In this briefing:
- Bank of Kyoto – Nintendo Sale A Portent of Changes To Come?
- 🇯🇵 Japan: Moving Average Outliers – PKSHA, SanBio, Goldwin, ZOZO, Drugstores & ASICS
- Nintendo Offering & Buyback: The Import & The Dynamics
- NTT Docomo Share Cancellation
- Last Week in Event SPACE: Rakuten/Lyft, Delta, Kosaido, Ophir, Dairy Crest, Panalpina, BGF
1. Bank of Kyoto – Nintendo Sale A Portent of Changes To Come?
On Friday 22 February after the close, Nintendo Co Ltd (7974 JP) announced a buyback (E, J), a share cancellation (E, J), and a public equity offering of secondary shares (J-only). This kind of event is not abnormal in a year when profits are weaker and share prices are down. Cross-holders often sell shares into the end of the year in order to realise profits and let unrealised gains from the balance sheet filter into the income statement.
This time it is five sellers from four banks which all hail from the area: Bank Of Kyoto (8369 JP), Nomura Trust (which holds shares in a trust account for the MUFJ Bank pension fund as a beneficiary), Mitsubishi Ufj Financial (8306 JP)‘s MUFJ Bank, Resona Holdings (8308 JP), and Shiga Bank (8366 JP). The MUFJ Bank holdings likely originate from Sanwa Bank which was Osaka-based before merging with BOT-Mitsubishi almost 15 years ago, and Resona is also from Osaka – next door to Kyoto where Nintendo was founded – and Shiga Bank is the prefecture next door.
This would look like a normal sell-down… except for one thing.
There was a note in the announcement to the effect that “in the context of how companies deal with their policy cross-holdings becoming the subject of greater focus, we confirmed that several shareholders desired to sell shares, and as a company subject to such cross-holdings, we are conducting the above-mentioned Offering.”
The “greater focus” comes from the both the change in the Japan Corporate Governance Code which was introduced last spring and went live June 1st (discussed in Japan’s Corporate Governance Code Amendments – A Much Bigger Stick for Activists and Stewards) which raised the bar for disclosure of reasons, and results, of such policy crossholdings in a revised version of Principle 1.4, and an example of how a board should make decisions and execute an unwind of corporate crossholdings. This example was given by Japan Exchange Group (8697 JP) itself regarding the TSE’s stake of 4.95% in Singapore Exchange (SGX SP) and was discussed in Japan Crossholdings: Japan Exchange’s Sale of SGX Shares Sets A Precedent – Watch Closely. Â
In the TSE crossholding of SGX situation, the sale was not the most important part. The explanation of how the Board came to its decision and what they decided to do about it was important.Â
On the other hand, Japan’s Corporate Governance Code (the Code), which was introduced in 2015, requires listed companies to examine and explain the economic rationale and future outlook of holding shares of other listed companies for reasons other than pure investment purposes. Following a review of the requirements under the Code, JPX reached the conclusion that the existing cooperative relationship with SGX would continue even without holding the shares of SGX.    [my bold]
The Japan Exchange Group had now provided the example for why even companies with cooperative business relationships should not own cross-holdings. And it is, if active stewards of capital choose to make it so, more subtle. Shareholders have even an even better pressure point. IF a company’s cooperative relationship with another company would not survive the unwinding of cross-holdings to improve capital efficiency for both sides, is that company truly independent? Is that company beholden to the company whose shares it holds? Is the cross-holding board doing its job?
And the Japan Exchange Group had said it would unwind its holdings of SGX over three years, so as not to overly impact the market for SGX shares. This provided an example of HOW to unwind, in addition to the WHY to unwind announced above.
The BIGÂ QUESTIONÂ (And Nothing Else Matters)
The big question here is whether the reasoning for selling is really because of the new focus on policy cross-holdings, or it is just Bank of Kyoto and other banks trying to top up profit before the end of the fiscal year, using heretofore unrealised gains.
The Nintendo-specific situation is discussed in Nintendo Offering & Buyback: The Import & The Dynamics.Â
An analysis of the Bank of Kyoto-specific situation is discussed below.
2. 🇯🇵 Japan: Moving Average Outliers – PKSHA, SanBio, Goldwin, ZOZO, Drugstores & ASICS
– MARKET COMPOSITE –
![](https://static-prod.smartkarma.com/images/media/000/079/882/original/2019-02-24_11-07-12.png?1550974089)
Source: Japan Analytics
ALMOST THREE-MONTH HIGH RECOVERY – The bear market rally is now in its second stage, and the market composite is now 14% above the Christmas Day low. The ‘market value’-based percentage above moving averages almost reached a new three-month on Thursday; the stock count version is lagging as usual.
![](https://static-prod.smartkarma.com/images/media/000/079/886/original/2019-02-24_11-32-45.png?1550975583)
STILL SOME UPSIDE – Using the three-month rate of change in this indicator, we are a few weeks away from generating a short-term sell signal, the last such trigger having occurred on 25th October.Â
– SECTORS –Â
![](https://static-prod.smartkarma.com/images/media/000/079/887/original/2019-02-24_11-45-38.png?1550976349)
SECTOR BREAKDOWNÂ – The top six sectors remain domestic and defensive. REITs, Information Technology, Transporation and Utilities continue from our previous review with Restaurants and Healthcare replacing Media and Telecommunications. Equally predictable is the bottom half-dozen – Banks, Non-Bank Finance, Autos, and Metals remain from two weeks ago, with Construction and Retail replacing Chemicals and Other Materials.Â
– COMPANIES –
COMPANY MOVING AVERAGE OUTLIERS – As with the Market Composite and Sectors, the Moving Average Outlier indicator uses a weighted sum of each company’s share price relative to its 5-day, 20-day, 60-day, 120-day and 240-day moving averages. ‘Extreme’ values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen.Â
In the DETAIL section below, we highlight the current top and bottom twenty-five large capitalisation outliers, as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note.
PKSHA Technology (3993 JP) is currently the most extreme large capitalisation positive outlier and an excellent example of a -100 to 100 ’roundtrip’ in under two months. SanBio (4592 JP) is, again, the most extreme negative outlier, having topped the 13th January positive outlier list and is another ’round-tripper’. We also add the chart for ‘cockroach’ stock Leopalace21 (8848 JP) which no longer qualifies for inclusion in our tables, having lost 60% of its value in the last two weeks and 79% in less than a year.
![](https://static-prod.smartkarma.com/images/media/000/079/890/original/2019-02-24_12-58-23.png?1550980729)
![](https://static-prod.smartkarma.com/images/media/000/079/891/original/2019-02-24_12-59-54.png?1550980806)
![](https://static-prod.smartkarma.com/images/media/000/079/892/original/2019-02-24_13-12-58.png?1550981589)
Source: Japan Analytics
3. Nintendo Offering & Buyback: The Import & The Dynamics
On Friday 22 February 2019 after the close, Nintendo Co Ltd (7974 JP)announced (J) a Secondary Shares Uridashi Offering of 2,428,700 shares by five shareholder banks, with an overallotment of 364,300 shares. This will be a little bit over 2% of shares outstanding.Â
Applying a hypothetical 4% discount to the last traded price of Â¥30,030/share, this is an ¥80bn Offering including greenshoe.Â
On the same day, Nintendo announced (E) a share buyback program to buy up to 1 million shares or up to ¥33 billion worth (whichever is reached first) to last from the business day immediately following the delivery date of the Offering shares (practically speaking, a day on or between 13 March and 18 March 2019) to 12 April 2019. Based on an average daily volume traded of 2.2mm shares, 10% participation would mean the buyback would take 5 days to complete. 5% would take 9 days. The company also announced (E) it would cancel 10 million shares on 29 March 2019. That may only be 45% of the post-buyback treasury share position, but it leads to another event investors should watch.
This is the first buyback Nintendo has announced in five years. The Nikkei article discussing the situation suggests that the possibility of supply/demand being weak is the reason for the buyback. The stated reason for the Offering as proposed by Nintendo in its Offering announcement, suggested a goal of increasing and diversifying the shareholder base.
The real reason why this selldown is happening – also noted in the Offering Document “reason for the offering” – is because of the heightened focus on policy cross-holdings highlighted in the changes to the Corporate Governance Code (especially Principle 1.4) which went live June 1 2018. The major changes were discussed in Japan’s Corporate Governance Code Amendments – A Much Bigger Stick for Activists and Stewards at that time, but the hint of how this might play out was discussed in Japan Crossholdings: Japan Exchange’s Sale of SGX Shares Sets A Precedent – Watch Closely from 1 April 2018. In an announcement after the close on the last day of the last fiscal year, Japan Exchange Group (8697 JP) announced it would sell down its 4.95% stake in Singapore Exchange (SGX SP) over the space of three years.Â
The fact that JPX was selling the shares was not important. The reasoning was. And JPX provided an example of how it should be done (as explained in the insight).Â
My words then still stand.
![](https://static-prod.smartkarma.com/images/media/000/079/871/original/Screenshot%202019-02-23%20at%208.31.13%20PM.png?1550925267)
And JPX provided an example of how it should be done (as explained in the insight). The ramifications are significant.
The ramifications of this Offering are significant too. This is a lot more than just an offering by entities looking to take profits.
4. NTT Docomo Share Cancellation
On Friday 22 February after the close, NTT Docomo Inc (9437 JP)announced (E) that it would cancel 447,067,906 shares (11.82% of issued shares before the cancellation) of Treasury shares on the 28th of February.
The buyback has already occurred. This is largely technical. But it has an interesting side effect.
5. Last Week in Event SPACE: Rakuten/Lyft, Delta, Kosaido, Ophir, Dairy Crest, Panalpina, BGF
Last Week in Event SPACE …
- The question mark over the size of Rakuten Inc (4755 JP)‘s stake in Lyft may be known in the coming two weeks.
- Delta Electronics Thai (DELTA TB)‘s Tender Off document fails to clarify how the FY18 dividend will be treated.
- An activist has come forward, and the external statutory auditor and lead shareholder (wife of founder) are against the offer, but Kosaido Co Ltd (7868 JP) situation still fits pretty cleanly in the “Too Hard” bucket for now.
- Ophir Energy (OPHR LN)‘s shareholders ratchet up their opposition to Medco Energi Internasional T (MEDC IJ)‘s Offer.
- A bump seems envisaged against an already healthy price, but it may not need be a big one to get the Dairy Crest (DCG LN) deal done.
- DSV A/S (DSV DC)‘s Offer either comes down to price, or it comes down to loyalty to Panalpina Welttransport Holding (PWTN SW)‘s management.
- The BGF Co Ltd (027410 KS) set up trade has provided a decent return recently, but could still run further.
- Plus CCASS movements and expected upcoming events for key M&A transactions.
(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events – or SPACE – in the past week)
EVENTS
Rakuten Inc (4755 JP) (Mkt Cap: $10.2bn; Liquidity: $51mn)
Since announcing its foray into the deeper waters of being the fourth Type I Mobile Network Operator in Japan, Rakuten’s shares have taken a mighty hit. But the focus in this insight is on ride-sharing company Lyft. In March 2015, Rakuten CEO Hiroshi Mikitani announced that Rakuten had invested US$300mn in Lyft, giving it a 11.9% stake after Series E round in May 2015. Recent articles suggest that Rakuten remains the top investor.
- As best as Travis Lundy can tell, from sources who track this, Rakuten is the single largest shareholder in Lyft, with a holding in the 10.4-12.0% range. That would suggest a position value of US$900mn-$1.2bn based on the last funding round in June 2018. At a $25bn pre-money IPO valuation, that would be worth US$1.5-2.0bn for a likely pre-tax IPO uplift of US$590-800mn.Â
- A report late Thursday Asia time suggested the Lyft roadshow would start the week of March 18th, which would mean the S-1 will be available two weeks before that. Investors will know more about Rakuten’s ownership of Lyft by the end of next week or very early the following week. Travis would want to be long for now.
(link to Travis’ insight: Will Rakuten Get A Near-Term Lyft?)Â
Doosan Heavy Industries (034020 KS) (Mkt Cap: $868mn; Liquidity: $78.5mn)
Doosan Engineering & Construction (011160 KS) (Mkt Cap: $91mn; Liquidity: $0.4mn)
DHICO announced a larger-than-expected ₩608.4bn rights offer. ₩543bn is expected to be raised through common shares at a preliminary price of ₩6,390; and ₩65bn via RCPS at a preliminary price of ₩6,970. This is a combined 72.56% capital increase a 42.05% share dilution. Concurrently, Doosan E&C announced a ₩420bn rights offer at a preliminary price of ₩1,255, a 15% discount to last close.
- For DHICO, Mar 27 is the ex-rights day for both Common and RCPS. Subscription rights (for the Common) will be listed and trade on Apr 19~25. May 2 is final pricing. May 8 is subscription and May 16 is payment. New Common shares will be listed on May 29.
- For E&C, the final price will be fixed on Apr 30. Whichever is higher – â‚©1,255 or Apr 26~30 VWAP at a 40% discount – will be the final offering price. Mar 27 will be the ex-rights day. Subscription rights will be listed and traded on Apr 18~24. New shares will be listed on May 24.
- ₩1,255 is a lot more aggressive than generally viewed. DHICO owns nearly two thirds of E&C. With a 20% oversubscription, nearly ₩300bn will likely come from DHICO, essentially buttressing E&C at an even heftier price. Which is probably why the market is being less harsh on E&C relative to DHICO.
link to Sanghyun Park‘s insights:
Doosan E&C Rights Offer: Conditions & Timetable
DHICO (Doosan Heavy) Rights Offer: Conditions & Timetable.
M&A – ASIA-PAC
Delta Electronics Thai (DELTA TB) (Mkt Cap: $2.8bn; Liquidity: $3mn)
The 247-4 Form is out with a tender offer period between 26 Feb-1 April, and payment on the 4th April. The frustrating part is how Delta’s FY18 dividend of Bt2.30 is treated. On one hand, it says the Bt71 Offer price is final unless there is a MAC. Further into the Offer doc, it mentions the Offeror “reserves the right” to reduce the offer price if a dividend is paid. DELTA’s IR believes the dividend will be added, but it is not crystal clear.
- Furthermore, there is no minimum acceptance condition, as potentially flagged earlier, which means there is no possibility of fast-tracking payment. Some precedent voluntary offers included a minimum acceptance, which provides an expedited payment should investors who tender shares AND revoke their right to withdraw – provided that minimum is fulfilled.
- Shares traded up after the document came out, shrugging off the ambiguity in the document. Currently trading at a gross/annualised return of 1.1%/11%. The dividend is subject to a 10% tax for non-residents.
(link to my insight: Delta Thailand’s Tender Offer: Updated Timetable)
M1 Ltd (M1 SP) (Mkt Cap: $1.4bn; Liquidity: $3mn)
The previous Friday, the Offerors for M1 announced that their Offer had been declared Unconditional In All Respects as the tendered amount was 57.04% and the total held by concert parties was 76.35%. Axiata Group (AXIATA MK) made an announcement to the Bursa Malaysia that it had accepted the Offer as required because it was a significant asset disposal. Going unconditional has triggered an extension of the Closing Date to 4 March 2019.
- If you want to fight this with an appraisal, you can. Travis doesn’t see the point. If you want to hold on to the stock in order to block full squeezeout and play chicken with the big boys, you can, but it requires a relatively big ticket (roughly 6.73% of the shares out).Â
- So Travis recommends taking the money. It was better to take the money in early January and re-deploy, rather than wait for the close of the offer. He would accept now and sees no upside from waiting.
(link to Travis’ insight: M1 Offer Unconditional as Axiata Tenders)
Kosaido Co Ltd (7868 JP) (Mkt Cap: $160mn; Liquidity: $1mn)
When the Tender Offer / MBO for Kosaido was announced last month, Travis’ first reaction was that this was wrong, concluding this was a virtual asset strip in progress, and suggested that the only way this was likely to not get done is if some brave activist came forward.
- Shortly afterwards, an activist did come forward. Yoshiaki Murakami’s bought 5% through his entity Reno KK, and later lifted his stake (combined with affiliates) to 9.55%. Travis thought the stock had run too far at that point (Â¥775/share). While still cheap, he did not expect Bain to lift its price by 30+%, nor a white knight to arrive quickly enough.Â
- This week a media article suggested longstanding external statutory auditor Mr. Nakatsuji and lead shareholder Sakurai Mie were against the takeover.
- The possibility this deal fails because the “put protection” of the deal price at Â¥610 is no longer solid has gone up. Conversely, the probability that Bain and the MBO have to come in with a price adjustment higher has gone up. Travis is inclined to remain bearish in the medium-term as there is a significant likelihood there is no alternative solution during the Tender Offer period itself.Â
(link to Travis’ insight: Kosaido TOB (7868 JP) Situation Gets Weird – Activists and Independent Opposition to an MBO)
Briefly …
- After announcing earlier this month a number of indicative non-binding bids were received for a “whole of company transaction”, the AFR is now reporting (paywalled) that Lone Star has also joined the battle for Aveo Group (AOG AU). (A Case for Privatising Aveo)
- Xingfa Aluminium (98 HK) announced both China Lesso Group Holdings (2128 HK) (26.3% shareholder) and Sure Keen (11.5%, ED Liao Yuqing’s vehicle), collectively holding 37.81% of shares out, will NOT tender their shares into the offer. (Guangxin Reloads A Peculiar Low-Ball Offer For Xingfa Aluminium)
M&A – Europe/UK
Dairy Crest (DCG LN) (Mkt Cap: $1.3bn; Liquidity: $4.5mn)
Saputo Inc (SAP CN) and Dairy Crest announced an all-cash deal where Saputo will buy Dairy Crest for 620p/share, to be implemented through a Scheme of Arrangement with an expected close in Q2 2019. This appears to tick all the necessary boxes. Friendly, horizontal integration, and limited job losses. Shares are trading through terms early (he published at 628.5p), perhaps on expectations the wide open register means shareholders can try to hold out for a higher price.
- At almost 14x EV/EBITDA on a TTM basis and a bit lower on a March 2019 FY-end basis, it is a high enough multiple to not be insulting for a dairy company, and may keep other suitors away.
- Dairy Crest’s directors have given irrevocable notice to accept, and the directors’ advisors (Greenhill & Co) have deemed the Offer “fair and reasonable.”
- One extra turn of EV/EBITDA would lift the takeover price just under 10%. That would clear out most of the naysayers who bought in the frothier “we’re going to be an asset-light branded goods company” days of 2015-2017. Doable, but as it is an agreed deal, Travis doesn’t see the need to push it.Â
(link to Travis’ insight: Saputo to Buy Crest Dairy; Initial Market Response Wants a Bump)
Ophir Energy (OPHR LN) (Mkt Cap: $509mn; Liquidity: $6mn)
Petrus Advisors (3.5% shareholder) has dialed up the pressure on its opposition to Medco Energi Internasional T (MEDC IJ)‘s £0.55/share offer for Ophir Energy (OPHR LN), specifically calling into question Bill Schrader’s (Ophir’s Chairman) business acumen.
- In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco, with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis. It also argued that Ophir should negotiate with the Equatorial Guinea ministry (the regulator that terminated the Fortuna license, resulting in write-offs of US$610mn) to be compensated for its $700mn investment and the unfair seizure of the license, otherwise it would set a precedent for other international operators doing business in EG.
- Petrus has now rounded on Schrader over perceived mismanagement of the EG licence, and a lack of professionalism in not soliciting and considering offers for Ophir from other buyers. Petrus’ beef is not an outlier –  alternative hedge fund Sand Grove has increased its exposure, via cash-settled derivatives, to 17.28% (as at 13 February); while Ian Hannam, who advised Ophir’s board on its 2013 right issue, is understood to have also written to Ophir’s interim CEO Alan Booth and the board saying Medco’s offer is too low.
- Overall, Petrus’ assertions that Ophir is being sold at “sub optimal terms” appear valid, most notably on the EG compensation and the illogical operations update earlier this month. The alternative push to sell the SEA assets separately, as that has been Medco’s core focus, not international operations, also makes sense.
(link to my insight: Petrus Doubles Down On Ophir Energy)
Panalpina Welttransport Holding (PWTN SW)Â (Mkt Cap: $3.7bn; Liquidity: $22mn)
Last month, DSV A/S (DSV DC) made a public proposal of a takeover for cash and scrip valued at CHF 170/share, which came at a 24% premium to last and +31% vs 1-month VWAP. The #2, #3, and long-time #4 shareholders are firmly and publicly in the camp of trying to get something done. 45.9%-shareholder Ernst Göhner Foundation is sending mixed signals – do they want a higher price? Or do they want to wait and let Panalpina grow by its own consolidator strategy?
- Panalpina has now confirmed that it in preliminary talks with Kuwait-listed logistics company Agility Public Warehouse. A Bloomberg report suggested a deal could be reached as early as this past week for Agility’s logistics business. The same article suggested the Göhner Foundation is supportive of the new talks. Agility’s press release was much more non-committal.
- DSV has also announced a new all cash CHF 180/share offer for Panalpina; although the original cash and scrip offer was then worth CHF 184.5/share, which is an even better premium to pre-offer terms. One wonders whether cash-only would suit the Foundation; the DSV press release seemed to respond to that.
- It is not clear what would drive the Foundation to give up its control. And Panalpina’s measly share price reaction to the all-cash offer suggest there is considerable skepticism out there. But at some price, Panalpina’s board looks pretty stupid to not accept the cash.
- If you do not think a deal with DSV has any chance of getting up, Panalpina shares are a sell here. If they overpay for Agility and cannot improve their own margins well past historical highs in a market trending weaker, then the shares could drop.Â
(link to Travis’ insight: The Panalpina Conundrum)
STUBS & HOLDCOS
Curtis Lehnert backs out a discount to NAV of 42%, the widest since at least 2015. His proposal to structure the trade is to use a market-cap weighted hedge on the two largest listed subsidiaries, Tech Mahindra (TECHM IN) and Mahindra & Mahindra Fin Services Ltd. (MMFS IN) along with a core business hedge using Maruti Suzuki India (MSIL IN) to hedge the core automotive business.Â
- Using Curtis’ figures, the implied stub is at its lowest level since a brief downward spike in February 2015, and you would have to go back to April 2014 to find a lower level.
- The push back on this setup is that the auto operations have recorded marginally, yet sequential profit declines in FY16 and FY17; while recording three sequential quarterly declines up to December 2018. The big question is whether Mahindra can regain market share as it kick-starts a new model cycle.
(link to Curtis’ insight:Â TRADE IDEA – Mahindra & Mahindra (MM IN) Stub: Rise)
BGF Co Ltd (027410 KS) / Bgf Retail (282330 KS)
On January 8th, Douglas Kim initiated a setup trade of going long BGF Co and going short BGF Retail. (Korean Stubs Spotlight: A Pair Trade Between BGF Co. & BGF Retail) This setup has worked out well (7.5% return) and he now think this is a good time to close the trade.
- In contrast, Sanghyun believes the Holdco is still undervalued relative to the Sub by about 10%. Plugging in Sanghyun’s numbers, I back out a discount to NAV of 45% against a one-year average of 30%, with a 12-month range of -51.5% to 15.5% (premium).
links to:
Douglas’ insight: Korean Stubs Spotlight: Close the Pair Trade Between BGF Co. & BGF Retail
Sanghyun’s insight: BGF Duo Stub Trade: Short Sub / Long Holdco with a Very Short-Term Horizon
Can One Bhd (CAN MK)Â /Â Kian Joo Can Factory (KJC MK)
Back on the 13 December 2018, Can One announced a proposed MGO for Kian Joo at RM3.10/share, a 52.7% premium to last close. This required Can One shareholders’ approval which was received on the 14 February. Can One’s current 33% stake in Kian Joo accounts for ~86% of its market cap. The offer doc should be out, on or before the 7 March, with payment either late March (along with the first close of the Offer), or early April, depending on when the offer turns unconditional. The offer is conditional on 50% acceptance. Both sides are illiquid.
- This looks like a decent exit for Kian Joo shareholders. Apart from EPF with 10.1%, former NED Teow China See is the only other shareholder with >5% with 8.9%.
- For Can One, this is an aggressive pitch to make Kian Joo a subsidiary amidst an uncertain economic backdrop, while potential synergies may be offset via higher interest costs.
(link to my insight: StubWorld: Can One’s Offer For Kian Joo Can; Mahindra At Possible Set-Up Levels)
Briefly …
- Sanghyun recommended long Hansae Yes24 Holdings Co, Ltd. (016450 KS), short Hansae Co Ltd (105630 KS), now that the Holdco/Sub ratio is at -227% of σ or a 120D low. Using his numbers, I see the discount to NAV at 49% against a one-year average of 44%; while the implied stub is at a one-year low. (link to Sanghyun’s insight: Hansae Holdco/Sub Trade: Huge Divergence Now, Sub Price Rally Should Be Resisted Here)
PAIRS
Hyundai Glovis (086280 KS) / Hyundai Mobis (012330 KS)
There are still two schools of thought on the HMG restructuring. One is that Glovis/Mobis are merged into a holdco entity. Or Glovis becomes the holdco with Mobis→ HM→ Kia Motors Corp (000270 KS) below. Since late 3Q18, there has been increased speculation on the latter. This has pushed up Glovis’ price relative to Mobis.
- Each outcome is beset with its own set of issues. For Glovis to be the sole holdco, it has to come up with nearly ₩2tn to buy Kia’s Mobis stake, probably through new, and burdensome, debt. Glovis may also face the risk of forced holdco conversion, creating an issue with Kia as a “great grandson” subsidiary.
- This speculation pushing up Glovis relative to Mobis has yet to be substantiated/justified, suggesting Glovis is overbought. Sanghyun expects a mean reversion, and recommends a long Mobis and short Glovis.
(link to Sanghyun’s insight: Glovis/Mobis Pair Trade: Glovis Being Overpriced Relative to Mobis on Unsubstantiated Speculation)
OTHER M&A UPDATES
- Navitas Ltd (NVT AU)Â has agreed to extend the exclusivity period granted to the BGH consortium to 1 March (from 18 Feb), in order to allow additional time for BGH to complete a limited set of remaining due diligence investigations.
Hopewell Holdings (54 HK)Â and the Offeror are still in the course of finalising the information to be included in the Scheme Document. No date for the dispatch has been announced.
ESR’s offer for Propertylink Group (PLG AU) has turned unconditional after Centuria Capital (CNI AU) tendered.Â
The composite doc for Harbin Electric Co Ltd H (1133 HK), initially due out this past week, has been further postponed until the 29 March – on or before – ostensibly to incorporate the FY18 financials.
Netcomm Wireless (NTC AU) has received $1.10 cash offer (53% premium to last close) from Casa Systems (CASA US) via a Scheme. The deal values Netcomm at ~US$114m. The scheme is subject to FIRB and shareholder approval. Stewart David Paul James, a NED, holds 12.3% and is the major shareholder. The announcement states that each Netcomm director intends to vote the Netcomm shares held by them in favour of the scheme – subject to a +ve IFA opinion and in the absence of a competing offer. This includes Stewart’s stake.
MYOB Group Ltd (MYO AU) announced no superior proposal emerged after concluding its ’go shop’ period for rival offers to KKR’s takeover proposal. At a gross/annualised spread of 0.9%/4.8%, assuming early May payment, this looks to be trading a bit tight.
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.Â
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.  Â
Name | % chg | Into | Out of | Comment |
12.87% | HSBC | Outside CCASS | ||
20.25% | Zhongrong | Outside CCASS | ||
10.18% | Sun Sec | Guotai |
UPCOMING M&A EVENTS
Country | Target | Deal Type | Event | E/C | |
Aus | GrainCorp | Scheme | February | Binding Offer to be Announced | E |
Aus | Greencross | Scheme | 27-Feb | Implementation of the Scheme | C |
Aus | Propertylink Group | Off Mkt | 28-Feb | Close of offer | C |
Aus | Sigma Healthcare | Scheme | February | Binding Offer to be Announced | E |
Aus | Eclipx Group | Scheme | February | First Court Hearing | E |
Aus | MYOB Group | Scheme | 11-Mar | First Court Hearing Date | C |
Aus | Healthscope | Scheme | April/May | Despatch of Explanatory Booklet | E |
HK | Harbin Electric | Scheme | 29-Mar | Despatch of Composite Document | C |
HK | Hopewell Holdings | Scheme | 28-Feb | Despatch of Scheme Document | C |
India | Bharat Financial | Scheme | 28-Feb | Transaction close date | C |
India | GlaxoSmithKline | Scheme | 9-Apr | Target Shareholder Decision Date | E |
Indonesia | BDMN | Scheme | 1-Mar | Record Date | C |
Indonesia | BDMN | Scheme | 29-Apr | Payment Date | C |
Japan | Clarion | Off-Mkt | 28-Mar | Tender Offer Close Date | C |
Japan | Kosaido | Off-Mkt | 1-Mar | Tender Offer Close Date | C |
Japan | Pioneer | Off Mkt | 1-Mar | Issuance of the new shares and common stock to be delisted from the Tokyo Stock Exchange | C |
Japan | Descente | Off-Mkt | 14-Mar | Tender Offer Close Date | C |
Japan | JIEC | Off-Mkt | 18-Mar | Tender Offer Close Date | C |
Japan | Veriserve | Off-Mkt | 18-Mar | Tender Offer Close Date | C |
Japan | ND Software | Off-Mkt | 25-Mar | Tender Offer Close Date | C |
Japan | Showa Shell | Scheme | 1-Apr | Close of merger | E |
Japan | U-Shin | Off-Market | 17-Apr | Tender Offer Close Date | C |
NZ | Trade Me Group | Scheme | 5-Mar | First Court Date | C |
Singapore | Courts Asia Limited | Scheme | 15-Mar | Offer Close Date | C |
Singapore | M1 Limited | Off Mkt | 4-Mar | Closing date of offer | C |
Singapore | PCI Limited | Scheme | February | Release of Scheme Booklet | E |
Taiwan | Yungtay Engineering | Off Mkt | 17-Mar | Closing date of offer | C |
Thailand | Delta Electronics | Off Mkt | 26-Feb | Tender Offer Open | C |
Finland | Amer Sports | Off Mkt | 7-Mar | Offer Period Expires | C |
Norway | Oslo Børs VPS | Off Mkt | 4-Mar | Nasdaq Offer Close Date | C |
Switzerland | Panalpina Welttransport | Off Mkt | 27-Feb | Binding offer to be announced | E |
US | Red Hat, Inc. | Scheme | March/April | Deal lodged for approval with EU Regulators | C |
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