In this briefing:
- Japan Stock Weekly
- Zozo: At First the Fit Was Bad but Now the Threads Are Unravelling
- ND Software (3794 JP) TOB for an MBO – Fireworks a Possibility
- Yahoo Japan 3Q Update: Consumer Business Drives Mid-Term Growth; Plans to Diversify in the Long Run
1. Japan Stock Weekly
Yaskawa (6506)
The shares have corrected significantly, as have most in this sector, but given that it would appear orders are bottoming out, and that there are certainly some encouraging signs for the future we would start to look and this name, and others in this space, on a 12 month view.
Hino (7205)
Cheap and shares have underperformed but the domestic market is mature and overseas is showing signs of slowing. There are better bets elsewhere.
Katitas (8919)
A great growth story in the domestic housing sector.
2. Zozo: At First the Fit Was Bad but Now the Threads Are Unravelling
Just a day after a pledge from CEO Maekawa to stop tweeting sent ZOZO Inc (3092 JP)‘s stock up 8% intraday, the Nikkei reported that United Arrows (7606 JP) would be parting ways with Zozotown and bringing their e-commerce business in-house from October. This comes just days after United Arrows affirmed their desire to continue working with Zozo casting doubt on the positive noises coming from Zozo itself.
As we have pointed out previously, this is the big risk for Zozo and with arguably the company that granted Zozo credibility when it was a startup leaving, a dark cloud has settled over the company’s mid-term future.
3. ND Software (3794 JP) TOB for an MBO – Fireworks a Possibility
Today, ND Software (3794 JP) announced a Management Buy Out (MBO) sponsored by both the existing president, who owns 20%, and J-Will Partners to take the company private at ¥1700/share, which is a 28.7% premium to last trade and comes out to be roughly 7.2x trailing 12-month EV/EBITDA.
The deal comes with a 66.7% minimum threshold for completion, after which there will be a two-step squeeze-out, as is the norm in deals like this.
J-Will Partners was founded about 15 years ago and has since done 170 deals for more than ¥350 billion. The fund manager specializes in “small-mid-sized companies” (which means small companies like this one) in 2nd-4th tier cities in Japan. The specialty is helping revive or grow small regional Japanese companies to better serve a larger customer base, compete with their urban and overseas rivals, and grow their local economy. For that, the deals are often funded by regional financial institutions and businesses.
Terms & Schedule
Terms & Schedule of J-Will Partners MBO on ND Software | |
Tender Offer Price | JPY 1,700 |
Tender Offer Start Date | 8 February 2019 |
Tender Offer Close Date | 25 March 2019 |
Tender Offer Settlement Date | 29 March 2019 |
Tender Agent | SMBC Securities |
Maximum Shares To Buy | 17,632,501 shares (100%) |
MINIMUM Shares To Buy | 11,755,000 shares (66.67%) |
Irrevocable Undertakings | 5,512,800 shares (31.26%) |
With irrevocables of 31% and shareholders I would deem friendly to management holding another 20+% at a minimum, on the surface this looks like it shouldn’t be overly difficult to get done…
BUT…
4. Yahoo Japan 3Q Update: Consumer Business Drives Mid-Term Growth; Plans to Diversify in the Long Run
Yahoo Japan (4689 JP) reported 3Q FY03/19 financial results last Monday (04th February). Revenue and OP were on par with consensus. YJ revised the lower range of its FY03/19E OP guidance upwards by JPY7bn to JPY140bn mainly due to lower than expected growth related expenses (expenses for new challenges as per the management). Meanwhile, the upper limit of the FY03/19E OP guidance of JPY143bn remains unchanged. The revised OP guidance for FY03/19E is JPY140-143bn.
FY03/17* | FY03/18* | FY03/19E | FY03/20E | FY03/21E | |
Revenue (JPY bn) | 865 | 909 | 956 | 1,022 | 1,095 |
YoY Growth % | – | 5.1% | 5.2% | 6.9% | 7.2% |
OP (JPY bn) | 179 | 186 | 153 | 158 | 168 |
OP Margin % | 20.7% | 20.4% | 16.0% | 15.5% | 15.4% |
| |||||
Media Business | |||||
Revenue (JPY bn) | 282 | 288 | 303 | 305 | 307 |
OP Margin % | 57.5% | 58.7% | 48.0% | 50.0% | 52.0% |
| |||||
Consumer Business | |||||
Revenue (JPY bn) | 512 | 597 | 652 | 717 | 789 |
OP Margin % | 12.7% | 12.6% | 9.5% | 10.0% | 10.0% |
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