has announced it has entered into a Scheme Implementation Deed in which Nutrien Ltd (NTR CN) has agreed to take Ruralco private at $4.40/share – a 44% premium to last close and the one-month VWAP. | |
In a market update released by Sigma Healthcare, on 11th February 2019, it was announced that high level due diligence is still underway with regard to the potential merger proposal. |
Hong Kong | Comments (with links) |
Hanergy announced on 26th February 2019, the intention of HMEH to privatise the company by way of a Scheme, at one SPV share for every Hanergy share. No price was given for the SPV. | |
The deadline to despatch the Composite Document was further extended to 29th March 2019, from its previous extension – 22nd February 2019. | |
The scheme document for the privatisation of Hopewell Holdings was dispatched on 24th February 2019. | |
The deadline to despatch the Composite Document has been extended to either 30th April 2019 or 7 days after the date of fulfilment of the conditions, whichever is earlier. This extension is required in order to prepare the Goldjoy Circular to convene the EGM and because completion is subject to the conditions of the Sale and Purchase Agreement being fulfilled. | |
On 13th February 2019, major shareholder of Xingfa Aluminium – Guangxin Aluminium, acquired 5,000 shares in Xingfa, which triggered the launch of a Madatory General Offer, as Guangxin’s stake in Xingfa exceeded 30%. The offer price is HK$5.60 cash/share. |
India | Comments (with links) |
The transaction is expected to close today | |
No Feb update | |
No Feb update |
Indonesia | Comments |
Based on the original schedule, BDMN has today gone ex-rights on being able to vote in the Shareholder Meeting on March 26 and also ex-rights on the ability to select the cash payment for your shares. |
Japan | Comments (with links) |
The offer closed today | |
On the 7th Feb, Descente announced that it was opposed to the deal. They can’t do much because the deal is launched. Shortly after, the employees union, a group of ex-employees, and a former president all came out against Itochu’s Tender Offer. On the 26th, the company announced that it would bring forward its announcement of its Medium Term Plan by a couple of months. | |
No update since launch on 31 January | |
On 12th February 2019, KDDI Corp announced that they intend to conduct a Tender offer for a minimum 45,758,400 shares of Kabu.Com Securities at ¥559/share. If they are able to acquire the minimum, it would lead to a Two Step Squeezeout, because when KDDI’s holding is combined with that of MUFJ Securities’, their total holding reaches 66.67%. | |
On 4th February 2019 after the close, Reno KK filed a Large Shareholder Report declaring a 5.83% position as of 28th January 2019, following which, on the 5th of February they announced that they had purchased an additional 2.49% on the 29th of January, increasing their holding to 8.31%. On the days that followed, along with their joint holder Aoyama Fudosan, the Reno group increased their stake to 9.55% by 1st February 2019 (which was announced on 8th February 2019). On 18th February, an article was published on toyokeizai.net which suggested that Mr. Nakatsuji (longstanding external shareholder) and Sakurai Mie (leader shareholder and descendent of the founder of Kosaido), were against the takeover. It was announced on 26th February 2019, that the tender offer close date had extended to 12th March 2019, from 1st March 2019. | |
Reportedly Amazon.com Inc (AMZN US) and Comcast will enter the race and have submitted initial bids to acquire Nexon. EA was also mooted as a participant in first round bidding. | |
On the 8 Feb, ND Software announced a Management Buy Out (MBO) sponsored by both the existing president, who owns 20%, and J-Will Partners to take the company private at ¥1700/share, which is a 28.7% premium to last trade and comes out to be roughly 7.2x trailing 12-month EV/EBITDA. | |
Pioneer has received all anti-trust approvals | |
The results of the Tender Offer was released on 20th February 2019. There were 32.43 million shares tendered, while the Tender Offer was only to buy 26.6666 million shares, which led to an 82.23% pro-ration. Following the closing of the Tender Offer, the Murakami grouping will own 4% of shares out and 5.7% of voting rights remaining. | |
On 14th February 2019, Minebea Mitsumi announced the launch of their Tender Offer to acquire U Shin Ltd at ¥985/share. The offer opened on 15th February 2019, and will close on 10th April 2019. The intention to make an offer to acquire U Shin Ltd was first announced back in November 2018. | |
After market close on 31st January 2019, Sumitomo Corp (8053 JP) consolidated subsidiary SCSK Corp (9719 JP) announced a Tender Offer to buy out minorities in Veriserve Corp (3724 JP). At the time of announcement, SCSK held 2,900,000 shares or 55.59% of voting rights. The Tender Offer is at ¥6,700/share |
New Zealand | Comments |
No Feb update |
Singapore | Comments (with links) |
Ascendas-Singbridge | No Feb update |
The formal offer document was despatched on 1st February 2019, with the first closing date scheduled for 1st March 2019. On the same day a couple of hours later, due to irrevocable involved, the 50% shareholder acceptance condition was met, and the offer was declared unconditional. This allowed the company to extend the closing date of the offer to 15th March 2019 (final closing date). | |
On 15th February 2019, an announcement was published declaring the offer unconditional, this led to the extension of the closing date to 4th March 2019. | |
Singapore Exchange Securities Trading Limited approved PCI Limited’s application to delist the company from the official list of the SGX-ST, when the scheme becomes effective and binding in accordance with its terms |
South Korea | Comments |
Hyundai Oilbank | No update |
Taiwan | Comments |
On the 14th of February the company announced that in the board meeting held on 29th January 2019, two independent directors objected to the terms of the Tender Offer which had been agreed. There is reportedly an investigation into shareholder rights being conducted. It is to note that in the 14th Feb release, it became clear that Otis Elevator had bid TWD 63/share for Yungtay but the directors had not approved the bid. |
Thailand | Comments (with links) |
On 13th February 2019, Delta announced that the conditions precedent of the Conditional Voluntary Tender Offer was fully satisfied, following which on 18th February 2019 the Intention to Make a Tender Offer (Form 247-3) was announced along with the FY18 Dividend of Bt 2.30/share (which will be added). The Offer document was released on 22nd February 2019, announcing the Tender offer period – from 26-Feb-2019 to 01-Apr-2019. | |
In the “Management Discussions” attached to FY18 earnings of Global Power Synergy Company Ltd, they mentioned that they are collaborating with GLOW in order to decide on tender offer price for GLOW’s shares, after taking into consideration the disposal of one of GLOW’s plants. | |
On 25th February 2019, Golden Land Prop Dvlp announced that they had received information that Frasers Property intends to make a Voluntary Tender Offer to acquire all of Golden Land Prop Dvlp’s shares at Bt 8.5/share. | |
Thanachart Capital Public Company Limited (TCAP), as a major shareholder of Thanachart Bank Company Limited, announced on 26th February 2019, that they entered the Non-binding Memorandums of Understanding, in relation to the merger between Thanachart and TMB. |
Europe/UK | Comments (with links) |
On 21st February 2019, the offer period expiry date was extended to 7th March 2019 (previously 28th February 2019). As per the announcement on 22nd February 2019, the Anta Sports shareholders approved the deal to buy Amer Sports, with 99.19% of votes cast being for the deal. A couple of days later, on 25th February 2019, Mexico’s regulator approved the takeover, and this was the last of the approvals. | |
No Feb update | |
On 22nd February 2019, an announcement was released with the news that Saputo Inc had offered £6.20 cash/per share, to acquire all of the shares of Dairy Crest by way of a Scheme of Arrangement. | |
On 26th February 2019, Diageo made an announcement stating that they had been approached by Sichuan Swellfun, with a possible partial tender offer to increase their stake in Diageo to 70% (from 60%) at RMB 45/share. | |
Visa announced an increase in their offer to £0.37/share (from £0.30/share), on 7th February 2019. The following day Mastercard issued a stated that they were considering their options. On 11th February 2019, Visa posted their Offer Document, following which Mastercard announced that they no longer have any letters of intent acceptiig their offer. An announcement on 21st February 2019, mentioned that both the Court Meeting and General Meeting have been adjourned by the Chairman and the new date will be announced in due course. On 27th February 2019, the offer was extended to remain open till 8th March 2019. | |
It was announced on 30th January 2019 that Medco Energi Internasional T had reached an agreement to acquire Ophir Energy at an offer price of £0.55/share, by way of a Scheme of Arrangement.Petrus Advisors (3.5% shareholder) dialed up the pressure on its opposition for this offer, with a letter addressed to Ophir’s Chairman, on 19th February 2019. | |
Oslo Børs VPS Holding ASA | On 4th February Nasdaq AB published the Public Offer document, according to which the acceptance period is from 4th February 2019 to 4th March 2019. |
On 4th February 2019, Panalpina disclosed that their largest shareholder, the Ernst Göhner Foundation, does not support DSV’s indicative offer, which was made in January 2019. Following an announcement by Panalpina on 15th February 2019, regarding Panalpina pursuing a private combination with Agility Group, DSV informed the market that on 6th February 2019, they put forward an all-cash offer of CHF 180/share. | |
On the morning of January 23rd, 2019, after five PUSU extensions, RPC announced the recommended final cash offer by Apollo for 782p per share, or £3.323 billion. |
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