Brief Japan: Kosaido: Activism Drives Price 30+% Through Terms and more

In this briefing:

1. Kosaido: Activism Drives Price 30+% Through Terms
2. Honda Chooses CATL as Battery Partner for Their EVs; Panasonic Has Lost the Chance

1. 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.

Something is up.

2. Honda Chooses CATL as Battery Partner for Their EVs; Panasonic Has Lost the Chance

CATL (A) (300750 CH) announced on Monday that it has signed a deal with Honda Motor (7267 JP) for jointly developing Li-ion batteries. This news comes to us as no surprise, given CATL’s effort in expanding market share globally by tying with leading automakers such as Nissan Motor (7201 JP), Daimler AG (DAI GR), and Bayerische Motoren Werke Ag (BMW GR). It seems that the Chinese battery leader is now targeting leading Japanese automakers alongside their focus on luxury automakers in Europe ( BMW to Invest in CATL: Chinese Battery Maker to Gain Exposure in Europe?).  Following Panasonic Corp (6752 JP)’s news about forming a Joint Venture with Toyota, we were under the impression that Panasonic would hit a deal with Honda as well. However, it seems that CATL has emerged as a first mover and secured a steady business by partnering with Honda, one of the leading automakers in Japan. Although Panasonic and Honda joined hands for developing a swappable battery system in Indonesia, the team hasn’t really gone ahead in developing Li-ion batteries. Honda’s battery sales are now for CATL, while Panasonic has lost a steady business deal unless the latter makes plans with Honda to develop new battery technologies such as solid-state batteries. In our opinion, Honda and CATL, being leaders in their respective industries, when joined together via this agreement should capture a strong position in the auto sector which is striding towards electrification. The effect of this news on CATL share price cannot be really seen as the markets are closed for ongoing holidays in China. Panasonic, however, opened -5.1% low on February 5th, mainly due to its disappointing 3QFY03/19 earnings and could be partly due to this news.