In this briefing:
- Hitachi Tender for Yungtay Engineering Launches
- Softbank – A Sizeable and Tactical Tender?
- Onward Quits Zozo: Another Dent in Zozo’s Reputation
- Debt Ratios Do Matter
- Workman Vs. Decathlon: The Upcoming Battle for Japan’s Sports Market
1. Hitachi Tender for Yungtay Engineering Launches
Hitachi Ltd (6501 JP)announced today after the close that it had received approvals from the relevant government organs for its proposed Tender Offer for Yungtay Engineering (1507 TT) and that the Tender Offer would be launched through Hitachi Elevator Taiwan Co. Ltd at TWD 60/share starting tomorrow. The statement filed by Yungtay on the TWSE website is linked here.
The Tender Offer will go through March 7th 2019 with the target of reaching 100% ownership. Son of the founder, former CEO, and Honorary Chairman Hsu Tso-Li (Chou-Li) of Yungtay has agreed to tender his 4.27% holding. The main difference is a minimum threshold for success of reaching just over one-third of the shares outstanding, with a minimum to buy of 88,504,328 shares (21.66%, including the 4.27% to be tendered by Hsu Tso-Li).
This one detail is different from the original announcement in October, which had set a minimum of 50.1% holding after the tender.
The other details of the Tender Offer are the same as described in Going Up! Hitachi Tender for Yungtay Engineering (1507 TT) from when the deal was announced last October.
Since the announcement of a deal at a 22% premium, the stock has risen gently from about TWD 56 to just below the TWD 60 Tender Offer price in ever-decreasing volume.
There has been little to no news on the stock regarding the deal in English, and only limited news in Chinese since the announcement of the deal.
The price evolution makes it look like a pretty straightforward deal. The lowered threshold for success obviously increases the likelihood of success. Weaker markets may also contribute.
But there is a reason why the threshold was lowered.
2. Softbank – A Sizeable and Tactical Tender?
Post the close of market, Softbank Group (9984 JP) announced a $750mn USD tender offer through an unmodified Dutch auction to purchase a portion of its outstanding USD and EUR senior notes. This could be an interesting deal from a timing perspective and could portend action for the equity – more details below.
3. Onward Quits Zozo: Another Dent in Zozo’s Reputation
ZOZO (3092 JP) has been hit from all sides recently, with a major sell-off by investors disturbed by Zozo’s execution of its private brand launch and the resulting impact on the company’s reputation among merchants and consumers alike.
Last month it launched a new campaign which, on the surface, was all about helping customers give back to society, but which drew an immediate negative response from some merchants.
One of these, Onward Holdings, withdrew all its brands from sale on Zozo. This is another damaging dent in Zozo’s reputation.
4. Debt Ratios Do Matter
Monetary diarrhoea has inflated the debt structure.
The death of the Bretton Woods monetary system in 1971 paved the way for unbridled money printing. The resulting Great Inflation inflicted huge negative real returns on bondholders and stockholders until 1982. Thereafter, many countries, especially EMs, linked their exchange rates to the dollar, resulting in the fastest ever-growth in global foreign exchange reserves. In addition, central bank puts and then extraordinary fiscal and monetary policies turned it into the most virulent asset bubble in history, despite monetary mayhem, exemplified by numerous banking crises and three big stock market drawdowns.
5. Workman Vs. Decathlon: The Upcoming Battle for Japan’s Sports Market
Decathlon is a category killer sans pareil and will finally open its first store in Japan in March. If Decathlon implements its store roll out well, the French sports retailer will cause a major disruption in Japan’s sports market.
Large domestic sports retailers like Xebio Holdings (8281 JP) and Alpen Co Ltd (3028 JP) will be gearing up to compete in some categories but are far behind in private label development and cost performance, and the major sports brands will have to accelerate their plans for retail stores while reviewing pricing (downwards). Sports firms like Mizuno (8022 JP), with relatively low perceived brand value, could face challenges in the newly polarised market that will emerge from Decathlon’s entry.
A major source of competition for Decathlon will come from a more unlikely retailer: the uniforms to outdoor apparel/gear firm, Workman (7564 JP). While still small, Workman is already manoeuvring to hinder Decathlon’s growth in Japan, and looks like having establishment backing to do so – and echoes the growth of Uniqlo after Gap entered the Japanese market in the 1990s and the rise and rise of Nitori (9843 JP) after IKEA’s launch in 2006.
Both Gap and IKEA have relatively small operations in Japan today compared to their early potential. Decathlon will need to expand rapidly if it is to gain sufficient share to stop Workman emerging with a clear lead in its market.
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