In this briefing:
- Bristol Myers Squib – Reaffirming Its View on Celgene Corp
- KDDI Deal for Kabu.com (8703 JP) Coming?
- StubWorld: Intouch Gains On Possible Sale of Thaicom
- Orion Holdco Trade: Current Status & Trade Approach
- Dubious Delisting Deals: New Sports, LEAP, China Singyes Solar
1. Bristol Myers Squib – Reaffirming Its View on Celgene Corp
The management of Bristol Myers Squibb Co (BMY US) reiterated its optimistic view regarding the acquisition of Celgene Corp (CELG US) on its Q4-18 earnings conference call today. Unlike most acquisitions that succeed based on cost cuts or revenue synergies, Celgene’s distressed valuation allowed BMY to swoop in and buy a leading bio-tech at a bargain price: if the pipeline succeeds. We are betting it will. If not, the robust cash flows from Revlimid make it a low-risk , low-return deal.
2. KDDI Deal for Kabu.com (8703 JP) Coming?
Yesterday morning, the Nikkei surprised everyone with an article saying KDDI Corp (9433 JP) was holding negotiations to acquire a stake of up to just under 50% in Kabu.Com Securities (8703 JP), which is the online brokerage entity of Mitsubishi UFJ Financial Group (8306 JP) with 1.1 million customers.
Kabu.com shares were bid limit up all day long and closed at ¥462, which is a 10+ year closing high.
The idea is not a new one. The mobile telecommunications market in Japan is mature, and one of the few ways Type 1 telecom providers can grow is by adding content through the “pipes.”
KDDI already has an investment in an online banking 50/50 joint venture with MUFG called Jibun Bank (“My Bank” or “Myself Bank”) which it launched in 2008. KDDI established a smartphone-based asset management service with Daiwa Securities Group (8601 JP) just under a year ago, where KDDI owns 66.6% and Daiwa 33.4%. This was to attract younger customers to savings products accessible through an app in order to make those customers stickier over the long-term. KDDI also bought into Lifenet Insurance Co (7157 JP) in 2015 through a capital raise, and is now its largest shareholder at just over 25% (a decent (and recent) presentation of the company is here). About six months ago, KDDI injected ¥6bn (link is Japanese) into Japanese financial services company Finatext to help spark their new service of a ¥0 commission brokerage. I would note that Finatext and partner (now sub) NOWCAST launched an algorithmic personal asset management advisory service using for kabu.com Securities in 2016.
Owning a stake in a broker would go a long ways towards providing comprehensive financial services access by smartphone under a KDDI-owned profit umbrella.
Is a deal like this feasible? Reasonable? Likely?
The two companies’ first response was pretty standard. This was the version from KDDI:
- 当社は、カブドットコム証券と金融事業においてさまざまな可能性を検討していますが、決まった事柄 はございません.
- KDDI is considering various possibilities in financial business with kabu.com Securities, however, there is no determined facts. [a better translation of the Japanese is “however… no decisions have been made”]
This is pretty standard in Japanese corporate “clarifications.” There are, in fact, no ‘decisions’ unless a board meeting has been convened and put their stamp on it.
But the Japanese market will look at a comment like this and figure that where there is smoke there is fire.
3. StubWorld: Intouch Gains On Possible Sale of Thaicom
This week in StubWorld …
- Both Intouch Holdings (INTUCH TB) and Thaicom Pcl (THCOM TB) gain ~10% in response to rumours of a government takeout of Thaicom.
Preceding my comments on Intouch and Yoosung T&S (024800 KS) 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 as a % – of at least 20%.
4. Orion Holdco Trade: Current Status & Trade Approach
- Orion sub is now falling 6% this morning. Holdco is currently down only 1.6%. They are currently above +2.2σ on a 20D MA. This is a 120D high. Price ratio wise, they are at 0.16549. This is a little above 120D mean. Holdco discount is now 50% to NAV.
- Sub’s 6% fall this morning should be due to the market speculation that 4Q numbers may be worse than expected. But there are still more signals of improving fundamentals going forward. Weaker 4Q numbers do not indicate that Sub is entering a dull cycle business wise.
- Current +2.2σ on a 20D MA is something rare to see. It should be rare even if we look much beyond 120 days. Given the market’s favorable sentiments on Sub’s mid-term outlook, current +2.2σ should be held here and reverted pretty soon. I’d go long Sub and short Holdco until +0~0.5σ.
5. Dubious Delisting Deals: New Sports, LEAP, China Singyes Solar
My colleagues strive to cover M&A transactions in Asia-Pac – and further afield – with a market cap >US$100mn and/or when liquidity or the backdrop story warrant comment. This insight is no exception.
In the past two weeks, two companies who form part of the Huarong-CMB network (HCN), as discussed by David Webb, and one company enmeshed in the Enigma network, have received official offers or are have made announcements pursuant to the Hong Kong Code on Takeovers and Mergers.
- [HCN] New Sports Group (299 HK) was halted from trading on the 18 January and announced a cash or scrip offer, with the cash alternative of $0.435/share priced at a premium of 3.57% to last close.
- [Enigma] LEAP Holdings Group Ltd (1499 HK) is currently suspended pending an announcement.
- [HCN] China Singyes Solar Tech (750 HK) announced it may be subject to a mandatory takeover pending the outcome of an MOU.
Below are brief comments on all three situations. In the case of New Sports, it is a very real deal, with financing in place for the cash option.
It is arguable whether the tanking in CSST shares yesterday after the resumption of trading, increases or lessens the chances of an official Offer unfolding.
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