This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. 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.
2. JD.com (9618 HK): Index Implications of Walmart Placement
- Media reports indicate that Walmart (WMT US) is looking to sell 144.5m shares of JD.com (JD US) to raise up to US$3.74bn. That would be substantially all of its stake.
- There will be passive buying from global index trackers at the time of settlement of the placement shares and could absorb around 12% of the placement shares.
- There will be no passive buying from HSI, HSCEI, HSTECH and HSIII trackers in the short-term. An increase in CCASS holdings should result in passive buying in December.
3. Couche-Tard Bid for 7&I (3382) – FEFTA and Economic Security
- The largest potential inbound cross-border M&A in years – for a national champion no less – gets a lot of press coverage.
- This morning, a Nikkei article noted Alimentation Couche-Tard (ATD CN) was likely to need “prior approval” from Japanese regulatory authorities for its takeover “the Nikkei has learned.”
- It wasn’t difficult for the Nikkei to learn that. METI publishes a FEFTA List. 7&i has been on it for years as Type II Designated Business, requiring prior approval.
4. 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.
5. Hang Seng Internet & IT Index Rebalance: Three Changes & A Few Surprises
- There will be 3 changes for the Hang Seng Internet & Information Technology Index (HSIII) at the September rebalance. There are some surprises.
- Estimated one-way turnover at the rebalance is 3.4% resulting in a round-trip trade of HK$2.04bn (US$262m). 7 stocks will have over 1x ADV to trade.
- Weimob Inc. (2013 HK) is a surprise add. There is 6x ADV to buy from passive trackers and shorts are 12% of shares out and 24x ADV to cover.
6. Apple Inc (AAPL US): $43bn Passive Buying Driven by Berkshire Selling & Market Consultation
- Berkshire Hathaway Inc Cl B (BRK/B US) held over 5% of Apple (AAPL US). Nearly half of that was sold in the June quarter to take the holding to 2.63%.
- Berkshire’s selling should result in an increase in Apple (AAPL US)‘s free float in the S&P 500 INDEX (SPX INDEX) and other related indices.
- There will also be large buying in Apple (AAPL US) from the Technology Select Sector SPDR (XLK US) ETF if the proposals in the market consultation are implemented.
7. TCM (570 HK): Profit Warning Is No Biggie
- China Traditional Chinese Medicine (570 HK) flagged a 60-70% drop in its 1H24E net profit versus 1H23, due to reduced sales/profit of TCM concentrate, bad debt provisions, and remedial taxes.
- MAC triggers? No – Sinopharm won’t exercise such right, even if one was ostensibly triggered. I’d be surprised if Sinopharm wasn’t fully aware of TCM’s underlying operations.
- Get involved on any dips today. Trading wide at a 11.7%/38.7% gross/annualised spread, assuming Dec-end payment.
8. HSTECH Index Rebalance: ASMPT (522 HK) Replaces Ping An Healthcare (1833 HK)
- As expected, ASM Pacific Technology (522 HK) will replace Ping An Healthcare and Technol (1833 HK) in the Hang Seng TECH Index (HSTECH INDEX) at the close on 6 September.
- Estimated one-way turnover at the rebalance is 3.2% resulting in a round-trip trade of HK$6.5bn. Passives need to buy over 7x ADV in ASM Pacific Technology (522 HK).
- Positioning appears light in both stocks. Expect ASM Pacific Technology (522 HK) to move up and Ping An Healthcare and Technol (1833 HK) to move lower near-term.
9. China Traditional Chinese Medicine (570 HK): Never a Dull Moment as Profit Warning Lands
- China Traditional Chinese Medicine (570 HK) profit warning notes that the 1H24 net profit would decrease by 60%-70% YoY due to pricing pressure, higher impairment losses and remedial taxes.
- The profit warning could pose a risk to the scheme, as the consortium can withdraw if there is an adverse material change in China TCM’s profits or prospects.
- If there were a danger of triggering the MAC clause, the consortium would not have made the regulatory submissions. The flip side is that the warning helps the shareholders vote.
10. 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.
