In this briefing:
- Another Semi-BIGLY Buyback at TOC: STILL an MBO Candidate
- Wanted: A 21st Century Monetary Theory
- Japanese Savings Rates Soar in 2018: A Blow to Abe’s Plans but a Boon for Discount Retailing
- BDMN/BBNP Merger Leads to BDMN Buyout Arb
- Smartkarma’s Week That Was in JP/KR: Amorepacific, Hitachi, and Trump’s 2nd Meeting With KJU
1. Another Semi-BIGLY Buyback at TOC: STILL an MBO Candidate
13 months ago, real estate operator TOC Co Ltd (8841 JP) – known for decades in Tokyo as the owner/operator of the largest single building in Tokyo by floor space – launched a Tender Offer to buy up to 20mm shares or 16.4% of the shares outstanding. Effissimo, Mizuho Bank, Mitsubishi UFJ Bank, and Mitsui Sumitomo Bank had each apparently approached the company indicating they were interested in selling.
The Tender Offer resulted in Effissimo selling 17,916,900 shares, leaving them with 4.599mm shares. Combined, other parties sold 800,000 shares.
On the 21st of March 2018, TOC announced it would cancel 33 million shares out (they already had ~14mm shares of Treasury stock prior to launching the Tender Offer). Later they launched another buyback program and the company has 1.847mm shares of Treasury stock as of now, out of 103.88mm shares outstanding.
I wrote about these events last year in TOC’s (8841 JP) BIGLY Buyback and TOC’s BIGLY Buyback Makes It a Takeout Target.
The New News
Yesterday after the close, the company announced a ToSTNeT-3 Buyback this morning, to buy up to 4.6 million shares or 4.49% of shares outstanding at ¥778/share.
That makes the previous argument stronger, not weaker.
To not reinvent the wheel, the second insight is the one with the deep dive information about the company and its assets.
A review of the opportunity continues below.
2. Wanted: A 21st Century Monetary Theory
The globe is facing more than an ordinary business cycle.
Joseph C. Sternberg, editorial-page editor and European political-economy columnist for the Wall Street Journal’s European edition, recently interviewed Claudio Borio, head of the Monetaryand Economic Department of the BIS. Mr. Borio said that politicians have relied far too much on central banks, which are constrained by economic theories that offer little meaningful guidance on how to sustain growth and financial stability. The only tool they have is an interest rate that can affect output in the short run but ends up affecting only inflation in the end.
3. Japanese Savings Rates Soar in 2018: A Blow to Abe’s Plans but a Boon for Discount Retailing
Average monthly savings rates and total savings stocks have long been high in Japan, but savings rates broke all records in June 2018.
In one sense, this was a sign that the government’s six-year effort to increase wages – and thus consumption and inflation – was finally bearing fruit, albeit small not very sweet fruit.
However, anxiety about the future, coupled with a lack of incentive to spend, meant that most of the increases in wages and bonuses stayed in the bank.
At the same time, while the majority hoarded, brands and retailers at both the luxury and discount ends of the market are reporting a record year, and discount retailers, in particular, are worthy long-term investments.
This demonstrates the further polarisation of the retail market but inventive marketing and solid cost performance will still unlock those wallets in premium mass markets too.
4. BDMN/BBNP Merger Leads to BDMN Buyout Arb
In December 2017, Mitsubishi UFJ Financial (8306 JP) launched a complicated three-step process to acquire up to 40%, then up to 73.8% (or more) in Bank Danamon Indonesia Tbk (BDMN IJ), five years after DBS’ aborted attempt to obtain a majority in the same bank.
This was discussed originally in Pranav Rao’s Bank Danamon: Takeover Redux.
MUFG initially bought 19.9 percent of Bank Danamon from Singapore state investor Temasek Holdings 15.875 trillion rupiah ($1.17 billion), then valuing the Indonesian lender at around $6 billion.
Step 2 saw the OJK give the OK (BDMN announcement in English) for MUFG to up its holding to 40% – the statutory maximum under the prevailing OJK regulation No.56/POJK 03/2016 – and the Indonesian Financial Services Authority (OJK), seemingly granted permission for MUFG to go above 40% in Bank Danamon when OJK deputy commissioner for banking, Heru Kristyana, wrote in a message to a Reuters journalist (article here) on August 3rd last year “They (MUFG) can have a larger stake than 40 percent once the merger (with Bank Nusantara) has gone through and as long as they meet provisions and requirements.”
As Johannes Salim, CFA pointed out in his interesting insight Bank Danamon: Fundamentals Revisited Plus Thoughts on M&A in March last year, the revised OJK regulation No.56/POJK 03/2016 placed the authority for determining whether or not a foreign acquiror could go above 40% squarely on the OJK – no BI approval would be necessary.
Indonesia has a “Single Presence Policy” (OJK Regulation No. 39/2017) which requires that a foreign owner may not hold more than one control stake in a bank. In order to get to Step 3 which would be to acquire the remaining 33.8% of Danamon from Temasek affiliates (Asia Financial Indonesia and its affiliates), MUFG would need to merge its presence in Bank Nusantara Parahyangan (BBNP IJ) (also known as “BNP”) where it holds more than three-quarters of the shares (and has controlled since 2007) with Danamon.
The New News
This morning’s paper carried a giant notice in bahasa announcing the planned merger between BDMN and BNP with shareholder vote for both banks 26 March 2019 (record date 1 March) and effective date 1 May 2019. The Boards of Directors and Boards of Commissioners of each bank
- “view that this Merger will increase the value of the company because it is a positive move for stakeholders, including the shareholders of Bank Danamon,” and
- “have proposed to their shareholders to agree with the resolution on the proposed Merger in each of their respective GMS.”
Indonesian takeover procedures generally require a Mandatory Takeover Offer procedure when someone goes over a 50% holding. But banks being bought by foreigners are a different category and bank takeovers are regulated by the OJK. In addition, the structure of such takeovers creates short-term options (for holders) and possibly longer-term obligations for the acquiror which are a little unusual, but provide for a very interesting opportunity in this case.
There is a trade here.
5. Smartkarma’s Week That Was in JP/KR: Amorepacific, Hitachi, and Trump’s 2nd Meeting With KJU
The start of the year has been bullish on the Korean and Japanese stock markets. KOSPI is up 4% and Nikkei is up 3% YTD. Some of the most beaten down stocks in the last 3 months of 2018 in Korea and Japan have been rebounding nicely YTD. In the past week, the following reports that are relevant for Japan and Korea have received a lot of interest:
- Yaskawa Electric: We Are Probably Now Close to the Bottom for This LT Structural Growth Story
- Workman Vs. Decathlon: The Upcoming Battle for Japan’s Sports Market
- Softbank – A Sizeable and Tactical Tender?
- Hitachi Tender for Yungtay Engineering Launches
- TRADE IDEA: Amorepacific (002790 KS) Stub: A Beautiful Opportunity
- Full List of Korea’s Single-Sub Holdcos with Current Sigma % – Quick Thought on Amorepacific
Finally, it was announced that Trump plans to meet North Korea’s Kim Jong-Un in late February in Vietnam. It has been nearly seven months since their last meeting in Singapore and there has been no progress in terms of nuclear weapons inspection or dismantling of its nuclear weapons and ICBM missiles. In April 2009, North Korea reactivated its nuclear facilities, after more than two years of North Korea promising to not to restart its nuclear programs. They lied and got away with it. And it seems like they are replaying this story-line once again.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
