In today’s briefing:
- Japan Post Holdings (6178) Starts Its Bigly Buyback With a Sale from the MOF-Boffins
- Celltrion Merger: Index Implications
- Celltrion Merger Swap: Conditions & Schedule
- NIFTY NEXT50 Index Rebalance: Five Changes; Big Impact; Cross Index Flow
- Celltrion Inc/Healthcare Merger. Pharm Is Next
- Merger Between Celltrion Inc and Celltrion Healthcare (Phase I First)
- HSCI Index Rebalance: 22 Adds, 27 Deletes & Changes to Southbound Stock Connect
- Fully Disseting SK Rent A Car’s Hybrid Tender Offer Disclosure, Whose Cash Offer at a 5.7% Spread
- Share Buybacks In Japan – A 2023 Primer
- What’s Next for SiMo?
Japan Post Holdings (6178) Starts Its Bigly Buyback With a Sale from the MOF-Boffins
- In March 2023, Japan Post Holdings (6178 JP) sold ¥1.1trln of shares in Japan Post Bank (7182 JP), lowering its stake considerably, raising float. There will be a TOPIX upweight.
- In May, with earnings, they announced their intention to buy back ¥300bn of shares or up to 10% of shares out. Today, they announced the details. ¥300bn through March end.
- In a ¥300bn ToSTNeT-3 tomorrow, the govt will sell back ¥105.7bn. That leaves a residual worth examining. So we examine.
Celltrion Merger: Index Implications
- Celltrion Inc (068270 KS) and Celltrion Healthcare (091990 KS) will merge later this year. Celltrion Pharm (068760 KS) has been left out for now; it could be merged next year.
- For each share of Celltrion Healthcare (091990 KS) held, shareholders will receive 0.449262 shares of Celltrion Inc (068270 KS).
- There will be implications for the Korea Stock Exchange Kospi Index (KOSPI INDEX) and KOSDAQ 150 Index (KOSDQ150 INDEX) with funding flows and index replacements.
Celltrion Merger Swap: Conditions & Schedule
- The swap prices, ₩148,853 for Celltrion Inc and ₩66,874 for Celltrion Healthcare, specified below are not tentative prices but confirmed prices. So, the merger ratio has been determined as 1:0.4492620.
- The key focus now is the appraisal rights exercise. Both offer attractive spreads. Yet, the ₩1T combined ceiling might seem restricted considering potential dissenting Celltrion Inc shareholders exceeding expectations.
- Nonetheless, considering the strong determination of the company towards this merger, we should consider a strategy of approaching this spread aggressively while keeping the cancellation risk in mind.
NIFTY NEXT50 Index Rebalance: Five Changes; Big Impact; Cross Index Flow
- NSE Indices has continued to use the current index methodology to come up with the 5 adds/deletes. The proposed methodology seems to be put on ice for reasons unknown.
- Punjab National Bank, Shriram Transport Finance, Trent, TVS Motor and Zydus Lifesciences will replace ACC, FSN E-Commerce Ventures, HDFC Asset Management, Indus Towers and Page Industries.
- The adds, deletes, capping and funding changes will result in one-way turnover of 13% and in a one-way trade of INR 20.77bn. The impact on the adds/deletes is big.
Celltrion Inc/Healthcare Merger. Pharm Is Next
- It’s finally happening: biopharmaceuticals developer and producer Celltrion Inc (068270 KS) will acquire Celltrion Healthcare (091990 KS).
- Inc will issue 0.4492620 new shares for each share in Healthcare. The swap prices of ₩148,853 for Inc and ₩66,874 for Healthcare are firm.
- Celltrion Pharm (068760 KS) is excluded from the original three-way merger plan, but is expected to be merged with the enlarged Inc/Healthcare entity around July 2024.
Merger Between Celltrion Inc and Celltrion Healthcare (Phase I First)
- On 17 August, Celltrion Inc announced that it will merge with Celltrion Healthcare. The merger ratio is 0.449262 Celltrion Inc share for each share of Celltrion Healthcare.
- There was a negative surprise which was that Celltrion Pharm will not be included as part of the three companies merger which has been promised in the past several years.
- Overall, we believe that this merger will have a positive impact on Celltrion Inc and Celltrion Healthcare’s share prices.
HSCI Index Rebalance: 22 Adds, 27 Deletes & Changes to Southbound Stock Connect
- There are 22 adds and 27 deletes for the Hang Seng Composite Index (HSCI) at the September rebalance to take the number of index constituents down to 518.
- We expect all 22 inclusions to the HSCI will be added to Stock Connect, while 24 of the 27 HSCI deletions will be removed from Southbound Stock Connect.
- Since the end of June, shares held though Southbound Connect have increased on 20 of the 27 HSCI deletions and there could be some unwinding in the next two weeks.
Fully Disseting SK Rent A Car’s Hybrid Tender Offer Disclosure, Whose Cash Offer at a 5.7% Spread
- With just the SK Networks stake, both of these conditions are already satisfied. So, the key point will be how quickly the spread of the cash offer narrows next Monday.
- We need to watch whether the spread for the exchange offer opens. As SK Networks is a K200 constituent, it’s subject to short selling, making a Long Short play possible.
- Worth noting, among the 24% minority shareholders, NPS and KIT hold a combined 15%, potentially leading to limited market circulation volume. This is something we should also be mindful of.
Share Buybacks In Japan – A 2023 Primer
- The TSE and Government are pressuring low-PBR companies to DO SOMETHING to raise their PBR to >1.0x. The easiest way to do that is raise ROE.
- Raising R requires customers “agree” (buying more, paying a higher price, etc). Lowering E means buying back shares or paying big special dividends. That’s easier for a company.
- So buybacks have been increasing in number, and breadth, and to some degree in size. This insight describes the mechanics/details of how buybacks work in Japan.
What’s Next for SiMo?
- MaxLinear’s acquisition of Silicon Motion has been abandoned, with both sides threatening arbitration.
- It is difficult to understand why the acquisition would have resulted in the synergies projected by management. The businesses are very different.
- Assuming the companies go different ways, expect for SiMo to perform as it has in the past.
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