Daily Event-Driven: Smallcap Kosaido (7868 JP) Tender Offer: Wrong Price But Whaddya Gonna Do? and more

In this briefing:

1. Smallcap Kosaido (7868 JP) Tender Offer: Wrong Price But Whaddya Gonna Do?
2. Healthscope (HSO AU): Brookfield Makes Investors Wait, BGH Unlikely to Provide Material Upside
3. Nissan/Renault: French State Intervention Continues
4. The GER Weekly EVENTS Wrap: Softbank, Xiaomi, Capitaland and Navitas
5. Pinduoduo (PDD US): Lock-Up Expiry – Keep Calm, Keep Going

1. Smallcap Kosaido (7868 JP) Tender Offer: Wrong Price But Whaddya Gonna Do?

Last week on 17 January, printing and HR services company and funeral parlor operator Kosaido Co Ltd (7868 JP) announced that Bain Capital Private Equity would conduct an MBO on its shares via Tender Offer, with a minimum threshold for success of acquiring 66.67% of the shares outstanding. The Tender Offer commenced on 18 January and goes through 1 Mach 2019. The Tender Offer Price is ¥610/share, which is a 43.8% premium to the close of the day before the announcement and a 59.7% premium to the one-month VWAP up through the day before the announcement. 

The company’s board of directors announced it supported the deal. 

Terms & Schedule

2. Healthscope (HSO AU): Brookfield Makes Investors Wait, BGH Unlikely to Provide Material Upside

Healthscope Ltd (HSO AU), Australia’s second-largest private hospital operator, noted today that Brookfield Asset Management (BAM US) is seeking the necessary internal approvals to submit a binding proposal by 31 January. We believe that Brookfield will come through with its binding proposal as the delays are not due to issues cropping up from the due diligence but due to ongoing financing negotiations with multiple banks.

3. Nissan/Renault: French State Intervention Continues

This past week saw some interesting news out of the ongoing saga of governance and control that is the Renault SA (RNO FP)Nissan Motor (7201 JP) Alliance. 

• A week ago, former Nissan Chief Performance Officer and onetime potential successor to Ghosn and/or Saikawa-san – Jose Munoz – who was put on leave to help Nissan deal with its internal investigation – resigned effective immediately. Some suggest this is the start of a bloodbath of Ghosn loyalists.
• Former Nissan CEO and still-CEO at Renault Carlos Ghosn was in court to appeal the decision to not allow him bail. I expect that will end up at the Supreme Court in not too long, but for the moment he might stay in detention for another 7-8 weeks.
• Nissan sources said (according to a Reuters report) earlier in the week they would be looking to file suit for damages against Ghosn.
• Nissan and Mitsubishi officially announced Friday that as a result of a joint investigation by Nissan and Mitsubishi Motors (7211 JP) into the Nissan-Mitsubishi Alliance entity (Nissan Mitsubishi BV), it was discovered that “Ghosn entered into a personal employment contract with NMBV and that under that contract he received a total of 7,822,206.12 euros (including tax) in compensation and other payments of NMBV funds. Despite the clear requirement that any decisions regarding director compensation and employment contracts specifying compensation must be approved by NMBV’s board of directors, Ghosn entered into the contract without any discussion with the other board members, Nissan CEO Hiroto Saikawa and Mitsubishi Motors CEO Osamu Masuko, to improperly receive the payments.” Saikawa and Masuko were not informed and did not also get paid by the company. The NMBV entity will attempt to recoup the funds from Ghosn. Nissan and Mitsubishi are thinking of dissolving their Dutch alliance entity.
• The Nissan panel reviewing Nissan’s governance structure, made up of three independent directors and four external members, met for the first time Sunday. The proposals are due end-March, upon which the board will propose a new management system/structure for approval at the shareholder meeting at end-June 2019. The co-chair said in a comment after today’s meeting that Ghosn perhaps had questionable ethics.
• French business newspaper Les Echos carried an “exclusive” interview with Nissan CEO Hiroto Saikawa which was reasonably enlightening, or should have been from a French point of view. In the interview, Saikawa is adamant that he fully supports the Renault-Nissan Alliance saying that it was not just important but “crucial” and he “would do nothing to render it harm”, and that the French state’s stake in Renault “posed no problem at all” because the “French state does not impose in any way on Nissan.” Saikawa-san also noted that he had no intention of ridding Nissan of French/foreign employees.
• Renault Director Martin Vial visited Japan with French officials including Emmanuel Moulin – chief of staff to Bruno Le Maire, who is French Minister of the Economy – to meet with Hiroto Saikawa and Japanese officials Wednesday and Thursday. This trip was first reported by Le Figaro in the early hours of Wednesday morning (15 Jan) Asia time, and the point of the trip was reportedly to discuss the changes in governance at the top of Renault which might be coming – i.e. a new chairman as the French state and Renault’s independent directors appear to have decided that another two months of detention for Carlos Ghosn is enough to warrant a change even if they still presume his innocence in the charges brought in Japan. They were also to inquire after Ghosn’s case, though that seemed to have been secondary.
• As a sidebar to this trip, Bruno Le Maire came out Wednesday saying that the State had asked the Renault board to hold a board meeting to replace Ghosn, and said that the French state would leave it to Renault’s directors to choose, but also came out and said that  Cie Generale Des Etablissement MIchelin (ML FP) CEO Jean-Dominique Senard would be a great choice (though other suggestions are that he might take the role of Chairman as others note that Renault Interim CEO Thierry Bolloré’s role could be made permanent). His comments about Mr. Senard included those suggesting that Mr. Senard adheres to certain ideas of the “social responsibilities” of the company – ideas which Mr. Le Maire shares.

Mr Le Maire also said this week…

“Nous souhaitons la pérennité de l’alliance. La question des participations au sein de l’alliance n’est pas sur la table.”

Another quote from an article which came out Saturday night at midnight Paris time was similar. 

“Un rééquilibrage actionnarial, une modification des participations croisées entre Renault et Nissan n’est pas sur la table”, déclare Bruno Le Maire. “Nous sommes attachés au bon fonctionnement de cette alliance qui fait sa force.”   

Both quotes say “we” (the French state) seek for the Alliance to continue functioning in a stable manner and changes of the crossholding relationship or ownership rates between the companies were not on the table. 

The second appears to be a quote from the Journal du Dimanche (article linked above) which was probably conducted a day or two earlier – and it makes a reference to it having been conducted just after his return from Tokyo (it was not revealed earlier this week that he had made the trip with Mssrs. Vial and Moulin so this is something of a question mark). 

All of this was out by Friday. It was all very measured and reassuring. 

Then Sunday saw a bombshell dropped… again…

In the Nikkei and Bloomberg, it was revealed that the French visitors to Tokyo had informed Japanese officials of their intention to have Renault appoint the next chairman of Nissan (as apparently the Alliance agreement allows) and of the French State’s intention to seek to integrate Nissan and Renault under the umbrella of a single holding company. 

This is interesting for three reasons…

1. A holding company where the two companies stay listed does nothing that the Alliance does not do now except put a single board in place on top of both companies. That would be a Dutch Foundation structure. A holding company where one of the two companies loses its listing (because it is taken over) would require one of those companies lose a set of shareholders. 
2. A Dutch Foundation (which is effectively the same thing if the two companies stay listed) was an idea which a year ago in the previous kerfuffle last spring about merging was “not an option acceptable to the government” (Les Echos, 7-Mar-18)
3. This is, once again, the French state seeking to intervene in the governance of Nissan. That’s a no-no according to the Alliance Agreement as modified in December 2015. 

This is widely reported in English, Japanese, and French on Sunday. 

There is a conciliatory article in Bloomberg with a headline suggesting a French official (Le Maire) downplayed the French comments about a holding company, but that refers to the JDD article, which is probably days old and repeated the same comment he made publicly earlier this week, reported by Les Echos and Le Figaro about a lack of change in cross-holding, but a careful read of the timeline suggests his comments were made in France before someone leaked this to the Nikkei.

Saikawa-san was reported to have said this morning (Monday 21 Jan 2019) that he had not heard about this, but that now was not the time to consider revising capital ties.

One should note, once again, that this is not the CEO or independent Chairman of Renault saying this. It is not the board or Nissan saying this. It is the French state. 

What does this all mean?  What are the possibilities and ramifications? Read on…

4. The GER Weekly EVENTS Wrap: Softbank, Xiaomi, Capitaland and Navitas

Have nascent bull cases developed for maligned Softbank Group (9984 JP) and Xiaomi Corp (1810 HK)? In this version of the GER weekly events wrap, we asses an interesting debt tender for Softbank Group (9984 JP) which could portend action for the equity. Secondly, we review our long-standing negative stance on Xiaomi Corp (1810 HK) after a very poor recent run. Finally, we are hesitant on the Capitaland Ltd (CAPL SP) acquisition and think a bump is possible for Navitas Ltd (NVT AU)

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

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

5. Pinduoduo (PDD US): Lock-Up Expiry – Keep Calm, Keep Going

The recent collapse of Xiaomi Corp (1810 HK)’s shares after the end of its six-month lock-up period has focused minds on upcoming lockup expirations. Pinduoduo (PDD US) is the next major Chinese tech company with an upcoming lock-up expiration – its six-month lock-up period expires on 22 January.