Weekly Top Ten Event-Driven and Index Rebalance – Dec 31, 2023

1. Fujitsu General (6755) – Fujitsu Wants Out, May Force the Issue

By Travis Lundy, Quiddity Advisors

• In 2019, it became apparent Fujitsu Ltd (6702 JP) wanted to sell down its stakes in non-core businesses (Shinko Electric, Fujitsu General, and FDK), and move on to better things.
• In early January 2023, a Bloomberg article suggested a sale process. A 20 Jan 2023 article suggested Fujitsu General’s auction was imminent. I wrote a piece. It was not bullish.
• The stock rose a bit, then fell 40+% through last week. Now another article suggests some urgency at Fujitsu. That changes things.

2. Japan – Increasing Shorts on Some Interesting Stocks

By Brian Freitas, Periscope Analytics

• There are a bunch of stocks that have underperformed the Nikkei 225 (NKY INDEX) and their peers and could be deleted from global passive portfolios early next year.
• The deletion from passive portfolios will lead to a liquidity event at the end of February where passive trackers will need to sell multiple days of ADV.
• Shorts have started to increase on some of the stocks and there will be further positioning as we near the liquidity event.

3. IJTT (7315 JP) – Truly Offensive Takeover Price Gets Bumped, Offensively

By Travis Lundy, Quiddity Advisors

• IJTT Co., Ltd. (7315 JP) was perhaps one of the lower-priced parent takeovers (Isuzu remains central to the bidder post-buyout) at 0.46x book. Today, the last day, it got bumped.
• The new price is ¥850/share vs ¥812/share. +4.7% and a whopping 0.48x book now. ¥850 is where the stock traded just before the announcement. It immediately jumped to ¥875/share.
• It appears Isuzu is not getting any more money out of this, but they should be OK. They are buying back in at 0.48x book. With leverage. 

4. Kum Yang: Announces Its Shares Will Be Listed on the US Stock Market Through ADRs

By Douglas Kim

• On 27 December, Kum Yang announced that its shares will be listed on the US stock market in the form of DRs, resulting in its shares rising by 11.7%.
• The listing of Kum Yang ADRs is likely to have a short-term positive impact on its share price as this is likely to reduce free float of local common shares.
• Nonetheless, over the next 6-12 months, we expect Kum Yang’s share price to trade much lower (30% or more) as its shares are highly overvalued. 

5. SBI To Buy Gumi (3903) Shares To Up Stake to Near 30% (And Try To Avoid Impairment)

By Travis Lundy, Quiddity Advisors

• Today after the close, SBI Holdings (8473 JP) made an announcement it would buy (up to) 3.0mm shares of Gumi Inc (3903 JP) shares between tomorrow and end-March 2024.
• SBI already owns 8.8mm shares, and this would bring them close to 30.0%. 
• SBI did not specifically say they would buy on market, but the next 400,000 shares would require a large shareholder filing amendment. 

6. Meldia DC (1739 JP) – Open House Group Cleans Up Sanei Architecture Sub in TOB.

By Travis Lundy, Quiddity Advisors

• Open House (3288 JP) took over Sanei Architecture Planning (3228 JP) this past autumn when banks forced the issue over the former CEO/owner’s mafia ties discovered in an investigation.
• Seedheiwa (1739 JP) now better known as Meldia DC, is ~60% held by Sanei Architecture Planning, and 3% by Mr Koike. It has debt. So it needs cleaning up too.
• This is too light for minorities, and even lighter for whole co, but it’s a done deal. 

7. StubWorld: Swire Pac Trading “Rich” As Props Announces Big Write-Down

By David Blennerhassett, Quiddity Advisors

• Swire Pacific (19 HK)‘s NAV discount has narrowed, and implied stub widened, after announcing its latest buyback. Separately, Swire Properties (1972 HK) flagged a HK$4.5bn writedown on its investment property.
• Preceding my comments on Swire are the current setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

8. Investigating the Use of SSF Listing Events as Fresh Flow Trading Opportunities in Korea

By Sanghyun Park, Clepsydra Capital

• The spot prices of the newly listed SSFs generally exhibited a notable upward trend. This trend was consistently more pronounced in KOSDAQ-listed stocks compared to KOSPI-listed ones.
• Various factors, including actions by ETF operators, may contribute. Their SSF purchases could deepen contango, leading to temporary spot price increases through arb spread seekers anticipating this development.
• We should focus on a potentially consistent price pattern persisting before a sufficient learning effect accumulates. The tight schedule after July increases the likelihood of similar opportunities next March.

9. IRC Limited (1029 HK): A Wide Spread as the Conditional Offer Opens

By Arun George, Global Equity Research Ltd

• The Irc Ltd (1029 HK) IFA opines that a mandatory conditional offer from Nikolai Levitskii (Chairman and 30.61% shareholder) at HK$0.118 per share is fair and reasonable. 
• The offer is open, with the first closing date of 12 January 2024. The offer is conditional on the offeror and concert parties representing more than 50% of voting rights. 
• While the offer is light, satisfying the minimum acceptance condition is possible. The risk/reward profile is favourable as the upside (25.5% spread) outweighs the downside (5.3% to the undistributed price). 

10. Merger Arb Mondays (25 Dec) – JSR, Benefit One, IRC, Adbri, Link, A2B, Probiotec, Lithium Power

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 – Irc Ltd (1029 HK), Orecorp Ltd (ORR AU), Shinko Electric Industries (6967 JP), JSR Corp (4185 JP), Adbri (ABC AU), Probiotec Ltd (PBP AU), Volpara Health.
• Lowest spreads – Tietto Minerals Ltd (TIE AU), A2B Australia (A2B AU), IJTT Co., Ltd. (7315 JP), T&K Toka Co Ltd (4636 JP), Tokyo Rakutenchi (8842 JP), Pact Group.