In today’s briefing:
- Appier (4180) – Down But Not Out; Shareholder Structure Still The Biggest Risk
- JAFCO (8595) Succumbs to Even Worse Greenmail – SPECTACULARLY BAD Governance
- Nippon Steel & Mitsui & Co to Buy Out Nippon Steel Trading (9810) At 87% Premium
- BHP & OZL Enter Scheme Implementation Deed – Timing, Risk, & Index Effects
- Mandatory Offer Arrives in Korea: Detailed Rules & Trading Ramifications
- AMFI Stock Reclassification Preview (Dec 2022): A Bunch of Migrations
- Swire Now Buying Back B Shares Only
- Nojima (7419) Launches Buyout of Conexio (9422)
- TIGER (WISE) Secondary Battery ETF Rebalancing in January: Names to Watch
- JAFCO (8595 JP): Murakami Gets His Way with a JPY2,500 Tender Offer
Appier (4180) – Down But Not Out; Shareholder Structure Still The Biggest Risk
- Appier Group (4180 JP) had been among our picks for TSE Prime promotion and we had recommended positioning for it. That worked. On 8 Dec they announced the promotion.
- The company is now part of TSE Prime which means a TOPIX Inclusion at end-January and an upweight in April. More than 20% of TSE float to buy by end-April.
- Share price performance has not kept pace with potential, and yesterday’s BOJ decision saw a flurry of volume selling (bailing). Pre-IPO holder overhang may be the biggest “risk” here.
JAFCO (8595) Succumbs to Even Worse Greenmail – SPECTACULARLY BAD Governance
- Jafco Co Ltd (8595 JP) was the target of activist Murakami-san in August 2022. They threatened a poison pill. Murakami-san sold, then bought to 19.5%. They negotiated. He won.
- His result excluded others. The market did not take it well. Murakami-san rejected taking a 1% hit to original terms (vs reference NAV). JAFCO went back to the drawing board.
- Then submitted to greenmail at a higher price. The first buyback was agreed at ¥2,500 vs ¥2,651 NAV. The new one? ¥2,730-2,840 vs ¥2,513 NAV. Inexplicable – Spectacularly Bad Governance.
Nippon Steel & Mitsui & Co to Buy Out Nippon Steel Trading (9810) At 87% Premium
- Nippon Steel Corporation (5401 JP) and Mitsui & Co Ltd (8031 JP) today announced they would buy out Nippon Steel & Sumikin Bussan (9810 JP), their steel-trading subsidiary.
- The shares trade near an all-time high, but Nippon Steel is paying an 87% premium. (Interestingly, the high end of the DCF ranges suggest a 280% premium)
- On fundamentals, this could have been higher, but given the shareholder structure, I expect it is a done deal as-is. The Tender Offer should start in February 2023.
BHP & OZL Enter Scheme Implementation Deed – Timing, Risk, & Index Effects
- This morning, BHP Group Ltd (BHP AU) and OZ Minerals Ltd (OZL AU) announced they had entered into a Scheme Implementation Deed at A$28.25/share (5wks after I said 3-6 weeks).
- All terms are confirmed and there may be a fully-franked dividend up to A$1.75/share which would reduce terms to A$26.50. The OZL Directors unanimously recommend.
- Anti-Trust approvals are needed in Brazil & Vietnam, other standard conditions, and the OZL Scheme Meeting should be late March early April. I expect this is done.
Mandatory Offer Arrives in Korea: Detailed Rules & Trading Ramifications
- The target is those who purchase 25% or more of the shares of a listed company and become the largest shareholder with management rights.
- The minimum volume of a mandatory offer is [(50% of total shares + 1 share) – the management right purchase volume].
- We will be exposed to pro-rata risk, so it will be essential to figure out the nature and propensity of the shareholder composition to estimate the tendering rate in advance.
AMFI Stock Reclassification Preview (Dec 2022): A Bunch of Migrations
- Near the end of the review period, we see 7 stocks moving from MidCap to LargeCap, 6 from LargeCap to MidCap, 8 from SmallCap to MidCap and vice versa.
- One spin-off should be added to the MidCap segment, while a bunch of recent listings will be added to the SmallCap segment.
- Stock migrating upwards have outperformed stocks migrating downwards and we expect there could be some mean reversion from the middle of January.
Swire Now Buying Back B Shares Only
- In August this year, Swire Pacific started a buyback programme for up to HK$4.0 billion worth of their shares (Swire Pacific (A) (19 HK) | Swire Pacific (B) (87 HK)).
- The shares went up. And B briefly outperformed A, but since then, the B/A ratio has fallen and my impression was Swire may have been misinterpreting the buyback rules.
- Swire had been buying both every day. But they’ve been Buying Bs but no As for the last ten days in a row. This begs a few questions.
Nojima (7419) Launches Buyout of Conexio (9422)
- Nojima Corp (7419 JP) is buying out Conexio Corp (9422 JP) majority owner Itochu Corp (8001 JP) along with minorities. At a 59% premium, it looks good.
- However, in terms of normalised EV/EBITDA or EV/FCF multiple, this is not expensive.
- And while the major seller/target and friendlies are oh so close, the register is more interesting than the yuho top 10 shareholder list suggests.
TIGER (WISE) Secondary Battery ETF Rebalancing in January: Names to Watch
- The key to this rebalancing is the inclusion of WCP, which satisfies the requirements of minimum listing period and secondary battery sales amount.
- As a hedge for the LONG WCP position, we can use Soulbrain and Solus Advanced, whose passive outflow is relatively high among those of a similar size to WCP.
- Among large caps, we should pay attention to L&F, Posco Chemical, and Iljin Materials. However, we should be cautious about approaching them as an active trading target.
JAFCO (8595 JP): Murakami Gets His Way with a JPY2,500 Tender Offer
- Jafco Co Ltd (8595 JP) and Murakami have reached an agreement on a revised tender offer for 16.8 million shares (23.60% of outstanding shares) at JPY2,500 per share.
- The revised tender offer’s primary purpose remains to facilitate Murakami to tender his 19.53% shareholding at the expense of other shareholders and the misallocation of JPY42 billion (tender cost).
- The justification for the transaction is weak as most of the benefits could have been achieved without it. This calls into question the Board’s ability to enhance value.
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