In this briefing:
- Celgene and Bristol-Myers Squibb – Undervalued and Underappreciated
- Hankook Tire Worldwide Stub Trade: Another Quick Mean Reversion The Other Way Around
- Beleaguered Panalpina Gets An Unsolicited Takeover Offer
- Hitachi Tender for Yungtay Engineering Launches
- Softbank – A Sizeable and Tactical Tender?
1. Celgene and Bristol-Myers Squibb – Undervalued and Underappreciated
A dismal 2018 for the pharmaceutical and bio-tech stocks seems far in the rear view mirror. 2019 began with a bang with two blockbuster deals in the pharmaceutical space within days. In this note, we discuss Bristol Myers Squibb’s Co (BMY US) acquisition of Celgene Corp (CELG US) and outline our view that investors should go long BMY.
2. Hankook Tire Worldwide Stub Trade: Another Quick Mean Reversion The Other Way Around
- Hankook Tire Worldwide (000240 KS) is again in an interesting position. Its sub, Hankook Tire (161390 KS), is up 2.2% today, putting the duo at -2.2σ. Sub had lost nearly 10% on Jan 2~10 mainly on weakening outlook. Sub has then fully recovered this 10% loss this week. This is putting Holdco at a severely undervalued position on a 20D MA. Holdco discount is now at 41% to NAV.
- I initiated a reverse stub trade on this duo on Jan 8. It started at a 0.44953 price ratio. We are now at 0.38882. We would have enjoyed 15% tasteful yield if we had held onto this position up to this day. We have no apparent signal of improving fundamentals on Sub. It appears that Sub’s recent gain should be the work of bargain hunters. Holdco discount is at the local peer average. Price ratio is at yearly mean.
- Importantly, this is the first time that price ratio is hitting below -2σ since late September last year. We should expect another quick mean reversion at this level. Just, this time it will be the other way. I’d go long Holdco and go short Sub now.
3. Beleaguered Panalpina Gets An Unsolicited Takeover Offer
After investors lashed out at Panalpina Welttransport Holding (PWTN SW)‘s board late last year (after years of griping by some of the top holders), forcing the main shareholder to support the installation of a new chairman of the board, management may have thought they had some breathing room.
They did not.
Rival Kuehne + Nagel International A (KNIN VX) quickly (a couple of days later) showed interest in friendly negotations via the press, and Panalpina responded in the press that it wanted to stay independent. Danish rival DSV A/S (DSV DC) had shown interest before, then had gone after Ceva Logistics AG (CEVA SW) as discussed by David Blennerhassett in CEVA’s Days Of Independence Appear Numbered when the CMA CGM deal came out.
Now DSV has lobbed in a bid for the company.
The New News
On January 16th Panalpina Welttransport announced that it had received an unsolicited, non-binding proposal from DSV A/S (DSV DC) to acquire the company at a price of CHF 170 per share, consisting of 1.58 DSV shares and CHF 55 in cash for each Panalpina share.
The offer comes at a premium of 24% to Panalpina’s closing share price of CHF 137.5 as of 11 January 2019 and 31% to the 60-day VWAP of CHF 129.5 as of 11 January 2019.
Following the announcement, Panalpina’s shares surged above the terms of the offer implying that the market was anticipating a higher bid from DSV or one of its competitors.
DSV claimed in its announcement that the “combination of DSV and Panalpina would create a leading global transport and logistics company with significant growth opportunities and potential for value creation” and that the structure of the offer will allow Panalpina’s shareholders to participate in the benefits of the combination.”
They also stated that “the combined business would generate expected revenues of more than DKK 110bn and EBITDA of more than DKK 7bn on a pro-forma 2018 basis (excluding any synergy benefits).”
DSV’s approach to Panalpina comes just months after it failed in an attempt to buy Switzerland’s Ceva Logistics AG (CEVA SW). Given the fragmented nature of the industry, DSV sees scale as a clear competitive advantage in the logistics market as operational leverage and purchasing power increase with rising freight volumes. As a result, M&A is currently an integral part of their strategy.
Media reports suggested that Switzerland’s Kuehne & Nagel was also rumored to be considering an offer for Panalpina.
Panalpina’s response is “According to its fiduciary duties, the Board of Directors of Panalpina is reviewing the proposal in conjunction with its professional advisers.”
Amid Panalpina’s struggles in ocean freight, IT system delays and below-average growth, activist investor Cevian Capital, which owns 12.3% of Panalpina has publicly urged Panalpina to be open for a takeover.
Panalpina’s largest shareholder, Ernst Goehner Foundation, owns a stake of approximately 46% and any deal will depend significantly on its approval.
Given the fragmented nature of the industry, DSV sees scale as a clear competitive advantage in the logistics market as operational leverage and purchasing power increase with rising freight volumes. As a result, M&A is currently an integral part of their strategy.
This is an interesting situation. The question is whether it gets interestinger.
4. Hitachi Tender for Yungtay Engineering Launches
Hitachi Ltd (6501 JP)announced today after the close that it had received approvals from the relevant government organs for its proposed Tender Offer for Yungtay Engineering (1507 TT) and that the Tender Offer would be launched through Hitachi Elevator Taiwan Co. Ltd at TWD 60/share starting tomorrow. The statement filed by Yungtay on the TWSE website is linked here.
The Tender Offer will go through March 7th 2019 with the target of reaching 100% ownership. Son of the founder, former CEO, and Honorary Chairman Hsu Tso-Li (Chou-Li) of Yungtay has agreed to tender his 4.27% holding. The main difference is a minimum threshold for success of reaching just over one-third of the shares outstanding, with a minimum to buy of 88,504,328 shares (21.66%, including the 4.27% to be tendered by Hsu Tso-Li).
This one detail is different from the original announcement in October, which had set a minimum of 50.1% holding after the tender.
The other details of the Tender Offer are the same as described in Going Up! Hitachi Tender for Yungtay Engineering (1507 TT) from when the deal was announced last October.
Since the announcement of a deal at a 22% premium, the stock has risen gently from about TWD 56 to just below the TWD 60 Tender Offer price in ever-decreasing volume.
There has been little to no news on the stock regarding the deal in English, and only limited news in Chinese since the announcement of the deal.
The price evolution makes it look like a pretty straightforward deal. The lowered threshold for success obviously increases the likelihood of success. Weaker markets may also contribute.
But there is a reason why the threshold was lowered.
5. Softbank – A Sizeable and Tactical Tender?
Post the close of market, Softbank Group (9984 JP) announced a $750mn USD tender offer through an unmodified Dutch auction to purchase a portion of its outstanding USD and EUR senior notes. This could be an interesting deal from a timing perspective and could portend action for the equity – more details below.
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