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. JSR (4185) – Possible Trouble in Arb Land as SUNY/CNSE Files Suit Against JSR Sub Inpria
- JSR Corp (4185 JP) announced 2 February on its website that the Research Foundation for the State University of New York (“RF SUNY”) filed suit against JSR subsidiary Inpria 25 January.
- JSR claims no wrongdoing. A court order from the US District Court for the Northern District of New York denied RF SUNY’s request for a hearing by 5 February.
- This may put a short-term damper on sentiment in the name, and I expect the JICC people have been working on this for a week.
2. JAPAN ACTIVISM: Activist Elliott Takes on Mitsui Fudosan (8801)
- The FT carries an article this AM saying Elliott Management have built a stake in Mitsui Fudosan (8801 JP) and has asked it to undertake measures to increase ROE.
- Measures requested apparently include a very large buyback and a demand the company sell down its stake in Oriental Land (4661 JP). The article is worth reading.
- Shares are up sharply on this news. The fund was in the news last year about this time regarding Dai Nippon Printing (7912 JP). I’d expect more noise to come.
3. The Next Step in Lawson’s Big Boots Adventure – KDDI and MitCorp to Take It Private
- Today, just before the close, the Nikkei sprung a headline saying KDDI Corp (9433 JP) would take over Lawson Inc (2651 JP). The stock immediately headed to limit up.
- Post-Close, details emerged. KDDI will buy the 50% that MitCorp does not own, this will become a 50/50 JV. TOB launch at ¥10,360 will be in April. Squeezeout in September.
- This appears to be the Next Step in Lawson’s Big Boots Adventure. The premium is too light. The price is too low. And that is not counting the synergies.
4. Japan – Increasing Shorts on Some Interesting** Stocks
- There are some Japanese stocks that have dropped in price even as the broader market has powered higher. That could lead to the stocks being deleted from global portfolios.
- 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.
- BayCurrent Consulting (6532 JP) is a dark horse for inclusion in the Nikkei 225 (NKY INDEX) in March and this deletion could take the stock lower before the Nikkei 225 announcement.
5. NIFTY NEXT50 Index Rebalance Preview: Potential Adds Continue to Run
- With the review period for the March rebalance complete, there could be 6 potential changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) using the current index methodology.
- Estimated one-way turnover is 13.9% resulting in a one-way trade of INR 28.6bn. Four inclusions will have over 1x ADV to buy; five deletions will have 2.5x+ ADV to sell.
- The potential adds have outperformed the potential deletes by 28.6% over the last month. With positioning from a rebalance perspective mostly done, gradually unwind over the next few weeks.
6. China ETF Inflows & Impact: Concentrated, Then Diversified; Central Huijin Steps Up
- Nearly US$37bn has flowed into mainland China listed ETFs since 2 January and could be driven by the National Team supporting the market. Central Huijin has announced their ETF buying.
- Most of the inflows have been focused on large cap indices including CSI 300, SSE50, CSI 500, CSI 1000, ChiNext, STAR50 and Chinext50 indices.
- While the inflows were initially focused on the CSI 300, there has been a diversification recently with big inflows to the SSE50, CSI 500, CSI 1000 and ChiNext indices.
7. Lawson (2651 JP): KDDI Corp (9433 JP) Pre-Conditional Tender Offer at JPY10,360
- Lawson Inc (2651 JP) has recommended a pre-conditional tender offer from KDDI Corp (9433 JP) at JPY10,360 per share, an 18.8% premium to the undisturbed (5 February).
- The pre-conditions relate to regulatory approvals in Japan, China, South Korea, and the EU. The offer is expected to start in April, suggesting no significant issues, particularly with SAMR approval.
- Based on the irrevocables, the minimum acceptance condition requires a 30.2% minority acceptance rate, achievable as the offer represents an all-time high.
8. India: Free Float Changes & Passive Flows in February
- Companies in India have disclosed their shareholding pattern as of end-December in January. There are companies with significant float changes from end-September and/or end-December.
- 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.
- There are 15 stocks that could have passive inflows from global trackers while 9 could see passive outflows in February.
9. STAR100 Index Rebalance Preview: High Risk/Return Trade Setup
- The review period for the March rebalance ended 31 January. We expect the changes to be announced 23 February with the implementation taking place after the close on 8 March.
- There are 10 stocks in inclusion zone and 11 in deletion zone. There should be 10 changes since that is the cap for the maximum changes at a single rebalance.
- The potential adds and deletes are down between 37-47% over the last 6 months and a long/short trade could provide superior risk-adjusted returns.
10. L’Occitane (973 HK): Blackstone Pondering an Offer
- Bloomberg reports that L’Occitane (973 HK) draws takeover interest from Blackstone (BX US), which is considering partnering with Chairman and largest shareholder Reinold Geiger.
- Blackstone needs an attractive takeover premium due to the presence of significant disinterested shareholders (Mr. Geiger and Acatis KVG).
- Shareholders will be wary of the latest rumour due to Mr Geiger’s aborted offer on 4 September 2023. Nevertheless, the valuation is undemanding compared to peer multiples.
