In this briefing:
- M&A: A Round-Up of Deals in March 2019
- Optex (6914 JP): Factory Automation Slowdown in the Price
- CIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
- Last Week in Event SPACE: Nissan, Naspers, Lynas, Xenith, Versum, Scout24, PCCW
- Shaky Situations at DEMCO and Pranda
1. M&A: A Round-Up of Deals in March 2019
For the month of March, ten new deals were discussed on Smartkarma with an overall deal size of US$22.3bn.
Clicking on the company name in the table below will take you to the entity page where you can see insight(s) written by Smartkarma contributors.
New Deals | Industry | Deal Size (US$m) | Deal Type | Premium |
Australia | ||||
Real Estate Development | 197 | Scheme | 12.0% | |
Research & Consulting | 100 | Scheme | 22.7% | |
Diversified Metals & Mining | 1,063 | Scheme | 44.7% | |
Hong Kong | ||||
Construction & Engineering | 1,300 | MGO | 14.5% | |
Clean Energy | 596 | Scheme | 41.9% | |
India | ||||
IT Consulting and Other Services | 754 | Open Offer | 4.0% | |
Vietnam | ||||
Pharmaceuticals | 146 | Off-Mkt | 3.5% | |
Europe | ||||
Interactive Media and Services | 5,249 | Off-Mkt | 10.9% | |
US | ||||
Semiconductor Equipment | 5,900 | Off-Mkt | 15.9% | |
Construction Machinery | 7,040 | Merger | 13.0% |
Blackstone and Hellman & Friedman made a proposal for Scout24 AG (G24 GR) in mid-January – which was rejected by the board – and subsequently returned with an improved offer which was then supported. The deal was first written on after the Tender Offer was officially launched in March.
The average premium to last close for the new deals announced in March was 18%, while the average for the first quarter of 2019 is 33%.
Brief Summary of News in March of Arb Situations On Smartkarma’s Radar
(again, click on the company names to take to you to the insights and/or discussion posts)
Australia | Comments (with links) |
No March Updates | |
On 19th March 2019, Healthscope announced that they had received FIRB approval for the scheme. The Offer docs have been pushed out to the 24 April so as to incorporate the Scheme and Takeover Documents into a single integrated booklet | |
On 4th March 2019, Manikay Partners LLC and its affiliates filed a notice that they had increased their holding in MYOB to 9.99%, and submitted a letter that asserted that the board should reconsider their recommendation of the KKR offer. However, on 6th March MYOB’s Board, mentioned in their announcement, that they continue to recommend the offer. MYOB’s shareholders will be able to vote for the proposal at the Scheme meeting which will be held on 17th April 2019, as set out in the announcement on 14th March 2019. A Scheme Update on 20th March, stated that the all cash consideration of A$3.40/share, was KKR’s best and final offer. | |
On 21st March 2019, Navitas entered a Board Recommended Scheme Implementation Deed with BGH. | |
On 8th March 2019, a letter was released to Ruralco’s shareholders that confirmed the details of the offer, and that the Board of Ruralco unanimously recommends the Scheme. | |
On 13th March 2019, the Board of Sigma announced that following their review of the proposal submitted by API, they conclude that it is not in the best interest of the shareholders. |
China | Comments |
On 18th March 2019, an announcement was released stating that Sichuan Swellfun has engaged Citic Securities as their advisor for Diageo’s offer. |
Hong Kong | Comments (with links) |
The Composite Document for the deal was dispatched on 20th March 2019. | |
It was announced on 5th March 2019, that permission has been granted to extend the time for the despatch of the Composite Document to 2nd April 2019, in order for the offeror to consider the 2018 annual results of Xingfa. | |
No March Updates | |
The resolution to approve the Sheme was approved by the Shareholders at the Court Meeting held on 21st March 2019. | |
No March Updates |
India | Comments (with links) |
No March Updates | |
No March Updates |
Japan | Comments (with links) |
Faurecia announced on 1st March 2019, that they were able to successfully complete their Tender Offer for Clarion. 95.28% of Clarion shareholders had tendered their shares. | |
On 8th March 2019, Descente released an opinion on the Tender offer, which said they continue to oppose the offer. The results of the tender offer was released on 15th March 2019 – Itochu planned on buying 7.21million shares out of the 75.37mm shares which bear voting rights (as of the commencement of the Tender), and 15,115,148 shares were tendered, which led to a pro-ration rate of 47.7%. The president will be replaced with the president of Itochu Textile. | |
On 19th March 2019, SCSK Corp announced that they had managed to acquire 1.947mm shares of Jiec Co Ltd in the tender offer taking them to 97.90%. | |
No March Updates | |
On 8th March 2019, an announcement was released, which stated that the offer was bumped up to ¥ 700/share, from ¥ 610/share, and the offer close date was extended to 25th March 2019, with the commencement of settlement being 29th March 2019. On 18th March, Yoshiaki Murakami-associated companies announced they had raised their stake above 10%, at a price higher than the ¥ 700/share final tender offer price. On 20th March, Minami Aoyama Fudosan – another Murakami-associated company – announced a Tender Offer for a minimum of 50.00% of Kosaido (and up to 100% of the shares out) at ¥750/share (and announced they had bought more bringing their stake to 13.47% in total). On 25th March 2019, Bain extended their tender offer from 25th March to April 8th. | |
ND Software published an announcement on 8th March 2019, that the base date for shareholders eligible to vote at the EGM, will be the 31st March 2019. | |
A Reuters article on 3rd March 2019, mentioned that Tencent, Kakao Corp, Bain Capital, MBK Partners, and an unidentified private equity firm are the five bidders that have been shortlisted by Nexon, as reported by the Korea Economic Daily newspaper. Netmarble Corp was not offered a position among the bidders, but is said to have formed a consortium MBK Partners. | |
On 8th March 2019, Pioneer announced that they had completed the payment for issuance of new shares through a third party allotment. | |
No March Updates | |
SCSK Corp announced on 19th March 2019, that they gained 94.76% of the shares of Veriserve Corp in the tender, which will mean an immediate push to squeeze out minorities. |
New Zealand | Comments (with links) |
On 7th March 2019, Trade Me announced that the high court had approved the special meeting for shareholders to vote on the Apax proposal. The Independent Advisers’ assessed a fair value between NZ$5.93 and NZ$6.39 per share, below Apax’s offer of NZ$6.45 per share. On 11th March the company announced that the special meeting for the shareholders to vote will be held on 3rd April 2019. The scheme booklet was released on the Trade Me website on 13th March 2019, which was ciculated among shareholders on 19th March. |
Singapore | Comments (with links) |
Ascendas-Singbridge Pte Ltd | No March Updates |
The offer closed on 15th March 2019, with 95.83% of the issued share capital of Courts Asia. The remaining shares will be acquired through a compulsory acquisition at the final offer price of S$0.205/share. It was also announced that the last day of trading of the stock would be 15th March 2019, with the stock being suspended from 18th March 2019. | |
On 6th March 2019, it was announced that the offeror had acquired 72.89% of the total number of shares, and held 92.20% of the shares of M1 Ltd, and that Konnectivity launched an offer to acquire the remaining shares not tendered in by 18th March 2019. On 18th March 2019 at the close of the offer they had managed to acquire an aggregate of 94.55% of shares. | |
On 18th March 2019, it was announced that the scheme meeting will be held on 2nd April 2019. |
South Korea | Comments (with links) |
No March Update |
Taiwan | Comments (with links) |
On 6th March 2019, Hitachi announced that they had decided to extend the period of the public tender offer (originally from January 17, 2019 to March 7, 2019) to April 22, 2019. There was news that there would be an EGM (called by a dissenting director) on April 18th designed to renew the board of directors. On 22nd March 2019, Hitachi had amended the Public Purchase statement by raising the Purchase Price to NT$65/share. |
Thailand | Comments (with links) |
Delta published a document which included amendments to the Conditional Voluntary Tender Offer on 1st March 2019, which confirmed that the Bt 71.0/share, will be the final offer, and that the offer is expected to close on 1st April 2019. The independent financial advisers opinion was published on 14th March 2019, recommending the offer. 9.12% of shares out have tendered into Delta’s Offer, bringing the Offeror’s total holding to 30.05% as at 26 March. | |
The purchase price of the offer was adjusted to Bt91.9906/share, from Bt94.892/share, according to the announcement released on 11th March 2019. | |
No March Updates | |
No March Updates |
UK | Comments (with links) |
The scheme document was published on the 8th March 2019. | |
The Mastercard offer for Earthport lapsed on 8th March 2019, as the acceptance condition was not satisfied. On 13th March 2019 Visa’s offer had been extended to 30th April 2019. As at 12th March 2019 Visa had 41.02% of the issued ordinary share capital of Earthport, which counted towards satisfaction of the acceptance condition to the Offer. | |
On 8th March 2019, the Bidder announced that the Competition Commission of South Africa had granted unconditional approval for the acquisition, thus satisfying one of the conditions of the Scheme. |
Europe | Comments (with links) |
The final results of the Tender Offer, which closed on 7th March 2019, was released on 12th March 2019, according to which the offeror had managed to acquire 94.98% of all the shares. The offeror then opened a subsequent offer from 13th to 27th March in order to allow the remaining shareholders to tender in their shares. On 28th March 2019, the offeror announced that according to the preliminary results of the Subsequent Offer Period, the shares tendered represent approximately 3.13% of all the shares in Amer Sports. Together with the shares tendered during the Offer Period, the total shares acquired represent approximately 98.10% of all the shares. The consideration for the shares tendered during the Subsequent Offer Period, will be paid on or about 2nd April 2019. | |
On 4th March 2019, Nasdaq raised their offer to NOK 158/share (from NOK 152/share) to match the Euronext offer, reduced the minimum acceptance requirement to at least two-thirds of the shares of Oslo Børs (from more than 90%), and extended the offer period expiry to 29th March 2019 (from 4th March 2019), as well as the drop dead date to the date which is the later of: (i) March 4, 2020; and (ii) the date which is sixty days after the Euronext Offer lapses, closes or is withdrawn. It was also announced that shareholders representing more than 1/3 if the shares in Oslo Børs have reaffirmed their support for Nasdaq’s offer. | |
On 14th March 2019, the provisional interim results of the tender offer was released. It stated that 78.69% of the CEVA Shares to which the Tender Offer relates were tendered in, which results in CMA CGA holding 89.47% of share capital. A subsequent offer was made to acquire the remaining shares, running from 20th March to 2nd April 2019. | |
On 5th March 2019, Panalpina announced that an extraordinary general meeting will be held on 5th April 2019 to vote on a “one share one vote” scheme to replace the current cap on holdings over 5%. All major shareholders who would see their voting rights increase have come out against it because they want to see the Ernst Gohner Foundation have their voting rights come down. ISS and Glass Lewis have both come out against the proposal. A couple of minor European proxy solicitors and agents have come out in favor. Late Sunday night it was reported by Bloomberg that DSV had improved its offer once again and that the Foundation had agreed to the sweetened bid. |
2. Optex (6914 JP): Factory Automation Slowdown in the Price
According to management, weak demand for factory automation sensors had a significant negative impact on sales and profits in 1Q of FY Dec-19. Also, in our estimation, it is likely to cause 1H results to fall short of guidance. But this should be in the share price, which has dropped by nearly 50% from its 52-week high.
In the year to December 2018, operating profit was up only 2.1% on a 7.0% increase in sales, largely due to an increase in machine vision marketing expenses. In January and February 2019, factory automation orders and sales dropped abruptly as customers sought to reduce excess inventories. In March, some new orders were received for delivery in May, indicating that the situation may stabilize in 2H. Demand for security and automatic door sensors continues to grow at low single-digit rates.
For FY Dec-19 as a whole, management is guiding for a 6.2% increase in operating profit on a 7.2% increase in sales. Our forecast is for flat operating profit on a 2% increase in sales. Sales and profit growth should pick up over the following two years, in our estimation, but remain in single digits.
At ¥1,765 (Friday, March 29, closing price), Optex is selling at 18x our EPS estimate for FY Dec-19 and 17x our estimate for FY Dec-20. Over the past 5 years, the P/E has ranged from 13x to 36x. On a trailing 12-month basis, Japan Analytics calculates 5% upside to a no-growth valuation, which is in line with our forecast for this fiscal year. This suggests: buy either for the bounce or for the long term.
3. CIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
CIMC Vehicle, the largest manufacturer of semi-trailers in the world and a subsidiary of CIMC, will start to pre-market its USD300-500 million IPO in Hong Kong, as per media reports. In this insight, we will cover the following topics:
- Company background
- Semi-trailer and truck body industry
- Shareholders and pre-IPO investors
- Our thoughts on valuation
4. Last Week in Event SPACE: Nissan, Naspers, Lynas, Xenith, Versum, Scout24, PCCW
Last Week in Event SPACE …
- The fog lifts, slowly, on Nissan Motor (7201 JP), but merger talks will have to wait until the company gets its governance in order, and a full-on merger seems remote at best.
- The value enhancement to Naspers Ltd (NPN SJ) from spinning off and separately listing its stake in Tencent Holdings (700 HK) is not apparent.
- Trading around its “undisturbed” levels, Lynas Corp Ltd (LYC AU) looks like a short after rejecting Wesfarmers Ltd (WES AU)‘s left-field unsolicited proposal.
- The gloves are off as Merck KGaA (MRK GR) announced an unsolicited $48/share cash tender offer for Versum Materials (VSM US).
- With the ACCC’s blessing, now is a good time for Xenith Ip (XIP AU) to jettison Qantm Intellectual Property (QIP AU) and engage with IPH Ltd (IPH AU).
- While the deal for Scout24 AG (G24 GR) is likely to get up, someone else coming over the top at this late stage is not impossible.
- PCCW Ltd (8 HK) is “cheap” relative to HKT Ltd (6823 HK) – a catalyst to narrow the discount would be helpful.
Plus other events, CCASS movements and upcoming key dates for M&A transactions.
(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events – or SPACE – in the past week)
EVENTS
Nissan Motor (7201 JP) (Mkt Cap: $32bn; Liquidity: $98mn)
Both Mio Kato, CFA and Travis Lundy tackled a report in the FT suggesting that Renault “aims to restart merger talks with Nissan within 12 months” and the long-awaited release of Nissan’s Special Committee for Improving Governance (SCIG) report.
- Governance weakness under Ghosn was inexcusably bad. Worse than previously reported. Ghosn unilaterally decided the compensation of directors, top management and himself, while Kelly held broad sway over essentially everyone else, acting as a gatekeeper even against auditors and the accounting department. And it appears that there is zero understanding at Renault that Renault itself is not blameless for bad governance at Nissan over the years. The SCIG recommendations to the board now are, on the whole, pretty decent.
- If France and Renault “push” for a merger, Nissan will continue to push back for the foreseeable future. As the governance report shows, the house is nowhere near being in order. All that has happened is that the steps which need to take place for it to be put in order have been identified.
- Where Mio and Travis diverge – click to both insights below – is that Mio thinks a breakup of the alliance is more likely than a merger near term, especially if Paris continues to ignore Nissan’s priorities and constantly push for a merger ASAP. He does not feel scale is quite as necessary as people seem to assume, as long as you have access to a strong supply chain.
- Travis thinks an outright merger is also unlikely, as the trust is not there, but is a big fan of the existing single platform design to lower costs and reduce parts count. There would be no need to replicate the R&D for parts and platforms across multiple marks, so he thinks the production alliance stays in place even if the capital alliance does not move further.
Links to:
Mio’s insight: Nissan: Atrocious Governance Should Be Rectified Before Even Thinking of a Merger.
Travis’ insight: Nissan Governance Structure Report Out: Fog Dissipating Slowly. Sunny in Summer. Storms Next Winter?
Samsung Electronics (005930 KS) (Mkt Cap: $265bn; Liquidity: $464mn)
Sanghyun Park concluded the market had misinterpreted Amazon’s server DRAM demand cut in 4Q18. It wasn’t a sign of falling demand nor is there any convincing sign of server DRAM demand drop-off. It’s more a technical issue and by the time SamE gets the optimization issues right, server DRAM demand of Amazon and Google will return, stabilising DRAM prices.
- And that demand may come sooner, potentially by the end of 2Q. This will lead to a ₩4tn quarterly addition to the current street consensus, which backs out a current PER of ~9x.
- SamE is up since Micron announced it plans to reduce its output of DRAM and NAND by ~5% this year. From a Common-1P perspective, Sanghyun recommends going long the Common.
(link to Sanghyun’s insight: Samsung Electronics DRAM Economics: Adj. Valuation Shows Upside Potential at Current Price)
Briefly …
Aqila Ali discusses Denso Corp (6902 JP) investment in Airbiquity Inc, one of the leading companies in the connected vehicle services sector and one of the companies that has continuously developed automotive telematics technology. This proposal follows its investment in Quadric.io this year. Denso is in full swing in the development of its autonomous driving business and next-generation technologies development, and it wouldn’t be a surprise to see Denso emerge as the first mover in next-generation technologies such as AD and connectivity solutions. (link to Aqila’s insight: Denso Continues to Strengthen Its Investment CASE with Acquisitions)
M&A – ASIA-PAC
Lynas Corp Ltd (LYC AU) (Mkt Cap: $1bn; Liquidity: $7mn)
Wesfarmers Ltd (WES AU) surprised the market and announced a non-binding proposal to acquire Lynas at A$2.25/share (cash) by way of a scheme. This is a 44.7% premium to the one-day price and a 36.4% premium to the 60-day price. However, it is a 0% premium to the price at which Lynas was trading on 3 December 2018, the day before the Malaysian government imposed two pre-conditions on the rolling over of the processing licence (later in 2019), and it is a 3.2% premium to the one-year average as of 4 December 2018. Lynas rejected the proposal the next day.
- Lynas shares have, since mid-December, been trading as if there is significant risk to the renewal of their operating license in Malaysia.
- This is a long-term bet by Wesfarmers. But seeing it through would require that Lynas shareholders decide once Malaysia has approved the renewal of their license that this business won’t be able to see better margins ahead the way there was a dream to see them a year ago. Travis did not think that the increased buying on the dip by Greencape Pty and FIL since the Dec 4th announcement are omens of a desire to sell at A$2.25.
- A priori, the bid by Wesfarmers does not increase the likelihood of a good outcome on the Malaysian regulatory front. And it disappears if Lynas can’t sort its problems satisfactorily. Therefore, it is not clear what value the bid brings to Lynas shares today. If neither the outcome’s probabilities nor the outcome’s price levels change, the bid should have no material impact on Lynas shares.
- At the time of his report, Travis thought this would be a short if the stock pops to the very high A$1 range or A$2.00 area. One caveat to shorting too low: if you think WES would conceivably bid quite a bit higher to enable Lynas to have a processing plant and battery plant at WES in Australia and maintain processing in Malaysia, that might be a different story.
(link to Travis’ insight: Wesfarmers Puts Out A Bid for Lynas)
Xenith Ip (XIP AU) (Mkt Cap: $115mn; Liquidity: $1mn)
The ACCC said will not oppose a tie in between IPH Ltd (IPH AU) and Xenith. Xenith acknowledged the ACCC decision resolves a major uncertainty, but stops short of supporting IPH’s offer as there still exist a number of concerns as detailed in its 19 March announcement.
- None of these remaining concerns raised by Xenith appear deal-breakers, and Xenith’s general pushback fails to mention the benefits of leveraging off IPH’s Asia-based presence, IPH’s superior liquidity (versus QANTM limited liquidity), together with the certainty of value under IPH’s offer via the large cash portion.
- With IPH’s 19.9% blocking stake, the QANTM/Xenith scheme is a non-starter. Xenith still should engage with IPH, whose offer provides a gross/annualised spread of 7.5%/24.5% – a decent risk/reward – assuming late July completion. The scheme meeting to decide on the QANTM Offer, scheduled for the 3 April, has now been postponed.
(link to my insight: Xenith Is Running Out Of Excuses)
China Power New Energy Development Co (735 HK) (Mkt Cap: $581mn; Liquidity: $1mn)
SOE State Power Investment Corporation (SPIC) is seeking to privatise China Power New Energy Development Co (735 HK) by way of a Scheme at $5.45/share, a 41.9% premium to last close and a 78.1% premium to the 30-day average. A scrip alternative (6 New shares for one Scheme shares) into an unlisted vehicle under SPIC is also available, but presumably just for SOE shareholders. China Three Gorges, CPNED’s largest shareholder with 27.10%, have given an irrevocable undertaking to vote for the Scheme and to elect the share alternative.
- This looks like a pretty clean, straightforward privatization. It is priced above the highest close since its listing by way of introduction on the 18 July 2017, while the excitement over the potential injection of all nuclear power assets and businesses from State Nuclear Power Technology Company has been removed after the restructuring was cancelled in July last year.
- Clarity is required as to whether China Three Gorges can vote at the court meeting. Based on the Code, it appears evident they cannot. In addition, the final dividend is expected to be added to the offer price, but again, the announcement is not explicit on this.
- The stock is currently trading at an attractive gross/annualised spread of 7.5%/25.7% conservatively assuming a late July completion, and inclusive of the final dividend.
(link to my insight: China Power New Energy To Be Delisted After SOE Injection Abandoned)
M&A – US
Versum Materials (VSM US) (Mkt Cap: $5.4bn; Liquidity: $79mn)
Merck KGaA (MRK GR) has launching an unsolicited, fully financed tender offer on VSM at $48/share cash, a 52% premium to VSM’s stock price on January 25, the day before it agreed to sell itself to Entegris Inc (ENTG US)‘s in an all-stock deal.
- Conditions include a minimum acceptance threshold (a majority of shares), the rejection of ENTG’s offer, HSR/CFIUS clearance, plus the usual MACs. Merck does not rule out an increase in the Offer price.
- The shareholder vote on the VSM/ENTG is scheduled for April 26th, 2019. The record date to vote is April 2, 2019. This means the last day to buy and participate was this past Friday.
- Merck said “the Versum board’s hasty rejection of our proposal and unwillingness to engage in discussions with us has forced us to take this proposal directly to shareholders. … Tell the Versum board to start doing its job and put your interests first.”
(link to John DeMasi‘s: Versum Materials – Merck KGaA Dials Up the Pressure and Launches Unsolicited Tender Offer (Part III))
M&A – UK
Scout24 AG (G24 GR) (Mkt Cap: $5.6bn; Liquidity: $20mn)
A combination of Blackstone and Hellman & Friedman LLC launched an non-LBO LBO for Scout24 in mid-January at €43.50/share (€4.7bn), which was about an 8% premium to the then-current market price, which had already been juiced because of speculation starting after the FT article in late December. Scout24’s Board rejected the Offer. The two buyers came back in mid-February with a Takeover Offer priced at €46.00/share. Both Scout24’s Management Board and Supervisory Board agreed to support the offer. The BidCo has now officially launched its Tender Offer.
- The unusual thing about this deal is that the two PE firms are looking to buy a minimum of 50% plus one share, and leave the company listed. The stock has been trading above terms since the new €46 bid. It appears the idea is that another bidder might come in over the top. Travis tends to think the occasional trading at just above €46 is due to arbitrageurs looking at this as a put option. Plus, the lack of additional noise means another bid may not be forthcoming.
- Because Scout24 is basically a pure play inline classifieds business, it gets a decent multiple (17x 2019e EV/EBITDA). That said, it is not overwhelmingly expensive for a business which has strong network effects and significant ability to create niche marketplaces using existing technology/IP.
- Travis would see nothing wrong with selling in the market here, but as an arb, he is still a buyer at €46.01/share.
(link to Travis’ insight: Scout24 Tender Offer Launched: Price Still Not Quite Full)
STUBS & HOLDCOS
Naspers Ltd (NPN SJ) / Tencent Holdings (700 HK)
Naspers announced the intended listing of its international internet assets on Euronext Amsterdam “no earlier than H2 2019“, together with a secondary, inward listing on the Johannesburg Stock Exchange. The Newco spin-off will include Naspers’ holdings in listcos Tencent and Mail.Ru (MAIL LI), together with ex-South African internet assets. Naspers will maintain a 75% stake in Newco plus Takealot, Media24, and net cash.
- Newco’s discount is likely to be narrower than Naspers presently, on account of the smaller free float, and >$2.26bn of investment just from index funds. It will however, still be a Tencent holding vehicle, while Newco’s assets comprise ~94% of Nasper’s assets.
- The remaining Naspers, post-spin off could have a wider discount – or “discounts on discounts”. It will be one layer removed from what investors are most interested in – the Tencent holding. As witnessed in other holdco restructurings, providing additional clarity on investments/holdings within a company via spin-offs does not necessarily translate to the parent company’s discount narrowing.
- Assigning a 20-25% discount to the Newco and keeping the discount constant (optimistically) at Naspers, gives a negative ~7-13% return. I simply don’t see the value enhancement here, while there is no change in governance and no monetisation at the parent level.
(link to my insight: StubWorld: Naspers Embeds Another Layer Into Tencent)
PCCW Ltd (8 HK) / HKT Ltd (6823 HK)
Using a Sum of the Parts analysis, Curtis Lehnert calculated the current discount to NAV to be 37%, the widest level it has been since at least 2015, and approaching the -2 standard deviation level relative to its 6 month average.
- The current dividend yield on PCCW was 6.62% vs. 5.55% for HKT. That 1% yield differential is also near the widest since HKT’s listing in 2011.
- As Curtis notes, a catalyst for re-rating is hard to find. Still, he argues that the discount has widened out so much that the statistical advantages of mean reversion are in your favor.
(link to Curtis’ insight: TRADE IDEA – PCCW (8 HK) Stub: The Li Legacy Lives On)
OTHER M&A UPDATES
- Hong Kong International Construction Investment Management Group Co., (687 HK)‘s SPA has completed – you can see the movement in shares on CCASS – triggering the MGO.
Separately – and as expected – the composite document issuance for HKCIM has been delayed until (on or before) the 18 April.
Eclipx (ECX AU) has rallied after a market update confirming it will sell two divisions (Grays and Right2Drive) and use the proceeds to pay down corporate debt.
Ophir Energy (OPHR LN)‘s shareholders approved Medco Energi Internasional T (MEDC IJ)‘s Offer. Completion of the Offer remains subject to the receipt of clearances from the relevant authorities in Tanzania and not losing all or substantially all of its Bualuang interests in Thailand.
- 9.12% of shares out have tendered into Delta Electronics Thai (DELTA TB)‘s Offer, bringing the Offeror’s total holding to 30.05%.
- The Offer docs for Healthscope Ltd (HSO AU) have been pushed out to the 24 April so as to incorporate the Scheme and Takeover Documents into a single integrated booklet.
CCASS
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Name | % chg | Into | Out of |
10.29% | SHK | Huarong | |
46.29% | Yuanyin | Outside CCASS | |
20.48% | Citi | UBS | |
13.11% | Sun Int’l | Outside CCASS | |
20.25% | China Merchants | Zhongrong | |
28.83% | GF | Deutsche | |
Riverine (1417 HK) | 70.12% | China Ind | Outside CCASS |
UPCOMING M&A EVENTS
Country | Target | Deal Type | Event | E/C | |
Aus | GrainCorp | Scheme | April | Binding Offer to be Announced | E |
Aus | MYOB Group | Scheme | 17-Apr | Scheme Meeting | E |
Aus | Healthscope | Scheme | 24-Apr | Despatch of Explanatory Booklet | E |
HK | Harbin Electric | Scheme | 7-May | H Share Class meeting/EGM | C |
HK | Hopewell | Scheme | 17-Apr | Expected latest time for trading of Shares | C |
India | GlaxoSmithKline | Scheme | 9-Apr | Target Shareholder Decision Date | E |
Japan | Showa Shell | Scheme | 1-Apr | Close of offer | E |
NZ | Trade Me Group | Scheme | 3-Apr | Meeting for Shareholder Vote | C |
Singapore | PCI Limited | Scheme | 2-Apr | Scheme Meeting | E |
Thailand | Delta Electronics | Off Mkt | 1-Apr | Closing date of offer | C |
Finland | Amer Sports | Off Mkt | 2-Apr | Payment for shares tendered during Subsequent Offer Period | C |
Switzerland | Panalpina | Off Mkt | 5-Apr | EGM | C |
US | Red Hat, Inc. | Scheme | March/April | Deal lodged for approval with EU Regulators | C |
5. Shaky Situations at DEMCO and Pranda
We visited two companies with very different trajectories.
- Renewable power specialist DEMCO is struggling, despite doing really well in the past, while jeweler Pranda, once struggling, is on the recovery path.
- DEMCO reported gross profit and revenue decline of 8% and 7% respectively. Their earnings more than doubled, but that’s solely due to dividends from Wind Energy, an investment that cost them Bt800m and is embroiled in scandal.
- Pranda’s operating cash flows surged from Bt12m to Bt230m, as they restructured their store network.
- We’d still be caution on PDJ, as management doesn’t feel the restructuring is over. More stores could be closed down in the future.
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