In today’s briefing:
- MEGA M&A! 7&I (3382 JP) Gets Non-Binding Bid from Alimentation Couche-Tard (ATD CN)
- Seven & I Holdings (3382 JP): Couche-Tard “friendly” Proposal Likely to Go Nowhere
- Hang Seng Index (HSI) Rebalance: Meh (Or Will We Ever Get to 100 Stocks?)
- Korea FSS Releases Final Guidelines for Short Selling Compliance: Trading Implications
- Colowide Placement – Needs a Very Large Correction
- Couche-Tard Targets Seven & I: Seven & I’s Pride on the Line
- COLOWIDE (7616) – UGLY Register On Expensive Co Needs a Capital Construct Upgrade, Won’t Get It Here
- Trading Considerations for Won Appreciation & Korean ADR Premium Volatility
- Iriso Electronics (6908 JP): Murakami Becomes a Substantial Shareholder
- Guzman Y Gomez (GYG AU): Free Float to Determine Index Inclusion
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MEGA M&A! 7&I (3382 JP) Gets Non-Binding Bid from Alimentation Couche-Tard (ATD CN)
- Today, part-way through the day, the Nikkei ran an article saying that Alimentation Couche-Tard (ATD CN) had made a confidential non-binding proposal to buy Seven & I Holdings (3382 JP).
- 7&i shares obviously went up (limit up in a hurry, staying there, large size traded limit up at close).
- Now things get complicated. 7&i has said they received a non-binding proposal for all the shares. There will be a Special Committee of all Independent Directors. All stakeholders will matter.
Seven & I Holdings (3382 JP): Couche-Tard “friendly” Proposal Likely to Go Nowhere
- Seven & I Holdings (3382 JP) shares rose 22.7% as it confirmed media reports that it had received a confidential, non-binding preliminary proposal from Alimentation Couche-Tard (ATD CN).
- The interest is unsurprising due to the weak share price performance. Since ValueAct’s open letter on 25 January 2022, the shares are up 5.2% vs. the Nikkei 225 up 38.0%.
- Couche-Tard aims for a friendly offer, which is challenging as it requires support from the founder’s family and the Japanese government. Therefore, the probability of a binding proposal is low.
Hang Seng Index (HSI) Rebalance: Meh (Or Will We Ever Get to 100 Stocks?)
- In a surprise (maybe should not have been!), there are no constituent changes for the Hang Seng Index (HSI INDEX) in September. However, there are float and capping changes.
- Estimated one-way turnover is 1% and estimated round-trip trade is HK$3.73bn (US$478m). There are no stocks with over +/-0.5x ADV to trade but flows could add to/offset other index flows.
- We remain at 82 index constituents and the road to 100 constituents appears to be a long drawn out torturous one. At this glacial pace, could be an eternity away.
Korea FSS Releases Final Guidelines for Short Selling Compliance: Trading Implications
- This final guideline formalizes earlier drafts by the FSS. Though not strictly mandatory, its detailed requirements mean it functions as a de facto rule that must be followed closely.
- The new, stringent requirements are likely to eliminate common stock borrowing practices in Korea, making timely transactions difficult.
- New trading patterns and market flows may emerge when short selling resumes in April, with increased importance of borrow balance data and potential rise in counter-flow trading.
Colowide Placement – Needs a Very Large Correction
- Colowide Co Ltd (7616 JP) aims to raise around US$230m in order to fund its prospective M&A transactions over the next few years
- While the company has undertaken a number of M&A transactions in the past, it hasn’t clearly stated its intended targets for this round.
- In this note, we will talk about the deal dynamics and run the deal through our ECM framework.
Couche-Tard Targets Seven & I: Seven & I’s Pride on the Line
- It was reported yesterday that Alimentation Couche-Tard (ATD CN) has put forward a bold proposal to acquire Seven & I Holdings (3382 JP).
- The offer price remains undisclosed, but the market may be anticipating a significant premium based on the share price movement following the news.
- However, we believe the offer price could fall short of market expectations, and it is likely that Seven & i will reject the proposal.
COLOWIDE (7616) – UGLY Register On Expensive Co Needs a Capital Construct Upgrade, Won’t Get It Here
- Colowide Co Ltd (7616 JP) is an industrial fastish-food operator in Japan. They sell several dozen kinds of cuisine under several dozen brands, owned and franchised in Japan and overseas.
- The company “philosophy” is “Everything we do is for our customers and employees.” The stock is up 30% in 10yrs. It pays no dividend, but it pays a big yutairimawari.
- This means Real World Float is 100% owned by retail who want restaurant coupons. This offering will be bought by index, short covers, and another 20-30k coupon holders.
Trading Considerations for Won Appreciation & Korean ADR Premium Volatility
- Increased exchange rate volatility affects the ADR premium, but past patterns show that exchange rate and ADR premium directions may not always align, requiring consideration of specific contextual factors.
- If the won appreciates below the 1,300s range, overseas institutions may shift to asymmetric selling of underlying shares for foreign exchange profit, as shown by rising ADR premiums.
- We should watch for peak conditions to capture significant ADR premiums. Trading options include borrowing underlying shares for ADR conversion, even under the current short-selling ban.
Iriso Electronics (6908 JP): Murakami Becomes a Substantial Shareholder
- Murakami’s entities, City Index Eleventh and Aya Nomura, reported a 5.06% position in Iriso Electronics (6908 JP). The purchases were from 25 July to 13 August.
- Murakami’s average buy-in price over the last 60 days was JPY2,378.90 per share, a 7.8% discount to the last close price.
- Murakami’s disclosure suggests two possibilities: the start of an activist campaign or a short-term pump-and-dump play. The former is likely as Iriso is cash-rich with a P/B less than 1x.
Guzman Y Gomez (GYG AU): Free Float to Determine Index Inclusion
- Guzman Y Gomez (GYG AU) listed on 20 June and is eligible for inclusion in the S&P/ASX family of indices at the September rebalance.
- Whether the stock is included in indices depends on the index providers estimate of free float. We expect index providers to assign floats of between 25-35% for the stock.
- Inclusion in one global index could come in November and another in December. Inclusion in the S&P/ASX indices will depend on whether float is higher than 30% or lower.