Daily Japan: Courts Asia To Be Taken Over By Nojima and more

In this briefing:

1. Courts Asia To Be Taken Over By Nojima
2. The Burden of Too Big Government
3. Arcs, Valor and Retail Partners Form First Nationwide Supermarket Alliance
4. Nidec (6594 JP): Big Downward Revision
5. Global Indexes Approaching Major Resistance

1. Courts Asia To Be Taken Over By Nojima

Courts Asia Ltd (COURTS SP), a leading electrical, consumer electronics and furniture retailer in predominantly Singapore and Malaysia, has announced a voluntary conditional offer from Nojima Corp (7419 JP) at $0.205/share, a 34.9% premium to the last closing price.

The key condition to the Offer is the valid acceptances of 50% of shares out. Singapore Retail Group, with 73.8%, has given an irrevocable to tender. Once tendered, this offer will become unconditional.

CAL’s share price has endured a steady decline since touching $1.14 back in May 2015. It traded above the Offer price as recently as late-July 2018.

However, the controlling shareholder, which has maintained its stake since CAL’s listing in 2012, is cashing in. Nojima has stated it will exercise its right to compulsorily acquisition if acceptances reach 90%; and it does not intend to support any action or take steps to maintain the listing status of the company in the event its suspended due to free float requirements. I would look to cash out also. Consideration under the Offer may be remitted as early as the fourth week of Feb.

2. The Burden of Too Big Government

From our very own “Austrian” Leigh Skene:

Wars in old times were made to get slaves. The modern implement of imposing slavery is debt. Ezra Pound

Governments used public sector balance sheets to bail out private financial institutions and assist private companies to emerge from bankruptcy in the GFC. These actions transferred credit risk from the private to the public sector, yet falling nominal interest rates minimised, and in some cases froze, the cost of servicing the mounting government debt until late 2016. Since then, many borrowers have paid rising  interest rates on increasing amounts of debt. Debt service charges are rising faster than nominal GDP in a growing number of nations as a result. It is estimated that the US federal funding requirement will rise from minus US$ 700bn to US$ 2tr in 2022.

3. Arcs, Valor and Retail Partners Form First Nationwide Supermarket Alliance

The supermarket sector is the most fragmented and uncompetitive of all retail sectors, a situation encouraged by major suppliers and not ideal for consumers.

Despite some effort from the likes of Aeon, consolidation has failed to materialise beyond a few in-group mergers.

Yet pressure on supermarkets to consolidate has been building due to depopulation in the regions, competitive pressures from other food retailers such as convenience stores and drugstore chains, as well as the emerging online food services.

Change is now coming. The biggest industry consolidation yet was announced last month, a precedent-setting alliance between three major supermarkets, Arcs Co Ltd (9948 JP), Valor Holdings (9956 JP) and Retail Partners (8167 JP), carving up a large chunk of the country into three regional fiefdoms.

4. Nidec (6594 JP): Big Downward Revision

Nidec has cut FY Mar-19 sales guidance by 9.4%, operating profit guidance by 25.6% and net profit guidance by 23.8% to reflect what management calls unexpectedly weak demand, the need for large inventory adjustments, and anticipated restructuring charges. 

Management attributes this to U.S. – China trade friction, but weak demand for hard disc drives (HDDs) caused by excessive date center investment and falling NAND flash memory prices, and declining auto sales in both China and the U.S., appear to have compounded the problem. 

Nidec’s share price was up ¥60 (+0.49%) today to ¥12,395, but the announcement was made after the market closed. Management plans to discuss the situation at a press conference starting at 18:30 Tokyo time today.

5. Global Indexes Approaching Major Resistance

Broad global indexes are bumping up against logical downtrend resistance. As a result, our outlook remains cautious and our baseline expectation for continued downward pressure on global equities remains intact. At the same time, we are seeing signs that the worst of the declines may be behind us as global cyclical Sectors show RS improvements while defensive Sectors display early signs of RS deterioration.  In this report we review important technical levels for developed and EM indexes, and highlight a number of attractive opportunities across markets and sectors.