In this briefing:
- Another Semi-BIGLY Buyback at TOC: STILL an MBO Candidate
- Propertylink – CNI Shareholders To Vote On ESR’s Final Offer
- M1 Ltd (M1 SG): A Clever Ploy to Put the Ball Firmly in Axiata’s Court
- BDMN/BBNP Merger Leads to BDMN Buyout Arb
- Samsung Electronics Share Class: Close Prev Position & Initiate New One Reversely
1. Another Semi-BIGLY Buyback at TOC: STILL an MBO Candidate
13 months ago, real estate operator TOC Co Ltd (8841 JP) – known for decades in Tokyo as the owner/operator of the largest single building in Tokyo by floor space – launched a Tender Offer to buy up to 20mm shares or 16.4% of the shares outstanding. Effissimo, Mizuho Bank, Mitsubishi UFJ Bank, and Mitsui Sumitomo Bank had each apparently approached the company indicating they were interested in selling.
The Tender Offer resulted in Effissimo selling 17,916,900 shares, leaving them with 4.599mm shares. Combined, other parties sold 800,000 shares.
On the 21st of March 2018, TOC announced it would cancel 33 million shares out (they already had ~14mm shares of Treasury stock prior to launching the Tender Offer). Later they launched another buyback program and the company has 1.847mm shares of Treasury stock as of now, out of 103.88mm shares outstanding.
I wrote about these events last year in TOC’s (8841 JP) BIGLY Buyback and TOC’s BIGLY Buyback Makes It a Takeout Target.
The New News
Yesterday after the close, the company announced a ToSTNeT-3 Buyback this morning, to buy up to 4.6 million shares or 4.49% of shares outstanding at ¥778/share.
That makes the previous argument stronger, not weaker.
To not reinvent the wheel, the second insight is the one with the deep dive information about the company and its assets.
A review of the opportunity continues below.
2. Propertylink – CNI Shareholders To Vote On ESR’s Final Offer
ESR has now declared its Offer for Propertylink Group (PLG AU) “to be best and final“, and the Offer has been extended until the 28 February (unless further extended).
After adjusting for the interim distribution of A$0.036/share (ex-date 28 December; payment 31 January), the amount payable by ESR under the Offer is A$1.164/share, cash.
The Target Statement issued back on the 20 November included a “fair and reasonable” opinion from KPMG, together with unanimous PLG board support.
To recap: after PLG rebuffed an offer from Centuria Capital (CNI AU) in September, followed by PLG making an offer for Centuria Industrial Reit (CIP AU) – in which both CNI (23.5%) and PLG (17.3%) have sizeable stakes – ESR launched its offer for PLG. Adding to the cross-holdings, ESR also acquired major positions in both PLG (18.06% initially, now up to 19.9%) and CNI (14.9%).
ESR’s Offer is conditional on a minimum acceptance condition of 50.1%. CNI has a 19.5% stake and Vinva Investment Management 5%.
The next key event is CNI’s shareholder vote on the 31 January. This is not a vote to decide on tendering the shares held by CNI in PLG into ESR’s offer; but to give CNI’s board the authorisation to tender (or not to tender) those PLG shares.
Although no definitive decision has been made public by CNI, calling the EGM to get shareholder approval and attaching a “fair & reasonable” opinion from an independent expert (Deloitte) to CNI’s EGM notice, can be construed as sending a strong signal CNI’s board will ultimately tender in its shares. According to the AFR (paywalled), CNI’s John Mcbain said: “We want to make sure when we do decide to vote, if we get shareholder approval, the timing is with us“.
Assuming the resolution passes, CNI’s board decision on PLG shares will take place shortly afterwards. My bet is this turns unconditional the first week of Feb. The consideration under the Offer would then be paid 20 business days after the Offer becomes unconditional. Now trading with completion in mind at a gross/annualised spread of 0.8%/6.7%, assuming payment the first week of March.
3. M1 Ltd (M1 SG): A Clever Ploy to Put the Ball Firmly in Axiata’s Court
M1 Ltd (M1 SP), the third largest telecom operator in Singapore, is subject to a voluntary conditional offer (VGO) at S$2.06 cash per share from Keppel Corp Ltd (KEP SP) and Singapore Press Holdings (SPH SP) (KCL-SPH). KCL-SPH said on Tuesday that they wouldn’t increase their S$2.06 offer price “under any circumstances whatsoever.”
KCL-SPH’s stance not to increase their S$2.06 offer price is a clever ploy to the put the ball in Axiata Group (AXIATA MK)’s court. Axiata has three options, in our view. We believe that the probability of a material bid to KCL-SPH’s offer is low with Axiata most likely to retain its stake as a minority shareholder.
4. BDMN/BBNP Merger Leads to BDMN Buyout Arb
In December 2017, Mitsubishi UFJ Financial (8306 JP) launched a complicated three-step process to acquire up to 40%, then up to 73.8% (or more) in Bank Danamon Indonesia Tbk (BDMN IJ), five years after DBS’ aborted attempt to obtain a majority in the same bank.
This was discussed originally in Pranav Rao’s Bank Danamon: Takeover Redux.
MUFG initially bought 19.9 percent of Bank Danamon from Singapore state investor Temasek Holdings 15.875 trillion rupiah ($1.17 billion), then valuing the Indonesian lender at around $6 billion.
Step 2 saw the OJK give the OK (BDMN announcement in English) for MUFG to up its holding to 40% – the statutory maximum under the prevailing OJK regulation No.56/POJK 03/2016 – and the Indonesian Financial Services Authority (OJK), seemingly granted permission for MUFG to go above 40% in Bank Danamon when OJK deputy commissioner for banking, Heru Kristyana, wrote in a message to a Reuters journalist (article here) on August 3rd last year “They (MUFG) can have a larger stake than 40 percent once the merger (with Bank Nusantara) has gone through and as long as they meet provisions and requirements.”
As Johannes Salim, CFA pointed out in his interesting insight Bank Danamon: Fundamentals Revisited Plus Thoughts on M&A in March last year, the revised OJK regulation No.56/POJK 03/2016 placed the authority for determining whether or not a foreign acquiror could go above 40% squarely on the OJK – no BI approval would be necessary.
Indonesia has a “Single Presence Policy” (OJK Regulation No. 39/2017) which requires that a foreign owner may not hold more than one control stake in a bank. In order to get to Step 3 which would be to acquire the remaining 33.8% of Danamon from Temasek affiliates (Asia Financial Indonesia and its affiliates), MUFG would need to merge its presence in Bank Nusantara Parahyangan (BBNP IJ) (also known as “BNP”) where it holds more than three-quarters of the shares (and has controlled since 2007) with Danamon.
The New News
This morning’s paper carried a giant notice in bahasa announcing the planned merger between BDMN and BNP with shareholder vote for both banks 26 March 2019 (record date 1 March) and effective date 1 May 2019. The Boards of Directors and Boards of Commissioners of each bank
- “view that this Merger will increase the value of the company because it is a positive move for stakeholders, including the shareholders of Bank Danamon,” and
- “have proposed to their shareholders to agree with the resolution on the proposed Merger in each of their respective GMS.”
Indonesian takeover procedures generally require a Mandatory Takeover Offer procedure when someone goes over a 50% holding. But banks being bought by foreigners are a different category and bank takeovers are regulated by the OJK. In addition, the structure of such takeovers creates short-term options (for holders) and possibly longer-term obligations for the acquiror which are a little unusual, but provide for a very interesting opportunity in this case.
There is a trade here.
5. Samsung Electronics Share Class: Close Prev Position & Initiate New One Reversely
- SamE Common/1P are now below -2σ on a 20D MA. This is almost 120D low. 1P discount to Common is 16.61%. This is the lowest since mid November last year. Div yield difference is also on the decline. It is now 0.7%p on FY19 local street consensus.
- It is possible to see short-term price correction on both after the recent mini rally. This’d complicate predictability on price pairing. But we are moving into March OGM cycle. This should put harsher pressure on 1P.
- I’d close the previous position. I’d initiate another round of pair trade. This time go long Common and short 1P with a short term horizon.
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