Daily Event-Driven: Healius (HLS AU): Bid Rejection Provides Option Value and more

In this briefing:

1. Healius (HLS AU): Bid Rejection Provides Option Value
2. Poongsan Holdings Stub Trade: Current Status & Trade Approach
3. The GER Weekly EVENTS Wrap: Healius, FamilyMart, Healthscope, Myob and Hitachi
4. Healius And The (Likely) First Salvo

1. Healius (HLS AU): Bid Rejection Provides Option Value

Healius (HLS AU), formerly known as Primary Health Care (PRY AU), is a leading Australian owner of GP clinics and pathology centres. Healius just took four days to reject Jangho Group Co Ltd A (601886 CH)’s 3 January 2018 proposal of A$3.25 cash per share as it “is opportunistic and fundamentally undervalues Healius.”

2. Poongsan Holdings Stub Trade: Current Status & Trade Approach

• Poongsan Holdings (005810 KS) is another clear-cut target of stub trade in Korea. Poongsan Corp (103140 KS) is responsible for nearly 80% of the sub holdings. Holdco is currently at a 53% discount to NAV. Holdco discount has narrowed. But it is still substantially higher than the local average of 40%.
• Sub is having a run today. It went as high as 6% today. Currently, it is up 4%. Holdco is up 2%. They are now close to -1 σ on a 20D MA. Poongsan business is highly exposed to copper price and US ammunition demand. It still appears that Poongsan is suffering from a weaker copper price and falling demand of ammunition in US.
• I’d make a trade on a short-term horizon. I’d capitalize on a divergence on a 20D MA. I’d wait a bit until later today when there is a little greater price divergence on the duo. I’d make a stub trade when the price ratio on a 20D MA once again enters < -1 σ territory.

3. The GER Weekly EVENTS Wrap: Healius, FamilyMart, Healthscope, Myob and Hitachi

Happy New Year! Below is a recap of the key event-driven research produced by the Global Equity Research team. This week we dig into the potential low-ball bid for Healius (HLS AU) , we update our view on the messy deal between Familymart Uny Holdings (8028 JP) and Don Quijote Holdings (7532 JP) as the deal shifts to earnings dislocation. In addition, we question the economics of a material bump for Healthscope Ltd (HSO AU), assess the reduced bid (and great call by Arun) on MYOB Group Ltd (MYO AU) and finally dig into the potentially risky acquisition by Hitachi Ltd (6501 JP) of ABB Ltd (ABBN VX)‘s power grids. 

The rest of our event-driven research can be found below

Best of luck for the new week – Rickin, Venkat and Arun

4. Healius And The (Likely) First Salvo

Healius (HLS AU) (until last month known as Primary Health Care Limited), a leading owner of general practice clinics and pathology centres in Australia, announced an unsolicited and conditional proposal (including DD) from Jangho Group Co Ltd A (601886 CH) at A$3.25/share (~10x FY19 EV/EBITDA) in a A$2.0bn deal.  Jangho currently holds a 15.9% stake in Healius and has been on the shareholder register for two years.

The Offer price translates to a 33.2% premium to the undisturbed price but below the 12-month high of A$4.09 in March 2018. Optically and when referenced to closest peer Sonic Healthcare (SHL AU), the offer price appears light.

Reflecting the long laundry list of conditions attached to this indicative offer, such as securing debt financing and various regulatory approvals in China and Australia, notably data security, this indicative deal is trading wide at a gross/annualized spread of 25%/47%, assuming a deal completion date in early August.

This proposal does, however, indicate Healius was probably oversold.

This morning, Healius’ board rejected the proposal as it was considered opportunistic and fundamentally undervalued the company.