In this briefing:
- PG&E: Turnaround; A Mission Impossible Task
- GLOW’s Done Deal As SPA (Almost) Completes
- TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses
- China Gas Placement – Larger Deals Traded Flat but Good Track Record Should Help
- M&A: A Round-Up of Deals in February 2019
1. PG&E: Turnaround; A Mission Impossible Task
We write this note to provide P G & E Corp (PCG US) current state of affairs. First and foremost, we believe that the equity value is zero as the company restructures under chapter 11 bankruptcy code. Most companies that enter chapter 11 bankruptcy either face operational or financial headwinds. PG&E problems are compounded by complications of litigation and regulatory risk along with operational and financial risks.
2. GLOW’s Done Deal As SPA (Almost) Completes
The revised SPA between Engie SA (ENGI FP) and Global Power Synergy Company Ltd (GPSC TB) is expected to the close this week, triggering a mandatory Tender offer for Glow Energy Pcl (GLOW TB).
The revision was a remedial requirement (announced on the 27 Dec) after the Office of the Energy Regulatory Commission (ERC) resolved to approve, in principle, the proposed merger of GSPC and GLOW, provided GLOW sells Glow SPP1 before or at the same time as the merger. The ERC had previously rejected the merger on the 11 October.
The divestment of SPP1 to B Grimm Power (BGRIM TB) for Bt3.3bn (~2.5% of GLOW’s market cap at the time) was announced on the 22 February and was completed yesterday.
Subsequent to the SPP1 sale, the purchase price under the SPA was adjusted to Bt91.9906/share, a ~3% decline from the initial Bt94.892/share price under the original SPA.
My discussions with GLOW indicate the SPA is expected to complete this week – i.e. Engie crosses its 69.11% holding in GLOW to GPSC – and that the 247-3 and 247-4 forms will be submitted by GPSC in “around” 1-2 weeks after the close of the main transaction. The ERC signed off on the SPA last Friday.
Assuming late-May payment, this is currently trading at a gross/annualised spread of 1.6%/8.8%.
3. TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses
We maintain our positive view toward its long-term outlook on the backs of potential growth from its location and secured contract with government agency. Maintain a BUY rating with a new target price of Bt16.8 (SOTP).
The story:
- We cut our 2019-2021 earnings forecast by 12-13% to factor in rising depreciation expenses caused by its shortening depreciated years of PTW’s assets.
- Our new target price of Bt16.8 is derived from Some-of-the-parts (SOTP) which comprises (1) Bt13.8 from core business (tap water supply under both TTW and PTW) based on DCF(6.7%WACC, 0%TG) and (2) Bt3.0 from CKP based on IFA report.
4. China Gas Placement – Larger Deals Traded Flat but Good Track Record Should Help
A shareholder of China Gas Holdings (384 HK) is looking to sell about 142m shares worth approximatel US$443m. This is a clean-up trade.
The deal scores well on our framework owing to its pristine track record of outperformance and decent earnings momentum. It is also a clean-up trade, hence, no overhang on its share price.
However, the performance of prev deals show that placements larger than HK$3bn tend to perform flat over one-month period whereas placements with smaller deal size did well.
5. M&A: A Round-Up of Deals in February 2019
For the month of February, thirteen new deals were discussed on Smartkarma with an overall deal size of US$12.3bn.
This overall number includes the “offer” for Hanergy Thin Film Power (566 HK) which has no value, as yet, attached to the scrip component.
A firm number for Glow Energy Pcl (GLOW TB) has yet to be announced, which could result in a US$4bn+ deal.
The average premium to last close for the new deals was 27.5%.
New Deals | Industry | Deal size (US$mn) | Premium | Deal Type |
| Australia | ||||
| Ruralco Holdings (RHL AU) | Agriculture | 336 | 44.0% | Scheme |
| HK | ||||
| Hanergy Thin Film Power (566 HK) | Semiconductor Equipment | – | – | Scheme |
| Xingfa Aluminium (98 HK) | Aluminum | 202 | 2.9% | Off-Mkt |
| Japan | ||||
| Veriserve Corp (3724 JP) | IT Consulting | 143 | 43.6% | Off-Mkt |
| Jiec Co Ltd (4291 JP) | Software | 170 | 39.3% | Off-Mkt |
| Nd Software (3794 JP) | Software | 270 | 28.7% | Off-Mkt |
| U Shin Ltd (6985 JP) | Auto Parts and Equipment | 288 | 28.3% | Off-Mkt |
| Thailand | ||||
| Golden Land Prop Dvlp (GOLD TB) | Diversified Real Estate | 632 | 2.4% | Off-Mkt |
| Glow Energy Pcl (GLOW TB) | IPP and Energy Traders | 4,000 | – | Tender Offer (?) |
| UK | ||||
| Dairy Crest (DCG LN) | Dairy Products | 1,272 | 12.0% | Scheme |
| Ophir Energy (OPHR LN) | Oil & Gas E&P | 511 | 66.0% | Scheme |
| RPC Group PLC (RPC LN) | Financials | 4,106 | 16.0% | Scheme |
| China | ||||
| Sichuan Swellfun Co Ltd A (600779 CH) | Alcoholic Beverages | 330 | 19.3% | Off-Mkt |
Brief Summary of News in February of Arb Situations On Our Radar
Australia | Comments (with links) |
At the Eclipx Group 2019 AGM, the Chairman mentioned that it was the board unanimously endorses this proposal and that a revised timetable will be announced when the contents of the Scheme Book are agreed upon with MMS. | |
At the GrainCorp 2019 AGM, the Chairman announced that the engagement between the two parties remains active, and the proposal is still indicative and non-binding. | |
On 6th February 2019, Greencross held a scheme meeting at which the shareholders approved the scheme of arrangement (99.67% of Greencross shareholders present and voting at the Scheme Meeting voted in favour). A dividend of AUD 0.19 was announced on 7th February (ex-date: 12-Feb-2019), to be paid on 20th February 2019, conditional on court approval of the scheme. The scheme received court approval on 11th February 2019, along with which the company suspended the trading of its shares on ASX from the close of trading on 11th February 2019. The Scheme was implemented on 27th February 2019. | |
On 1st February 2019 it was announced that Healthscope entered into an Implementation Deed with Brookfield, where Brookfield is to acquire all of the shares of Healthscope through a scheme at A$2.5/share and an off-market takeover offer A$4.2/share. A dividend of A$ 0.035 (ex-date:04-Mar-2019) announced on 14th February 2019, is included in the offer price. | |
The “go-shop” period in relation to the KKR Scheme, which allowed MYOB and its advisers to solicit a superior competing proposal, ended on 22nd February 2019, without any superior proposals emerging. As a result, the Directors of MYOB have reaffirmed their recommendation of the scheme. The Scheme Booklet is expected to be released in mid – late March 2019, with the Scheme meeting expected to be held in late April 2019. | |
On 18th February 2019, when the exclusivity period granted to BGH Consortium was to expire, Navitas announced that the exclusivity period is extended to 1st March 2019. This extension was granted in order to carry out a limited set of remaining due diligence, as per the announcement. The Directors of Navitas continue to unanimously recommend the Scheme. | |
On 20th February 2019, the company announced the offer becoming unconditional, along with which it was announced that ESR has an interest of 74.78% of Propertylink and that Centuria Capital Group in respect of their 19.51% ownership. The offer has been extended to the 8th March. | |
Ruralco has announced it has entered into a Scheme Implementation Deed in which Nutrien Ltd (NTR CN) has agreed to take Ruralco private at $4.40/share – a 44% premium to last close and the one-month VWAP. | |
In a market update released by Sigma Healthcare, on 11th February 2019, it was announced that high level due diligence is still underway with regard to the potential merger proposal. |
Hong Kong | Comments (with links) |
Hanergy announced on 26th February 2019, the intention of HMEH to privatise the company by way of a Scheme, at one SPV share for every Hanergy share. No price was given for the SPV. | |
The deadline to despatch the Composite Document was further extended to 29th March 2019, from its previous extension – 22nd February 2019. | |
The scheme document for the privatisation of Hopewell Holdings was dispatched on 24th February 2019. | |
The deadline to despatch the Composite Document has been extended to either 30th April 2019 or 7 days after the date of fulfilment of the conditions, whichever is earlier. This extension is required in order to prepare the Goldjoy Circular to convene the EGM and because completion is subject to the conditions of the Sale and Purchase Agreement being fulfilled. | |
On 13th February 2019, major shareholder of Xingfa Aluminium – Guangxin Aluminium, acquired 5,000 shares in Xingfa, which triggered the launch of a Madatory General Offer, as Guangxin’s stake in Xingfa exceeded 30%. The offer price is HK$5.60 cash/share. |
India | Comments (with links) |
The transaction is expected to close today | |
No Feb update | |
No Feb update |
Indonesia | Comments |
Based on the original schedule, BDMN has today gone ex-rights on being able to vote in the Shareholder Meeting on March 26 and also ex-rights on the ability to select the cash payment for your shares. |
Japan | Comments (with links) |
The offer closed today | |
On the 7th Feb, Descente announced that it was opposed to the deal. They can’t do much because the deal is launched. Shortly after, the employees union, a group of ex-employees, and a former president all came out against Itochu’s Tender Offer. On the 26th, the company announced that it would bring forward its announcement of its Medium Term Plan by a couple of months. | |
No update since launch on 31 January | |
On 12th February 2019, KDDI Corp announced that they intend to conduct a Tender offer for a minimum 45,758,400 shares of Kabu.Com Securities at ¥559/share. If they are able to acquire the minimum, it would lead to a Two Step Squeezeout, because when KDDI’s holding is combined with that of MUFJ Securities’, their total holding reaches 66.67%. | |
On 4th February 2019 after the close, Reno KK filed a Large Shareholder Report declaring a 5.83% position as of 28th January 2019, following which, on the 5th of February they announced that they had purchased an additional 2.49% on the 29th of January, increasing their holding to 8.31%. On the days that followed, along with their joint holder Aoyama Fudosan, the Reno group increased their stake to 9.55% by 1st February 2019 (which was announced on 8th February 2019). On 18th February, an article was published on toyokeizai.net which suggested that Mr. Nakatsuji (longstanding external shareholder) and Sakurai Mie (leader shareholder and descendent of the founder of Kosaido), were against the takeover. It was announced on 26th February 2019, that the tender offer close date had extended to 12th March 2019, from 1st March 2019. | |
Reportedly Amazon.com Inc (AMZN US) and Comcast will enter the race and have submitted initial bids to acquire Nexon. EA was also mooted as a participant in first round bidding. | |
On the 8 Feb, ND Software announced a Management Buy Out (MBO) sponsored by both the existing president, who owns 20%, and J-Will Partners to take the company private at ¥1700/share, which is a 28.7% premium to last trade and comes out to be roughly 7.2x trailing 12-month EV/EBITDA. | |
Pioneer has received all anti-trust approvals | |
The results of the Tender Offer was released on 20th February 2019. There were 32.43 million shares tendered, while the Tender Offer was only to buy 26.6666 million shares, which led to an 82.23% pro-ration. Following the closing of the Tender Offer, the Murakami grouping will own 4% of shares out and 5.7% of voting rights remaining. | |
On 14th February 2019, Minebea Mitsumi announced the launch of their Tender Offer to acquire U Shin Ltd at ¥985/share. The offer opened on 15th February 2019, and will close on 10th April 2019. The intention to make an offer to acquire U Shin Ltd was first announced back in November 2018. | |
After market close on 31st January 2019, Sumitomo Corp (8053 JP) consolidated subsidiary SCSK Corp (9719 JP) announced a Tender Offer to buy out minorities in Veriserve Corp (3724 JP). At the time of announcement, SCSK held 2,900,000 shares or 55.59% of voting rights. The Tender Offer is at ¥6,700/share |
New Zealand | Comments |
No Feb update |
Singapore | Comments (with links) |
Ascendas-Singbridge | No Feb update |
The formal offer document was despatched on 1st February 2019, with the first closing date scheduled for 1st March 2019. On the same day a couple of hours later, due to irrevocable involved, the 50% shareholder acceptance condition was met, and the offer was declared unconditional. This allowed the company to extend the closing date of the offer to 15th March 2019 (final closing date). | |
On 15th February 2019, an announcement was published declaring the offer unconditional, this led to the extension of the closing date to 4th March 2019. | |
Singapore Exchange Securities Trading Limited approved PCI Limited’s application to delist the company from the official list of the SGX-ST, when the scheme becomes effective and binding in accordance with its terms |
South Korea | Comments |
Hyundai Oilbank | No update |
Taiwan | Comments |
On the 14th of February the company announced that in the board meeting held on 29th January 2019, two independent directors objected to the terms of the Tender Offer which had been agreed. There is reportedly an investigation into shareholder rights being conducted. It is to note that in the 14th Feb release, it became clear that Otis Elevator had bid TWD 63/share for Yungtay but the directors had not approved the bid. |
Thailand | Comments (with links) |
On 13th February 2019, Delta announced that the conditions precedent of the Conditional Voluntary Tender Offer was fully satisfied, following which on 18th February 2019 the Intention to Make a Tender Offer (Form 247-3) was announced along with the FY18 Dividend of Bt 2.30/share (which will be added). The Offer document was released on 22nd February 2019, announcing the Tender offer period – from 26-Feb-2019 to 01-Apr-2019. | |
In the “Management Discussions” attached to FY18 earnings of Global Power Synergy Company Ltd, they mentioned that they are collaborating with GLOW in order to decide on tender offer price for GLOW’s shares, after taking into consideration the disposal of one of GLOW’s plants. | |
On 25th February 2019, Golden Land Prop Dvlp announced that they had received information that Frasers Property intends to make a Voluntary Tender Offer to acquire all of Golden Land Prop Dvlp’s shares at Bt 8.5/share. | |
Thanachart Capital Public Company Limited (TCAP), as a major shareholder of Thanachart Bank Company Limited, announced on 26th February 2019, that they entered the Non-binding Memorandums of Understanding, in relation to the merger between Thanachart and TMB. |
Europe/UK | Comments (with links) |
On 21st February 2019, the offer period expiry date was extended to 7th March 2019 (previously 28th February 2019). As per the announcement on 22nd February 2019, the Anta Sports shareholders approved the deal to buy Amer Sports, with 99.19% of votes cast being for the deal. A couple of days later, on 25th February 2019, Mexico’s regulator approved the takeover, and this was the last of the approvals. | |
No Feb update | |
On 22nd February 2019, an announcement was released with the news that Saputo Inc had offered £6.20 cash/per share, to acquire all of the shares of Dairy Crest by way of a Scheme of Arrangement. | |
On 26th February 2019, Diageo made an announcement stating that they had been approached by Sichuan Swellfun, with a possible partial tender offer to increase their stake in Diageo to 70% (from 60%) at RMB 45/share. | |
Visa announced an increase in their offer to £0.37/share (from £0.30/share), on 7th February 2019. The following day Mastercard issued a stated that they were considering their options. On 11th February 2019, Visa posted their Offer Document, following which Mastercard announced that they no longer have any letters of intent acceptiig their offer. An announcement on 21st February 2019, mentioned that both the Court Meeting and General Meeting have been adjourned by the Chairman and the new date will be announced in due course. On 27th February 2019, the offer was extended to remain open till 8th March 2019. | |
It was announced on 30th January 2019 that Medco Energi Internasional T had reached an agreement to acquire Ophir Energy at an offer price of £0.55/share, by way of a Scheme of Arrangement.Petrus Advisors (3.5% shareholder) dialed up the pressure on its opposition for this offer, with a letter addressed to Ophir’s Chairman, on 19th February 2019. | |
Oslo Børs VPS Holding ASA | On 4th February Nasdaq AB published the Public Offer document, according to which the acceptance period is from 4th February 2019 to 4th March 2019. |
On 4th February 2019, Panalpina disclosed that their largest shareholder, the Ernst Göhner Foundation, does not support DSV’s indicative offer, which was made in January 2019. Following an announcement by Panalpina on 15th February 2019, regarding Panalpina pursuing a private combination with Agility Group, DSV informed the market that on 6th February 2019, they put forward an all-cash offer of CHF 180/share. | |
On the morning of January 23rd, 2019, after five PUSU extensions, RPC announced the recommended final cash offer by Apollo for 782p per share, or £3.323 billion. |
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