Brief Event-Driven: StubWorld: Hang Lung’s Implied Stub At Extreme Levels and more

In this briefing:

1. StubWorld: Hang Lung’s Implied Stub At Extreme Levels
2. Nongshim Holdco/Sub Trade: Current Status & Trade Approach
3. KDDI Tender Offer for Kabu.com (8703 JP) Decided
4. GPSC To Proceed With Glow Takeover, But At What Price?

1. StubWorld: Hang Lung’s Implied Stub At Extreme Levels

This week in StubWorld …

• Hang Lung (10 HK) has lagged 57.6%-held Hang Lung Properties (101 HK) after announcing full-year results, resulting in the implied stub touching 2 STD away from the average.
• An update on Intouch Holdings (INTUCH TB)‘s stub investments via its venture capital arm, InVent.

Preceding my comments on HLG and Intouch 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%.

2. Nongshim Holdco/Sub Trade: Current Status & Trade Approach

• Nongshim Sub took a beating yesterday. It lost nearly 5%. Holdco stayed flat. This made a 2σ jump. They are now at 253% of σ, nearly 200%p jump from 53% in a single day. It is true that China concerns are again being felt on many Korean F&B stocks. But there is no clear sign that we should seriously worry about Nongshim’s short-term fundamentals.
• Its local rival Ottogi is continuously making strides. But we are yet to see a long-short move on Nongshim Sub and Ottogi. Local institutions are still relatively supportive on Sub. There is no particular move on Sub shorting either. Sub’s 5% loss yesterday shouldn’t be indicative of any structural price correction.
• On a longer horizon (2Y), Holdco is still being undervalued relative to Sub. But this is the first time they are above +2.5σ in 120 days. I expect a quick mean reversion at this point. I’d have a long/short trade with a very short-term horizon. Just, Holdco liquidity can be an issue here again.

3. KDDI Tender Offer for Kabu.com (8703 JP) Decided

Today after the close, KDDI Corp (9433 JP) announced its intention to conduct a Tender Offer for Kabu.Com Securities (8703 JP) through a made-for-purpose SPC. The deal is not terribly different in scope than the one discussed in KDDI Deal for Kabu.com (8703 JP) Coming? about two weeks ago.

The Tender Offer is to purchase a minimum of 45,758,400 shares at ¥559/share, which is a 5.67% premium to today’s close and a 46.3% premium to the undisturbed price of 23 January 2019. Obtaining the minimum would get the combination of KDDI and MUFJ Securities (which currently holds 52.96% of the shares outstanding, and will not tender) to 66.67% which would allow the combination to do a Two Step Squeezeout, which KDDI states in the document that it intends to do.

Anti-trust and regulatory approvals are required, and KDDI expects that the Tender Offer will commence in late April. This looks pretty easy as a deal, with few impediments. A rival bid is unlikely in the extreme, KDDI has a headstart with the shares of MUFG Bank which have committed to the deal.

There are a couple interesting aspects to this deal, and KDDI made several other announcements simultaneously which taken together show some of the extent of KDDI’s plans.

4. GPSC To Proceed With Glow Takeover, But At What Price?

Global Power Synergy Company Ltd (GPSC TB) announced on the 20 June last year an intention to acquire 69.11% of Glow Energy Pcl (GLOW TB) from Engie SA (ENGI FP) at Bt96.5/share (reduced to Bt94.892/share subsequent to an interim dividend of Bt1.608), valuing Glow at US$4.4bn or 2.86x P/B. Once the acquisition was approved, the remaining 30.89% of shares would be subject to a mandatory tender offer.

The key issue raised at the time was that the transaction would give GPSC a monopoly on power purchase agreements in Map Ta Phut, Thailand’s largest industrial park.

Despite what appeared to be a non-issue from an anti-trust point of view (as discussed in Anti-Trust Should Be A Non-Issue In The GPSC/Glow Deal), on 11 October 2018 the Energy Regulatory Commission (“ERC”) notified the public of its decision not to give its approval for the transaction. Glow’s shares declined ~6% on the news.

An appeal to reconsider ERC’s decision was dismissed on 14 December.

After an announcement alluding to multiple interests for Engie’s stake, on the 27 December Glow announced that ERC has resolved to approve the merger with GPSC, provided Glow sells its Glow SPP1 plant before or at the same time as the merger. A number of conditions were also attached to some of the remaining power plants.

No price has been disclosed for the 69.11% stake in Glow, ex the SPP1 plant.

The current upside is (at best) 6.8% to an indicative offer price Bt95.86, assuming Glow can sell SPP1 at the same multiple under GPSC’s initial offer and GPSC continues to assign the same multiple to Glow even after the sale of SPP1. That would appear a stretch. However, SPP1 is estimated to account for just ~5% of Glow’s energy output and revenue. And media are reporting Engie itself may acquire the plant, which should smooth and expedite the completion of the transaction.