Weekly Top Ten Event-Driven and Index Rebalance – Aug 4, 2024

1. Fancl (4921) – Extendy-Extendy-Bumpity-Bumpity

By Travis Lundy, Quiddity Advisors

• The Kirin Holdings (2503 JP) Tender Offer to buy out minorities in Fancl Corp (4921 JP) closes today. Or at least the current one does. 
• The original deal announced was light, and the stock has traded above terms since the announcement, with one fund buying up to 7.94%.
• I expect Kirin to extend and bump next week, or bump/extend now, depending on their visibility on Fancl Q1. 

2. Sep24 Nikkei 225 Rebal Final Predictions – Fastie Capped, Still 1 ADD, 1 DELETE, 1 Dark Horse and ?s

By Travis Lundy, Quiddity Advisors

• The Sep 2024 Nikkei 225 Review base date is here. As before, I see one ADD, one DELETE, one capping, and one Very Dark Horse.
• The rules are clear, but not. This causes confusion. There may be unwritten rules keeping the Very Dark Horse out til next time.
• The Nikkei Index Team announced Fast Retailing (9983 JP) would be capped. I didn’t expect that now. That means $2.2bn+ of selling 30Sep and a reverse funding trade.

3. Rio Tinto (RIO AU/LN): Thinking About The “Unification”

By David Blennerhassett, Quiddity Advisors

• Just shy of three years ago, BHP (BHP AU) announced the unification of its dual-headed corporate structure to make BHP “simpler and more agile”.
• Collapsing DLCs/share-classes was all the rage back then. The prior year, Unilever (UNA NA) collapsed its DLC; and Royal Dutch Shell  unified its A and B lines in 2021. 
• Rio (RIO AU/LN) is one of only a handful of remaining DLCs. Renewed investor calls to unwind the DLC and the recent UK’s listing regime reform necessitate a rethink.

4. India: Potential Free Float Changes & Passive Flows in August

By Brian Freitas, Periscope Analytics

• Companies in India have disclosed their shareholding pattern as of end-June in July. There are companies with significant float changes from end-December and/or end-March.
• The changes in free float could be reflected in domestic and global indices over the next few weeks and months resulting in action from passive trackers.
• Depending on the date that the shareholding was published, there could be 12 stocks with passive inflows from global trackers while 5 could see passive outflows in August.

5. [JAPAN ACTIVISM] – Murakami Group Bigger and Bolder on Exedy – STILL Room to Run

By Travis Lundy, Quiddity Advisors

• 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 an opportunity. 
• There was an announcement, a ToSTNeT-3 buyback, the offering, and more buyback to come. On 30 May, I said “Buy the deal, buy in the market. It’s cheap and vulnerable.”
• Exedy is up 21% since. On 17 June, activist Murakami-san’s group went over 5%. Then they bought more. Now they have 15%. Or more. Still cheap. Still vulnerable. 

6. Nikkei 225 Index Rebalance Preview (Sep 2024): Review Period Done; Fast Retailing Capping Confirmed

By Brian Freitas, Periscope Analytics

• The review period for the Nikkei 225 (NKY INDEX) September rebalance ended yesterday. There could be three changes at the rebalance with sector balance in focus for the additions.
• Fast Retailing (9983 JP)‘s capping in the index has been confirmed and its index weight will drop by around 0.9% resulting in big selling at the close on 30 September. 
• Passive trackers will need to buy between 3.5-35x ADV (2.4%-24% of real float) on the inclusions and sell between 3.7-42.5x ADV on the deletions.

7. Japan – Passive Selling in a Few Weeks & Shorts Build Up

By Brian Freitas, Periscope Analytics

• Up to 12 stocks could be deleted from global passive portfolios in August. The deletion will lead to liquidity events where trackers will need to sell multiple days of ADV.
• There has been a buildup of shorts on nearly all these stocks though the extent of the pre-positioning varies.
• The increase in shorts is smaller than the estimated passive selling, though there is a fair amount of variability across the names. 

8. True Wind Raises Partial Offer for Sun Corp Further, Leaving an Interesting Back End

By Travis Lundy, Quiddity Advisors

• On 10 June, Sun Corp subsidiary Cellebrite DI (CLBT US)‘s SPAC sponsor True Wind Capital launched a Tender Offer for 19% of SunCorp at a premium but discount to NAV.
• The price was too low. CLBT shares rose. They lifted the TOB price by 8% to ¥4750. Still too low. It was trading there. Now they have lifted to ¥5500.
• Now a 49% premium to undisturbed, 29.4% premium to all-time high prior to the first tender. Changes in terms means this could get done. More bullish than it looks.

9. Merger Arb Mondays (29 Jul) – China TCM, Canvest, CPMC, GA Pack, Tohokushinsha, Furukawa, Tatsuta

By Arun George, Global Equity Research Ltd

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), China Traditional Chinese Medicine (570 HK), Canvest Environmental Protection Group (1381 HK), Greatview Aseptic Packaging (468 HK), Asia Cement China (743 HK). 
• Lowest spreads: Fancl Corp (4921 JP), Mimasu Semiconductor Industry (8155 JP), Infocom Corp (4348 JP), L’Occitane (973 HK), Qantm Intellectual Property (QIP AU), Alps Logistics (9055 JP). 

10. CPMC (906 HK): Champion’s Offer Now Open. But All Eyes On ORG’s Tilt

By David Blennerhassett, Quiddity Advisors

• Back on the 6th December 2023, packaging play CPMC Holdings (906 HK) announced a pre-conditional Offer of $6.87/share, in cash, from SASAC/NCSSF-backed Champion.
• The Offer Document is now out. This is not a Composite Document. A “Response Document” is expected in two weeks, which will include the IFA opinion. 
• All the above is moot. ORG Technology Co., Ltd. A (002701 CH)‘s superior HK$7.21/share Offer is currently navigating the necessary regulatory approvals. With irrevocables, ORG has 46.44% in the bag.