In today’s briefing:
- Sep24 Nikkei 225 Rebal – Last Minute Thoughts and Change in Predictions
- Artisan Partners Writes a Letter To the 7&I Board (3382) – Meh…
- KKR ¥8,800 Takeover of Fuji Soft (9749) – Details and Arb Grid
- China ETF Inflows & Implications: YTD Inflows Near US$100bn
- [JAPAN ACTIVISM] Murakami Group Now 19+% on Exedy (7278) – LOTS of Room Left To Run
- Select Sector Indices – Updated Flows as Round-Trip Trade Hits US$35bn
- India: Index Implications of Additions to the F&O Segment
- Fuji Soft (9749 JP): Bain’s Rumoured Counteroffer
- HSI, HSCEI, HSTECH, HSIII: Rebalance Flows Post Capping (Sep 2024)
- Trading Plays on Samsung C&T’s Holding Company Shift and Biologics Share Sell-Off
Sep24 Nikkei 225 Rebal – Last Minute Thoughts and Change in Predictions
- The last two reviews have been announced on the second business day of the month of the review. The one before that on the third business day.
- The review could be announced today or tomorrow. Wednesday would seem to be “late.”
- There are still questions about implementation – thus “care” in previous insights. Here I explore the possibilities/probabilities/issues around the edges. And a Dark Horse which may be lighter than thought.
Artisan Partners Writes a Letter To the 7&I Board (3382) – Meh…
- On 30 August, 7&i shareholder Artisan Partners (holder since 2019, now at 1%) wrote an open letter to the Board of Directors of Seven & I Holdings (3382 JP)
- There are several comments in bold. “It is imperative that the board of directors negotiate with ACT immediately to achieve the best possible outcome for shareholders” is one.
- The letter is a bit preachy, a bit fluffy, and a bit misleading in parts. But it requests the Company brief shareholders on the negotiations by 19 September 2024.
KKR ¥8,800 Takeover of Fuji Soft (9749) – Details and Arb Grid
- KKR has announced its previously leaked takeover of Fuji Soft Inc (9749 JP). Two activists with 30+% between them have agreed to tender at ¥8,800.
- Given what the founder, crossholders, and other arbs own, this gets done easily. Congrats on the win to the activists.
- We will see more activism and more pressure on under-earning companies to go private to clean themselves up outside the public eye. Big opportunities for years.
China ETF Inflows & Implications: YTD Inflows Near US$100bn
- Nearly US$100bn has flowed into mainland China listed ETFs year to date and could be driven by the National Team led by Central Huijin supporting the market.
- Nearly all the net inflows have been focused on the CSI 300, CSI 1000, CSI 500, SSE50, ChiNext and STAR50 indices. Flows to sector ETFs have been mixed.
- Over 70% of the net inflows have gone to the CSI 300 Index with another 18% going to the CSI 500 Index and CSI 1000 Index.
[JAPAN ACTIVISM] Murakami Group Now 19+% on Exedy (7278) – LOTS of Room Left To Run
- In late May, Toyota Group member Aisin (7259 JP) announced it would sell its 37% stake in Exedy Corp (7278 JP) . The market dropped. But that was the opportunity.
- On 30 May, I said “Buy the deal, buy in the market. It’s cheap and vulnerable.” It’s up 21.5% since (the day after). Peers are down 15-20%.
- The company completed its buyback. Murakami Group bought more. The stock (pro-forma) is at 0.62x book, 0.54x book for the non-cash portion. There’s LOTS of cash left.
Select Sector Indices – Updated Flows as Round-Trip Trade Hits US$35bn
- The changes to the S&P 500 INDEX (SPX INDEX), S&P400 Index and S&P600 Index will be announced after market close on Friday.
- The conclusions of the market consultation to change the index weighting methodology for the Select Sector Indices to reduce concentration and avoid reverse turnover should also be announced.
- Changes in the index weighting methodology will result in a round-trip trade of US$35bn across the Select Sector indices. The largest turnover is in the XLP and XLK.
India: Index Implications of Additions to the F&O Segment
- Following SEBI’s review of eligibility criteria for entry/exit of stocks in the derivatives segment, there could be 18 deletions/79 inclusions in the F&O segment over the next 6 months.
- The introduction of some stocks in the F&O segment could lead to their inclusion in the NIFTY, SENSEX, Nifty Bank and CNXIT indices and weight changes in the Nifty Next50.
- The inclusion of stocks in indices with a fixed number of constituents will result in deletion of some stocks from these indices. There should be methodology changes too.
Fuji Soft (9749 JP): Bain’s Rumoured Counteroffer
- Nikkei reports that Bain will launch a competing tender offer for Fuji Soft Inc (9749 JP) around JPY9,200-9,300 per share, around 5% higher than KKR’s offer.
- The Board responded that Bain submitted a non-binding proposal on 26 July. The special committee will consider its feasibility if a binding proposal is submitted.
- KKR has three options to respond to a higher Bain offer: revise it, launch a hostile offer at unchanged terms, or walk away. The first option is the most likely.
HSI, HSCEI, HSTECH, HSIII: Rebalance Flows Post Capping (Sep 2024)
- The September rebalance of the HSI, HSCEI, HSTECH and HSIII indices will use today’s closing prices to cap the index constituent weights at 8%/12%. This will lead to large flows.
- The round-trip trade across all stocks across the four indices is estimated at HK$18.1bn (US$2.3bn).
- Kuaishou, ASM Pacific Technology, JD.com, J&T Global, Sunny Optical and New Oriental Education are the largest buys while Alibaba, Tencent, Meituan, Xiaomi and HSBC Holdings are the biggest sells.
Trading Plays on Samsung C&T’s Holding Company Shift and Biologics Share Sell-Off
- Samsung C&T’s holding company ratio is closing in on 50%, driven by the Biologics rally, which has Samsung on high alert for a forced conversion.
- Watch Samsung’s moves to avoid forced holding company status. The old Biologics-for-Electronics swap isn’t viable, so they’ll likely sell Biologics shares to lower the ratio.
- Samsung C&T might sell Biologics shares at a ₩80T market cap. They’ve boosted construction to manage assets and the holding ratio, but beyond ₩80T, risks increase.
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