In this briefing:
- CJ Corp Holdco/Synthetic Sub Trade: Current Status & Trade Approach
- Kosaido: Activism Drives Price 30+% Through Terms
- TRACKING TRAFFIC/Chinese Tourism: HK & Macau Gained ‘Share’ in December, Continuing H218 Trend
1. CJ Corp Holdco/Synthetic Sub Trade: Current Status & Trade Approach
- CJ Corp is a three-sub holdco. CJ Cheiljedang and CJ ENM, account for three fourth of the holdings. CJ Olive Networks accounts for 10%. Olive Young’s growth has slowed down substantially. There is nearly nothing in Holdco’s stub. Holdco price should now be virtually pegged to the two listed subs.
- It’d be safe to do a stub trade with a synthetic sub. I synthesize the four listed subs on a ratio of 50:40:7:3 (CJ Cheiljedang, CJ ENM, CJ CGV and CJ FW). It’d be also fine to do a simpler one with 55:45 on CJ Cheiljedang and CJ ENM only.
- Holdco/Synthetic Sub are now at -0.25σ on a 20D MA. Normally, I wouldn’t make any move at this point. But things still look a bit tempting in favor of Holdco. We are now seeing a much higher price volatility on Korea’s media content stocks including CJ ENM.
- Generally, a higher sub price volatility leads to a higher holdco valuation relative to sub. In addition, this Olive Networks IPO story is being re-ignited by local investors lately. I expect Holdco to hit a +2σ level which we saw late December. I’d go long Holdco and short the synthetic sub even at this point.
2. Kosaido: Activism Drives Price 30+% Through Terms
In my piece Smallcap Kosaido (7868 JP) Tender Offer: Wrong Price But Whaddya Gonna Do? discussing the Kosaido Co Ltd (7868 JP) MBO by Bain, even the title suggested it was a lowball bid with the wrong price.
The deal was announced at ¥610/share which was a 40+% premium to last, but it was still being done at a 44% discount to Tangible Book Value Per Share. I mentioned in the conclusions the following four points…
This is a virtual asset strip in progress. It is the kind of thing which gives activist hedge funds a bad name, but when cloaked in the finery of “Private Equity”, it looks like renewal of a business.
This company is an example of why investors should be spending more time on their stewardship and the governance of their portfolio companies.
It is also why investors should be taking a very close look at the METI request for public comment on what constitutes “Fair M&A.”
If deals like this start to not get done, that would be a bullish sign. Investors will finally be taking the blinders off to unfair M&A practices.
The share price jumped from the 400s to just under the Tender Offer Price, traded there for several days, then a week after it started trading at or near arb terms, the share price suddenly jumped through terms and headed higher. As of today’s close, the stock is 28% through terms.
Yesterday the shares briefly traded almost 40% through terms.
Terms & Schedule of Bain Tender Offer for Kosaido | |
| Tender Offer Price | JPY 610 |
| Tender Offer Start Date | 18 January 2019 |
| Tender Offer Close Date | 1 March 2019 |
| Tender Agent | SMBC Securities |
| Maximum Shares To Buy | 24,913,439 shares |
| MINIMUM Shares To Buy | 16,609,000 shares |
| Currently Owned Shares | 100 shares |
| Irrevocable Undertakings | Sawada Holdings’ 3,088,500 shares or 12.40% (includes the holdings at both Sawada Holdings and HS Securities). |
Something is up.
3. TRACKING TRAFFIC/Chinese Tourism: HK & Macau Gained ‘Share’ in December, Continuing H218 Trend
Tracking Traffic/Chinese Tourism is the hub for all of our research on China’s tourism sector. This monthly report features analysis of Chinese tourism data, notes from our conversations with industry participants, and links to recent company news and thematic pieces. Our aim is to highlight important trends in China’s tourism sector (and changes to those trends).
In this issue readers can find:
- As it has throughout the latter half of 2018, HK & Macau traffic boomed in December: Over the last several months, we believe Chinese tourists have been staying ‘closer to home’, for a variety of reasons. December’s Chinese outbound tourist figures support this idea, as visits to nearby Hong Kong and Macau surged, and trips to destinations farther afield moderated.
- An analysis of December domestic Chinese travel activity, which remained subdued: Overall domestic travel demand, measured in passenger-kms, grew by 3.4% in December, similar to H118 growth. But while rail and highway travel growth held up relatively well compared to earlier in 2018, air travel in December was again weak relative to H118’s strength, up 9.1% after climbing 13.8% in the first half of the year.
- China-to-USA travel activity continued to weaken in December: US tourist and student visa issuance and visits to Hawaii all declined again in December. We think the declines reflect some Chinese tourists turning cautious on the economy (and thus disposable income), but the declines may also reflect changing Chinese policy.
Although we remain positive on the long-term growth of Chinese tourism, it’s clear that near-term demand growth has slowed, and that Chinese tourists are generally staying closer to home and probably spending less than they were a year ago.
Happy New Year (of the Pig)!
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