In today’s briefing:
- Allkem/Livent (AKE AU | LTHM US) Merger Of Lithium Equals Has Index Surprises
- Allkem+Livent=Arcadium : Expected Index Flows
- A/H Premium Tracker (To 15 Dec 23): Time To Go Long Hs Vs As.
- Arb Trading with Stock Rights in Korea: A Basic Guide Featuring LG Display Offering
- Kurabo (3106) – Bigly Buyback And Share Cancellation for A Valueful Value Trap With Hidden Value
- Toyo Construction (1890) – Everyone Hits Pause
- Pan Ocean Considering on a Rights Offering Capital Raise of Nearly 3 Trillion Won for the HMM Deal
- Tsuruha: What Next: Go Private or Aeon?
- Nippon Steel/United States Steel Corp: Knock-Out Offer
- Japan Bumpitrage Potential: T&K Toka, IJTT, Taisho, Shidax, Benesse, Tokyo Rakutenchi
Allkem/Livent (AKE AU | LTHM US) Merger Of Lithium Equals Has Index Surprises
- Today, after the close, ASX-listed Allkem Ltd (AKE AU) (formerly known as Orocobre, which merged with Galaxy Resources in 2021) announced it would merge with Livent (LTHM US).
- At US$10bn, this “merger-of-equals” NEWCO (pro-forma US$1.9bn revenue, US$1.2bn EBITDA), with NYSE primary listing and foreign entity listing on the ASX, would be a global lithium player. Deal closing end-2023.
- The doc (243 pages) and presentation (42p) are worth reading. There are interesting index effects, and there may be “Lithium Risk” in this deal for arbs, but it looks good.
Allkem+Livent=Arcadium : Expected Index Flows
- Yesterday during the day, Allkem Ltd (AKE AU) shareholders approved the Scheme and Livent (LTHM US) shareholders approved the merger. The deal is done. Allkem last trades 21 Dec.
- NEWCO starts trading 4 January in the US but the Arcadium Lithium CDIs start trading 22 Dec in Australia. S&P/ASX announced they will replace Allkem in the ASX200.
- But I have been asked for a breakdown of flows and timing again, so I have put it into a handy table which I hope makes it less confusing.
A/H Premium Tracker (To 15 Dec 23): Time To Go Long Hs Vs As.
- The New and Better (5mos old) A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
- SOUTHBOUND and NORTHBOUND flows were both sells, respectively, but liquid Hs with H/A pairs OUT-perform As on average by 100+bp. Liquidation by overseas investors feels finished.
- Time to go long Hs vs As for the new year at 52wk wide discounts. 3 Short H/A pairs now switched to long. 3 new pairs long this week.
Arb Trading with Stock Rights in Korea: A Basic Guide Featuring LG Display Offering
- Unlike typical Korean stock rights arbitrage, LG Display’s significant equity offering and active stock futures trading anticipate a spread opening, akin to the recent Hanwha Ocean scenario.
- In contrast to Hanwha Ocean, the absence of major sellers, like KDB, sets this event apart. LG Electronics, the major shareholder with a 37.9% stake, intends to participate.
- Despite differences from Hanwha Ocean, LG Display’s high retail shareholder presence implies a substantial likelihood of stock rights overhang, even without players like KDB.
Kurabo (3106) – Bigly Buyback And Share Cancellation for A Valueful Value Trap With Hidden Value
- Kurabo announced a bigly buyback on Tuesday. At last price it is equivalent to 8+% of shares out. Most likely to target buybacks from cross-holders.
- The company is not cash-rich, but it is financial asset and real estate-rich. And it trades at cheap multiples without even thinking about those assets (themselves worth the market cap).
- The TSE’s “PBR1 OR BUST” movement combined with starting low valuation, high payout, excess assets, mean this value trap has room to move.
Toyo Construction (1890) – Everyone Hits Pause
- In September, YFO (Yamauchi Family Office) upped its Tender Offer proposal to ¥1,255/share. YFO presented. The Toyo Special Committee met, interviewed, examined, deliberated, then last week rejected YFO’s proposal.
- The rejection was a three-parter. First, they rejected YFO for not bringing management/ownership experience. Second, they said the proposal didn’t add enough value. Third, the price was too low.
- There were no metrics against which to measure anything. And now Toyo has apparently decided to withdraw its Tender Offer Proposal.
Pan Ocean Considering on a Rights Offering Capital Raise of Nearly 3 Trillion Won for the HMM Deal
- A consortium led by the Harim Group and JKL Partners has been chosen as the preferred bidder to acquire a 57.9% stake in HMM.
- Korea Development Bank (KDB) and the Korea Ocean Business Corporation (KOBC) are the main creditors of HMM, which is the largest shipping company in Korea.
- Pan Ocean is expected to complete a rights offering of nearly 3 trillion won which is 136% of its current market cap. This is excessive and negative for Pan Ocean.
Tsuruha: What Next: Go Private or Aeon?
- Tsuruha sees itself as another recent victim of activist fund pressure.
- The No. 2 drugstore chain has grown successfully over the past decade and today has the widest store coverage of any chain in its sector.
- This summer Aeon supported activists’ demand for strategic change. Tsuruha thinks the only way it can keep its independence may be to take the company private – Aeon probably agrees.
Nippon Steel/United States Steel Corp: Knock-Out Offer
- Nippon Steel Corporation (5401 JP) and United States Steel (X US) have agreed an all-cash $55.00/share offer, 142% premium to where X traded before Cliff’s approach, a very generous 7x EV/24e EBITDA.
- A determined buyer seeks market share in the lucrative US market, with no meaningful synergies expected and willingness to keep all US Steel jobs and (greener) growth projects.
- Although unions and some lawmakers are voicing concerns, CFIUS shouldn’t pose a big hurdle. Spread is 12.04%/17.93% (gross/annualised, assuming late settlement by end of Q3 2024). Long.
Japan Bumpitrage Potential: T&K Toka, IJTT, Taisho, Shidax, Benesse, Tokyo Rakutenchi
- Japan’s merger arb is facing an unusual situation: six merger arb situations (>US$100 million market cap) where the shares have consistently traded through terms.
- We evaluate the bumpitrage potential of these six Japanese merger arb situations on qualitative and quantitative metrics.
- Based on our analysis, the ranking as measured by the highest bumpitrage potential in descending order are T&K Toka, IJTT, Taisho, Shidax, Benesse and Tokyo Rakutenchi.
💡 Before it’s here, it’s on Smartkarma
Sign Up for Free
The Smartkarma Preview Pass is your entry to the Independent Investment Research Network
- ✓ Unlimited Research Summaries
- ✓ Personalised Alerts
- ✓ Custom Watchlists
- ✓ Company Analytics and News
- ✓ Events & Webinars
