In this briefing:
- Celltrion / Celltrion Healthcare Pair Trade: Ratio Should Move in Favor of Healthcare
- Red Hat Sets January 16, 2019 Special Meeting Date to Vote on IBM Deal.
- Trade Me (TMZ NZ): Hellman & Friedman Could Again Counter-Bid Apax, but Modestly
- Macq Media In The Crosshairs As Fairfax Merger Completes
- TRADE IDEA – Toyota Industries (6201 JP) Stub: Riding the Automation Wave
1. Celltrion / Celltrion Healthcare Pair Trade: Ratio Should Move in Favor of Healthcare
- I initiated a pair trade (short Celltrion / long Healthcare) on Oct 22. Yield peaked at 16.66% on Nov 22. It now stays at 8.75%.
- The ongoing FSS investigation is hammering both. Healthcare is hurting a bit more because it is more directly exposed. The market is overreacting to it. Given what has happened to Samsung Biologics Co., (207940 KS), it is very unlikely that this will be a serious risk.
- I’d hold onto this position longer to regain a mid-teen yield. Current ratio is slightly above 20D MA, but still below yearly median.
- Healthcare’s KOSPI move is still lurking. Temasek’s Healthcare selling was done lately. Celltrion merger is also rising to the surface. We have more factors pushing up the ratio in favor of Healthcare.
2. Red Hat Sets January 16, 2019 Special Meeting Date to Vote on IBM Deal.
As discussed in my previous research piece, Red Hat (RHT US) Files Preliminary Merger Proxy for Its Acquisition by IBM (IBM US) , the timing of the shareholder vote to approve the merger with IBM would depend on the SEC’s review of the draft merger proxy filed on November 30, 2018. Red Hat has now set a meeting date of January 16, 2018. In this update I discuss the latest implications.
3. Trade Me (TMZ NZ): Hellman & Friedman Could Again Counter-Bid Apax, but Modestly
Trade Me (TME NZ), the largest online auction platform operating in New Zealand, has entered into a scheme implementation agreement with Apax Partners. Apax Partners has upped its bid for Trade Me from NZ$6.40 to $6.45 a share, to match Hellman & Friedman’s bid.
Hellman & Friedman has until the shareholder vote scheduled for April 2019, to make a binding offer which is superior to Apax Partners, according to press reports. While Hellman & Friedman will likely have one last roll of the dice with an improved bid, we continue to believe that that the formal “winning” bid is unlikely to present a material bump.
4. Macq Media In The Crosshairs As Fairfax Merger Completes
Late last week, Australian media reported that preliminary discussions were underway between Nine Entertainment Co Holdings (NEC AU) and Macquarie Radio Network (MRN AU)’s second-largest shareholder, John Singleton. This development is not entirely unsurprising, just that formal discussions were deferred until the Nine/Fairfax Media (FXJ AU) merger was formally completed.
In July, Nine and Fairfax entered into a Scheme Implementation Agreement in which the two companies would merge (albeit a Nine takeover) via a cash/scrip structure, in an A$4bn deal, creating Australia’s largest integrated media player. This included the acquisition of Fairfax’s 54.5% stake in MRN. The scheme was implemented on the 7 December. I discussed the merger in my insight Nine & Fairfax – Integrated Advertising.
In an interview with The Daily Telegraph last month (paywalled), John Singleton confirmed that he was ready to sell his 32% stake in MRN as he was not interested in being a small player in a big operation.
The Australian (paywalled) is reporting that Nine has offered $2/share (a 9.3% premium to the closing price of A$1.83 on December 4th), with Singleton believed to be holding out for $2.15/share. In a further twist, Alan Jones, with 1.27% of MRN, is understood to have certain conditions/clauses attached to that stake should Singleton sell, which may make an offer tabled by Nine potentially untenable.
For its part, Nine has confirmed it has held preliminary discussions regarding the outstanding shares, and further announcements will be made by Nine should these discussions progress to a transaction. MRN is currently trading at ~$1.90/share.
5. TRADE IDEA – Toyota Industries (6201 JP) Stub: Riding the Automation Wave
If ever there was a stub business that is poised to capitalize on global trends of factory automation, automated logistics handling and electric vehicle prevalence, it is that of Toyota Industries (6201 JP). In August, I took an in-depth look at the major businesses of Toyota Industries and concluded that the market was not giving the company credit for the global leadership it has established in the forklifts and automobile A/C compressor businesses, nor for the progress it has made in the logistics equipment business. While the market’s oversight appeared to have corrected in September and October as the discount to NAV contracted from 34% to 25%, the trend has since reversed and the discount is back at trough levels of 35%. In August, I implied that this would be a good trading opportunity. Today, I explicitly recommend going long the stub.
In this insight I will cover:
- A market-neutral trade setup
- A review of the core unlisted businesses
- Alternative data used to gauge performance in the core business
- Risks of the trade
- A recap of ALL my stub trade ideas on Smartkarma, including track record of performance
