In this briefing:
- Last Week in GER Event-Driven Research: Myob, Rakuten, Delta, Graincorp and Hopewell Holding
- Meituan Dianping (3690 HK): Lock-Up Expiry – Good 4Q18 Required
- HHI – DSME Acquisition: Current Situation & Trade Approach
- Omron into the Nikkei 225, Pioneer Out
- Last Week in Event SPACE: MYOB, Lynas, Versum, Jardines
1. Last Week in GER Event-Driven Research: Myob, Rakuten, Delta, Graincorp and Hopewell Holding
In this version of the GER weekly EVENTS research wrap, we contend that investors should cash out on the MYOB Group Ltd (MYO AU) deal and assess the NAV discount potential for Rakuten Inc (4755 JP) post the IPO launch of Lyft Inc (0812823D US) – of which Rakuten has a 13% stake. Moreover, we dig into the deals for Delta Electronics Thai (DELTA TB) , Graincorp Ltd A (GNC AU) and Hopewell Holdings (54 HK)
More details can be found below.
Best of luck for the new week – Rickin, Venkat and Arun
2. Meituan Dianping (3690 HK): Lock-Up Expiry – Good 4Q18 Required
Meituan Dianping (3690 HK)‘s shares currently trade 18% below its IPO price of HK$69.00 per share. Meituan will announce its 4Q18 results on Monday, 11 March 2019, after market close. Notably, Meituan’s six-month lock-up period expires on 19 March 2019.
We believe that should Meituan deliver a strong 4Q18; it will likely not experience Xiaomi Corp (1810 HK)’s share price collapse after the end of its six-month lock-up period.
3. HHI – DSME Acquisition: Current Situation & Trade Approach
- The DSME deal between HHI and KDB was officially finalized last Friday. We will then have the following four step process. Schedule detail is yet to come out. HHI intermediate holdco is named Korea Shipbuilding & Offshore Engineering, or KSOE.
- HHI went south by nearly 4% last Friday when the deal was finalized. DSME stayed flat. Why did this happen? There was another story we heard last Friday. HHI and Korea Eximbank agreed that the ₩2.3tril CBs wouldn’t be converted into DSME shares and disposed any time soon. Not only that, there will be a downwardly interest adjustment to help ease DSME’s financial burden.
- This agreement immediately sparked a speculation that HHI must have pledged Korea Eximbank some sort of DSME valuation pushings. This is like a value transfer rather from HHI to DSME. I’d wrap the current HHI long/DSEM short position at this point. Short-term, I expect DSME outperforming HHI. Longer term, I still doubt what value transfer from who to who. I’d rather stay away from both.
4. Omron into the Nikkei 225, Pioneer Out
Friday 8 March after the close, the Nikkei announced that because the third party share sale of Pioneer Corp (6773 JP) had been completed, it would be deleted from the Nikkei 225 Average (and the Nikkei 500 Index). Omron Corp (6645 JP) will replace Pioneer in the Nikkei 225 Average, with a deemed par value of 50 yen per share.
The date for this index deletion and inclusion event is the 15th of March, as per the schedule of the February 19th announcement as to how the Pioneer event would be treated.
This affords special sits/events followers a couple of different events to look at.
5. Last Week in Event SPACE: MYOB, Lynas, Versum, Jardines
Last Week in Event SPACE …
- Not a bad reward/risk as Manikay greenmails KKR’s MYOB Group Ltd (MYO AU) offer.
- If the Malaysian government impasse cannot be resolved, Lynas Corp Ltd (LYC AU) will be left holding just a bunch of rocks.
- Antitrust issues are not deal breakers, while the strategic logic of the Versum Materials (VSM US) acquisition for Merck KGaA (MRK GY) is compelling.
- The ongoing circularity creep as Jardine Matheson Hldgs (JM SP) increases its stake in Jardine Strategic Hldgs (JS SP).
- Plus other events, CCASS movements and upcoming key dates for M&A transactions.
(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events – or SPACE – in the past week)
M&A – ASIA-PAC
MYOB Group Ltd (MYO AU) (Mkt Cap: $1.4bn; Liquidity: $10mn)
While not new news, US-based hedge fund – somewhat well-known for being involved in M&A situations – started accumulating a position in MYOB in January and has now reached a stake of 11%. The last chunks purchased appear to have been done at (or around) A$3.40/share, which is equal to terms. The Manikay letter to the Board asks the Board to consider the market movements since December and posits a fair value in excess of A$4.00/share.
- Manikay says that it is interested in becoming a long-term shareholder. But the letter seems to level its criticism of the deal price most pointedly at the fact that the deal was offered and agreed to just a few days off a two-year low in the S&P/ASX200 Index and since then the index has rebounded to within 1.5% of an 11-year high.
- A “market context” bump is not a bad case in and of itself because of where peers have moved and where the market has moved, and we won’t know whether that point is taken up by the IER in the Scheme Document.
- This strikes Travis Lundy as not a bad reward/risk to buy up to 1-2% through terms. The back end “undisturbed price” has risen and the recent earnings release shows online penetration continues to grow.
(link to Travis’ insight: MYOB Setting Up As A Riskier Trade)
EVENTS
Lynas Corp Ltd (LYC AU) (Mkt Cap: $758mn; Liquidity: $6mn)
Irrespective of whether the Malaysian rare earth processing licence provided to Lynas was without adequate due process (as has been speculated) or whether the facility is indeed an environmental concern; the fact remains the Malaysian government has reneged on the previously agreed-upon three-step licence process – imposing unachievable pre-conditions by the licence renewal date this September – and that is wrong.
- Ongoing negotiation with the Malaysian government is the only course of action by which Lynas will achieve the renewal of its operating licence (unencumbered or with “acceptable” caveats). The agreed management pathway for NUF provides scope for a positive outcome from extensive consultation.
- But even if a viable resolution is reached, it would only serve to temporarily manage Lynas out of its current predicament – given the vocal domestic opposition, the long-term prognosis is likely the shuttering and removal of the LAMP.
- Shares are down 45% from the pre-general election (for Malaysia) peak and ~24% down from when the Review Committee was first mooted in September 2018, and roughly a similar % compared to the 3 December closing price, the day before the pre-conditions were introduced. That still appears too optimistic. Resolving the Malaysian government roadblock will quite likely be a stop-gap measure, at best.
(link to my insight: Lynas: Between a Hard Place and Just Rock)
POSCO Chemtech (003670 KS) (Mkt Cap: $758mn; Liquidity: $6mn)
Posco Chemtech is to merge with POSCO ESM through a stock swap at a ratio of 1 to 0.2172865. The merger will be effective as of April 1. The merged company is planning to move from KOSDAQ to KOSPI. These proposals will be put to the vote at the upcoming AGM scheduled for March 18.
- KOSPI 200’s re-balancing reference date is after the close of the last trading day in April and the change takes effect on the next trading day after the 2nd Thursday of June. If the KRX approves it before the end of April, Chemtech’s KOSPI inclusion will happen this June. If not, it will have to wait until next year.
- New passive money flowing into Chemtech is estimated at ₩68bn. This represents 1.69% of market cap and 4.82% of float market cap. This is less than twice total daily trade value.
(link to Sanghyun Park‘s insight: POSCO Chemtech: Merger, Renaming, KOSPI Move & Joining KOSPI 200)
M&A – US
Versum Materials (VSM US) (Mkt Cap: $5.3bn; Liquidity: $75mn)
In a follow-up note John DeMasi provides an update of events, looking into VSM’s corporate governance documents, reviewing relevant landmark Delaware takeover case law, and elaborating on a possible path to control of Versum for Merck KGaA (MRK GR).
- Merck has now filed form DFAN14A filed with the SEC. The talking points/Q&A confirm that the VSM/Entegris Inc (ENTG US) deal caught Merck by surprise as they had not been contacted by Versum as part of any market check.
- Other important takeaways include number 7, where Merck stress (yet again) they are fully committed to pursuing their proposal; number 11, where they don’t rule out raising their price; and number 21, where they answer whether they have purchased any VSM shares with “The number of shares of Versum common stock held by Merck … does not exceed a level that would require disclosure.”
- Merck continues to speak and act like a bidder who is not going away, and its upcoming roadshow in New York with shareholders underscores its commitment to the deal, adding to the pressure on the Versum Board.
(link to John’s insight: Versum Materials – Merck KGaA Not Going Away (Part II))
Briefly …
Bristol Myers Squibb Co (BMY US) has responded to Starboard Value’s (& other critics) opposition of its perceived overpaying for Celgene Corp (CELG US) with a comprehensive and substantive presentation, increasing the likelihood this deal gets up. (link to ANTYA Investments Inc.‘s insight: Bristol Myers Squib & Celgene–Starboard Objections Addressed Today- Successful Deal Closure Probable)
STUBS & HOLDCOS
Jardine Matheson Hldgs (JM SP) / Jardine Strategic Hldgs (JS SP)
JM has bought 662k shares in JS since the beginning of March, averaging 47.5% of daily volume, narrowing the simple ratio (JM/JS). JM has consistently bought back shares in JS over the years. Since December 2011, buybacks have taken place at an average price/book (for JS) of 0.75x (it is currently at 0.70x according to CapIQ) and at an average JM/JS ratio of 1.75x. The current ratio is 1.70x, bang in line with its 7+ year average. The 20-year average is 1.82x.
- Presumably the Keswick family’s long-term plan is collapsing the circularity. But given the significant costs involved – either JM privatizing JS or vice versa – for now, the family will likely opt for the circularity creep, by continuing to chip away at minority ownership as JS takes its dividends in-specie, JM acquires JS, gradually increasing the inter holdings of the two entities.
- JS is also trading “cheap”, at a 42% discount to NAV, adjusted for cross-holdings. JS is now around 25% points “cheaper” than JM (which has a discount to NAV of 17%), compared to a one-year average of ~24%. A year ago, the % difference was 6%.
- JM has bought 1.8mn shares YTD compared to 2.5mn for the same period last year, while 4.9mn shares were acquired in 2018, compared to 7.6mn, 8.2mn, and 2.1mn in 2015-2017 respectively. The very long-term ratio is marginally in favour of JM, yet the more recent yearly average suggests it is line. JS looks cheap on a discount to NAV basis and it makes sense for JM to continue to acquire shares, favouring JS near-term. I also tilt in favour of this outcome.
(link to my insight: StubWorld: Matheson’s Strategic Buying of Strategic)
Briefly …
- Sanghyun estimates HDC Holdings (012630 KS) and its major sub HDC Engineering & Construction (294870 KS) are at 247% of σ on a 20D MA for the first time since mid Nov last year, and recommends to go long the Sub and short Holdco. (link to Sanghyun’s insight: HDC Holdco Trade: Holdco Re-Rating Should Be Transferred to Sub, Time to Long Sub/Short Holdco)
- Orion Holdings (001800 KS) /Orion Corp (271560 KS) is now above +2σ on a 20D MA and is currently at a 120D high. Sanghyun recommends it is time to go long Sub and short Holdco. Plugging in Sanghyun’s numbers, I back out a discount to NAV of 46% compared to a the 12-year average of 48%. The parent is, though, very illiquid. (link to Sanghyun’s insight: Orion Holdco/Sub Trade: Holdco’s Price Catching up Was Overworked, Time for Sub to Catch Up)
- Youngone Holdings (009970 KS)‘s 50.5%-held sub Youngone Corp (111770 KS) accounts for 70% of NAV. On a 20D MA, they are now at 312% of σ while the current price ratio is at a 120D high. Sanghyun recommended a set-up. The parent is up 9% this week vs 12% down for the sub. The NAV discount is now out of whack – plugging Sanghyun’s numbers I get a discount to NAV of 35% vs. an average of 48%. The parent is very illiquid. (link to Sanghyun’s insight: Youngone Holdco/Sub Trade: Price Divergence Got Too Wide)
OTHER M&A UPDATES
ISS and Glass Lewis are understood to have recommended the offer for Hopewell Holdings (54 HK).
Restaurant Brands Nz (RBD NZ) has announced “Consent has now been granted in respect of the Partial Takeover by certain subsidiaries of Yum! Brands“. The remaining condition is receipt of acceptance from 75% of shareholders. Acceptances currently total 40.68%.
- The circular for China Goldjoy (1282 HK) has been delayed to the 26 March from 5 March.
- The Yungtay Engineering (1507 TT) Tender close has been extended to April 22 – big extension. Hmmm….
- NASDAQ raised its bid for Oslo Bors VPS Holding ASA (OSLO NS) to NOK 158 and lowered its minimum acceptance condition from 90% to two-thirds. The offer period is extended to 29 March. The Long Stop is extended to 4 Mar 2020.
- Panalpina Welttransport Holding (PWTN SW) has decided to call an EGM for April 5th, and approves the One Share One Vote amendment to the Articles of Association.
- Anta-Led Group Says 94.38% of Amer Sports Oyj (AMEAS FH) shares tendered.
- Hong Kong International Construction Investment Management Group Co., (687 HK)‘s possible MGO at $3.00/share.
- Michelin has acquired a 88% stake in Multistrada Arah Sarana Tbk (MASA IJ) and will make a mandatory offer for remaining shares.
CCASS
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Name | % chg | Into | Out of | Comment |
17.77% | Sun Securities | Outside CCASS | ||
32.00% | DBS | Outside CCASS | ||
23.08% | Guotai | Outside CCASS | ||
55.66% | HSBC | DBS | ||
11.90% | Well Link | Outside CCASS |
UPCOMING M&A EVENTS
Country | Target | Deal Type | Event | E/C | |
Aus | GrainCorp | Scheme | March | Binding Offer to be Announced | E |
Aus | Greencross | Scheme | 6-Mar | Settlement Date | C |
Aus | Propertylink | Off Mkt | 8-Apr | Last Payment Date | C |
Aus | Sigma | Scheme | March | Binding Offer to be Announced | E |
Aus | Eclipx Group | Scheme | March | First Court Hearing | E |
Aus | MYOB Group | Scheme | 11-Mar | First Court Hearing Date | E |
Aus | Healthscope | Scheme | April/May | Despatch of Explanatory Booklet | E |
HK | Harbin Electric | Scheme | 29-Mar | Despatch of Composite Document | C |
HK | Hopewell | Scheme | 13-Mar | Last time for lodging shares to qualify to vote | C |
India | GlaxoSmithKline | Scheme | 9-Apr | Target Shareholder Decision Date | E |
Japan | Showa Shell | Scheme | 1-Apr | Close of offer | E |
NZ | Trade Me Group | Scheme | 19-Mar | Despatch of Scheme Booklet | C |
Singapore | Courts Asia | Scheme | 15-Mar | Offer Close Date | C |
Singapore | M1 Limited | Off Mkt | 18-Mar | Closing date of offer | C |
Singapore | PCI Limited | Scheme | March | Release of Scheme Booklet | E |
Thailand | Delta | Off Mkt | 1-Apr | Closing date of offer | C |
Finland | Amer Sports | Off Mkt | 12-Mar | Release of Final Results of Tender Offer | C |
Norway | Oslo Børs VPS | Off Mkt | 29-Mar | Acceptance Period Ends | C |
Switzerland | Panalpina | Off Mkt | 5-Apr | EGM | C |
US | Red Hat, Inc. | Scheme | March/April | Deal lodged for approval with EU Regulators | C |
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