In this briefing:
- The GER Weekly EVENTS Wrap: Anta/Amer, Trade Me, Hengan and API/Sigma
- Last Week’s GER IPO Research: Tencent Music, IPO Trading Strategy Deep Dive, WuXi, Junshi & Xinyi
- API/Sigma Merger: Sigma Shareholders Need a Better Offer
- Softbank Corp, Takeda, and Newton’s Three Laws of Motion
- API Tilts at Sigma Healthcare: Expect More
1. The GER Weekly EVENTS Wrap: Anta/Amer, Trade Me, Hengan and API/Sigma
Below is a recap of the key event-driven research produced by the Global Equity Research team. This week Arun develops a differentiated view on the deal between Anta Sports Products (2020 HK) and Amer Sports Oyj (AMEAS FH) which he thinks is worse for the former and better for the latter. In addition, we check the bump possibilities for Trade Me (TME AU) which we think is limited by valuation. Further, we find some validity in the short-seller case on Hengan Intl Group (1044 HK) and believe a bump is needed for Australian Pharma Industries (API AU) to close the deal on Sigma Healthcare (SIG AU)
The rest of our event-driven research can be found below
Best of luck for the new week – Arun, Venkat and Rickin
2. Last Week’s GER IPO Research: Tencent Music, IPO Trading Strategy Deep Dive, WuXi, Junshi & Xinyi
Another busy week for IPO research from the GER team. This week, we recap the Tencent Music Entertainment (TME US) IPO which we noted is more fairly valued post its day one rally. Secondly, we dig into Chinese domiciled IPOs that are listed in the States and find some interesting trends on maximizing the ‘pop’, knowing when to get out and an assessment of longer-term performance. Arun nails his DCF valuation on WuXi AppTec Co. Ltd. (2359 HK) which closed at his base-case valuation while he recommends getting involved at the low-end for Shanghai Junshi Bioscience Co. Ltd. (1387344D CH) . Finally, Xinyi Energy Holdings Ltd (1671746D HK) spares further wrath as it postpones its IPO – Venkat digs into the reasons why he is cautious on the company.
Quote of the week:
Please note the post-apocalyptical fiction section has been moved to current affairs
– Sign in front of a UK bookstore
Video of the week: Santas hit the slopes in Maine
This is our last wrap of 2018 – we wish you a safe and happy festive period – and we will back in 2019!
Best wishes – Rickin, Venkat and Arun
3. API/Sigma Merger: Sigma Shareholders Need a Better Offer
Australian Pharma Indus (API AU), a pharmaceutical wholesaler, has lobbed an indicative cash-scrip proposal for its competitor, Sigma Healthcare (SIG AU). Under the proposal, Sigma shareholders would receive 0.31 API shares and A$0.23 cash for each Sigma share, implying $0.686 per Sigma share. If the proposal is successful, API/Sigma shareholders would own 63%/37% of the merged API-Sigma.
Unsurprisingly, API believes its proposal delivers fair value to both API and Sigma shareholders. However, our analysis suggests that Sigma shareholders need a bump for the bid to cross the finish line.
4. Softbank Corp, Takeda, and Newton’s Three Laws of Motion
It has been a huge Q4 for Japan capital markets and banking, and the result is some fat fees for global investment bankers on the Takeda/Shire deal, and a Softbank Corp IPO which I’d be totally OK not owning. A result of this activity is the fun in index land.
And there is a lot of fun to be had.
Some of that fun has been described in Softbank Corp IPO – Dividends, Index Buying, and Offer Structure. More was described in the various insights in the Takeda/Shire series, most recently in Takeda/Shire VI: Now For The Real Fun.
But it is worth revisiting because it involves, over the five weeks starting just before the Christmas holidays, across the two deals, probably…
US$35 billion of index flows…
Timing and impact is discussed herein.
5. API Tilts at Sigma Healthcare: Expect More
Friday morning, wholesale and retail pharmacy health/beauty and lifestyle products operator Australian Pharmaceutical Industries (API AU) announced that it had become a substantial shareholder in wholesale and retail pharmacy health/beauty and lifestyle products operator Sigma Healthcare Ltd (SIG AU) by purchasing 137.26mm shares. Roughly 52.5mm of those shares were purchased between A$0.53 and A$0.63/share between 5 September (the day before the half-year report came out) and 10 October and the other ~84.8mm shares were purchased Thursday 13 December at A$0.64, bringing the total position to 12.95%.
It turns out that on 11 October, API made an indicative non-binding proposal to Sigma through a Scheme of Arrangement whereby Sigma shareholders would receive 0.31 shares of API and A$0.23 in cash for each share of Sigma held.
That offer is now made public.
Worth A$0.686 per Sigma share as of announcement, the Indicative Proposal comes at a 69% premium to the close of trading on 13 December and a 46.8% premium to the one-month average. It is, however, a 10% premium to where API was buying shares on market in September and October. API shares were up a further 8+% on Friday, lifting terms further.
Sigma traded up 43% Friday to A$0.58 against terms which are now ~A$0.723, so there is still 24.7% upside to terms and there might be further upside on further synergy bullishness.
The Scheme Proposal is based on publicly available information, is subject to a number of conditions precedent, ACCC approval, due diligence, and confirmation of what they see as cost synergies.
This deal is somewhat opportunistic after recent troubles at Sigma, and I expect the ongoing strategic review at Sigma (assisted by Accenture) will come out saying that on a standalone basis after fixing itself up it is worth more than where it has been trading. The question is whether a merger would accelerate both the internal efforts at Sigma and improve competitiveness through cost synergies.
Allan Gray was the seller of the 8% stake yesterday it appears. The CIO is quoted in the API announcement as saying they support consolidation in the pharmaceutical wholesaling sector and are “positively disposed to efforts to expedite this consolidation.” They support it to such an extent that they decided to cut in half their participation in the economics of such efforts at expediting this consolidation.
First time indicative opportunistic offers in Australia can be an arbitrageurs’ graveyard.
