Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

HK Type 4 license through Ballingal Investment Advisors Ltd. 

I'm a highly experienced sell-side analyst with in excess of 22 years of covering Asia Pacific equities, the past 19 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.  

My background also includes accountancy (liquidation/bankruptcy/receivership) earlier in my career and as a chief financial officer of a global commodity company based in the US and Mexico.

Pan-Asia Catalysts/Events

Thoughts on Amazon –What Does Its Valuation Tells Us?

Netflix & Amazon Expand in Korea – Not a Coincidence

Okja: The Fight Between Netflix Vs. CJ CGV

Quiddity Advisors

Event-Driven

<p>At the end of July 2017, <a href="https://www.smartkarma.com/entities/12001" target="_blank" data-saferedirecturl="https://www.google.com/url?hl=en&amp;q=https://www.smartkarma.com/entities/alps-electric-co-ltd&amp;source=gmail&amp;ust=1509426720765000&amp;usg=AFQjCNEZW64uHapsqFGKcaIG4n9zKxRQyg">Alps Electric Co Ltd (6770 JP)</a> and <a href="https://www.smartkarma.com/entities/2704" target="_blank" data-saferedirecturl="https://www.google.com/url?hl=en&amp;q=https://www.smartkarma.com/entities/alpine-electronics-inc&amp;source=gmail&amp;ust=1509426720766000&amp;usg=AFQjCNFbQhcxEmEeYvf_o1D99nzfMWXQQA">Alpine Electronics Inc (6816 JP)</a> announced that Alps would acquire Alpine some 17+ months later in a share exchange (the longest period Travis or I have ever seen), bringing the prodigal child back to the parent after 50 years in the wilderness.  </p><p>The announcement provided a one-day 23+% premium for Alpine shareholders.</p><p>Long-term shareholders of Alpine understood <em>immediately</em> that the share exchange ratio agreed upon was inadequate given Alpine’s substantial holdings of cash and investment securities, and there have been rumblings.</p><p>Today, the rumblings heard in the distance have become lightning and storms.  </p><h2>So What’s New?</h2><p>On the morning of the day when Alps and Alpine are scheduled to release Q2 and H1 earnings, Oasis Management Company has announced it holds 9.18% of Alpine and has set a campaign to rally other shareholders against the deal as it stands now.</p><p>There is a website called <a href="https://www.protectalpine.com/" target="_blank" data-saferedirecturl="https://www.google.com/url?hl=en&amp;q=https://www.protectalpine.com/&amp;source=gmail&amp;ust=1509426720766000&amp;usg=AFQjCNHlfDtk8OqNgnZhjNDw89r0m3qJ6g">https://www.protectalpine.com/</a> and a presentation <a href="https://static1.squarespace.com/static/59cdad74bebafba2f59ec9fb/t/59f1372080bd5eb4f04fc570/1508980515014/2017-10-19+Alpine+Website+presentation+v2.pdf" target="_blank" data-saferedirecturl="https://www.google.com/url?hl=en&amp;q=https://static1.squarespace.com/static/59cdad74bebafba2f59ec9fb/t/59f1372080bd5eb4f04fc570/1508980515014/2017-10-19%2BAlpine%2BWebsite%2Bpresentation%2Bv2.pdf&amp;source=gmail&amp;ust=1509426720766000&amp;usg=AFQjCNFH6b4mWZm8E_qT5hoKbaihhEXdNQ">here</a>.  They are both worth a read.</p><h2>But First, The Deal...</h2><p>The deal as announced in July was relatively simple. It involves a simple share exchange ratio whereby Alpine shareholders receive 0.68 shares of Alps Electric for every share of Alpine they hold. After the shares are exchanged, giving everybody shares in the Alps HD (Alps Holding) entity, the Alps business will dropped down into a newly created subsidiary so the Holding Company will hold 100% of Alps, 100% of Alpine, a bunch of other smaller entities, and the 46.6% stake in <a href="https://www.smartkarma.com/entities/3935" target="_blank" data-saferedirecturl="https://www.google.com/url?hl=en&amp;q=https://www.smartkarma.com/entities/alps-logistics-co-ltd&amp;source=gmail&amp;ust=1509426720766000&amp;usg=AFQjCNEnG16qYH5Gbpsf_AVAk4cvMHmEvg">Alps Logistics Co Ltd (9055 JP)</a> held by Alps. The details are shown in a diagram on p6 of the <a href="http://www.alpine.com/e/investor/library/pdf/kessai/ja/2017b_en.pdf" target="_blank" data-saferedirecturl="https://www.google.com/url?hl=en&amp;q=http://www.alpine.com/e/investor/library/pdf/kessai/ja/2017b_en.pdf&amp;source=gmail&amp;ust=1509426720766000&amp;usg=AFQjCNFUI3xphIejAfUW4ut0d6C-XBLefA">Announcement of Share Exchange</a>. </p><p>Despite the fact that the details were quite simple, and could normally be executed in a matter of months (many parent-sub deals can get done this way <span class="aBn" tabindex="0" data-term="goog_1991723577"><span class="aQJ">in 5 months</span></span>, sometimes less), this is a 17-month process. It is not clear why. The <a href="http://www.alpine.com/e/investor/library/pdf/kessai/ja/2017a_en.pdf" target="_blank" data-saferedirecturl="https://www.google.com/url?hl=en&amp;q=http://www.alpine.com/e/investor/library/pdf/kessai/ja/2017a_en.pdf&amp;source=gmail&amp;ust=1509426720766000&amp;usg=AFQjCNH2qMVrahfsuFgLu8SfbrlYaSXLTg">Presentation</a> makes clear the schedule could be changed.</p><div><table class="table table-striped"><tbody><tr><td colspan="2"><h2><strong>Schedule</strong></h2></td></tr><tr><td><strong>Event</strong></td><td><strong>Date</strong></td></tr><tr><td>Board Resolution and Announcement of Holding Co Formation, Share Exchange Agreement</td><td>27 July 2017</td></tr><tr><td>Alps Board of Directors to Meet to Approve Absorption-Type Company Split Agreement</td><td>late December 2017</td></tr><tr><td>Alps AGM to approve Absorption Type Company Split Agreement, Amendments to Art. of Incorp.</td><td>late June 2018</td></tr><tr><td>Alpine EGM to approve Share Exchange Agreement</td><td>mid-December 2018</td></tr><tr><td>Last Trading Date of Alpine shares</td><td>25 December 2018</td></tr><tr><td>Delisting of Alpine shares</td><td>26 December 2018</td></tr><tr><td>Effective Date of Share Exchange</td><td>1 January 2019</td></tr><tr><td>Effective Date of Absorption-Type Company Split</td><td>1 April 2019 (expected)</td></tr></tbody></table></div><table class="table table-striped"><tbody><tr><td colspan="4"><h2>Relevant Documents</h2></td></tr><tr><td><strong>Document</strong></td><td style="text-align: center;"><strong>Issuer</strong></td><td style="text-align: center;"><strong>Language</strong></td><td style="text-align: center;"><strong>Link</strong></td></tr><tr><td>Announcement of Share Exchange, etc</td><td style="text-align: center;">Alpine</td><td style="text-align: center;">English</td><td style="text-align: center;"><a href="http://www.alpine.com/e/investor/library/pdf/kessai/ja/2017b_en.pdf" target="_blank">🤖</a></td></tr><tr><td>Summary Presentation of Business Integration</td><td style="text-align: center;">Alpine</td><td style="text-align: center;">English</td><td style="text-align: center;"><a href="http://www.alpine.com/e/investor/library/pdf/kessai/ja/2017a_en.pdf" target="_blank">🤖</a></td></tr><tr><td>Business Integration Press Release</td><td style="text-align: center;"><p>Alps</p></td><td style="text-align: center;"><p>English</p></td><td style="text-align: center;"><p><a href="http://www.alps.com/pdf/ir/disclosure/20170727_02_info_e.pdf" target="_blank">🤖</a></p></td></tr></tbody></table><table class="table table-striped"><tbody><tr><td colspan="4" style="width: 845px;"><h2>Financial Documents &amp; Web Pages</h2></td></tr><tr><td style="width: 155px;"><strong>Document</strong></td><td style="width: 469px;"><strong>Document/Page</strong></td><td style="text-align: center; width: 139.787px;"><strong>Language</strong></td><td style="text-align: center; width: 81.2131px;"><strong>Link</strong></td></tr><tr><td style="width: 155px;">Alpine</td><td style="width: 469px;">IR News</td><td style="text-align: center; width: 139.787px;">English</td><td style="text-align: center; width: 81.2131px;"><a href="http://www.alpine.com/e/investor/news/" target="_blank">🤖</a></td></tr><tr><td style="width: 155px;">Alpine</td><td style="width: 469px;">IR Library Page</td><td style="text-align: center; width: 139.787px;">English</td><td style="text-align: center; width: 81.2131px;"><a href="http://www.alpine.com/e/investor/library/" target="_blank">🤖</a></td></tr><tr><td style="width: 155px;">Alpine</td><td style="width: 469px;">IR Library Page</td><td style="text-align: center; width: 139.787px;">Japanese</td><td style="text-align: center; width: 81.2131px;"><a href="http://www.alpine.com/j/investor/library/" target="_blank">🤖</a></td></tr><tr><td style="width: 155px;">Alpine</td><td style="width: 469px;">Financial Statements</td><td style="text-align: center; width: 139.787px;">English</td><td style="text-align: center; width: 81.2131px;"><a href="http://www.alpine.com/e/investor/library/financial.html" target="_blank">🤖</a></td></tr><tr><td style="width: 155px;">Alpine</td><td style="width: 469px;">Presentations &amp; Medium Term Plans</td><td style="text-align: center; width: 139.787px;">English</td><td style="text-align: center; width: 81.2131px;"><a href="http://www.alpine.com/e/investor/library/presentation.html" target="_blank">🤖</a></td></tr><tr><td style="width: 155px;">Alpine</td><td style="width: 469px;"><p>Annual Reports</p></td><td style="text-align: center; width: 139.787px;"><p>English</p></td><td style="text-align: center; width: 81.2131px;"><p><a href="http://www.alpine.com/e/investor/library/annual.html" target="_blank">🤖</a></p></td></tr><tr><td style="width: 155px;">Alpine</td><td style="width: 469px;"><p>Corporate Governance Reports</p></td><td style="text-align: center; width: 139.787px;"><p>English</p></td><td style="text-align: center; width: 81.2131px;"><p><a href="http://www.alpine.com/e/investor/library/governance.html" target="_blank">🤖</a></p></td></tr><tr><td style="width: 155px;">Alps</td><td style="width: 469px;"><p>IR News</p></td><td style="text-align: center; width: 139.787px;"><p>English</p></td><td style="text-align: center; width: 81.2131px;"><p><a href="http://www.alps.com/e/news_release/2017/index_ir.html" target="_blank">👻</a></p></td></tr><tr><td style="width: 155px;">Alps</td><td style="width: 469px;"><p>IR Library Page</p></td><td style="text-align: center; width: 139.787px;"><p>English</p></td><td style="text-align: center; width: 81.2131px;"><p><a href="http://www.alps.com/e/ir/ir_library.html" target="_blank">👻</a></p></td></tr><tr><td style="width: 155px;">Alps</td><td style="width: 469px;"><p>IR Library Page</p></td><td style="text-align: center; width: 139.787px;"><p>Japanese</p></td><td style="text-align: center; width: 81.2131px;"><p><a href="http://www.alps.com/j/ir/ir_library.html" target="_blank">👻</a></p></td></tr><tr><td style="width: 155px;">Alps</td><td style="width: 469px;">Annual Reports</td><td style="text-align: center; width: 139.787px;">English</td><td style="text-align: center; width: 81.2131px;"><p><a href="http://www.alps.com/e/ir/ir_annual.html" target="_blank">👻</a></p></td></tr><tr><td style="width: 155px;">Alps</td><td style="width: 469px;">Factbook</td><td style="text-align: center; width: 139.787px;">English</td><td style="text-align: center; width: 81.2131px;"><p><a href="http://www.alps.com/e/ir/ir_factbook.html" target="_blank">👻</a></p></td></tr><tr><td style="width: 155px;">Alps</td><td style="width: 469px;">Corporate Governance Reports</td><td style="text-align: center; width: 139.787px;">English</td><td style="text-align: center; width: 81.2131px;"><a href="http://www.alps.com/e/ir/ir_governance.html" target="_blank">👻</a></td></tr></tbody></table><h2><br>Is This A Fair Deal?</h2><p>It would be <em>extremely</em> difficult to come to that conclusion.</p><p>Despite Alps having within Alps Philosophy (<a href="http://www.alps.com/j/about_alps/alps_view/figures.html" target="_blank" data-saferedirecturl="https://www.google.com/url?hl=en&amp;q=http://www.alps.com/j/about_alps/alps_view/figures.html&amp;source=gmail&amp;ust=1509426720767000&amp;usg=AFQjCNECycmyP0cUwQ0-yNIKlRG1IMhONg">J</a>, <a href="http://www.alps.com/e/about_alps/alps_view/figures.html" target="_blank" data-saferedirecturl="https://www.google.com/url?hl=en&amp;q=http://www.alps.com/e/about_alps/alps_view/figures.html&amp;source=gmail&amp;ust=1509426720767000&amp;usg=AFQjCNGNw96KrVqroA-ivbX8HWfKcvrrzg">E</a>) - as one of its 5 Business Approaches - that "<em>We will act fairly and from a global perspective" </em>and that one of its five related Action Guidelines states "<em>Alps people will act fairly, working to adhere to world rules and to </em><em>understand different cultures", </em>it would be extremely difficult to explain how Alps' and Alpine's treatment of Alpine's minority shareholders is "acting fairly according to world rules."</p><p>I would note that the Japanese <a href="http://www.jpx.co.jp/english/equities/listing/cg/tvdivq0000008jdy-att/20150513.pdf" target="_blank" data-saferedirecturl="https://www.google.com/url?hl=en&amp;q=http://www.jpx.co.jp/english/equities/listing/cg/tvdivq0000008jdy-att/20150513.pdf&amp;source=gmail&amp;ust=1509426720767000&amp;usg=AFQjCNHLk3X72ZRy8KjgizaqE9IRVrGOGw">Corporate Governance Code</a> has as its FIRST General Principle the rule of Securing the Rights and Equal Treatment of Shareholders, with its sub-explanation including the following: </p><blockquote><p><em>Given their particular sensitivities, adequate consideration should be given to the issues and concerns of minority shareholders and foreign shareholders for the effective exercise of shareholder rights and effective equal treatment of shareholders.</em></p></blockquote><div><strong>The base situation, here, however is that Alpine has a very large amount of cash holdings and shareholdings.</strong></div><div></div><div>This includes listed shareholdings worth ¥42.24bn yen as of the close of business of Friday October 27th, and it includes ¥14bn of unlisted holdings purchased after Alpine sold shares in <a href="https://www.smartkarma.com/entities/6854" target="_blank" data-saferedirecturl="https://www.google.com/url?hl=en&amp;q=https://www.smartkarma.com/entities/neusoft-corp-a&amp;source=gmail&amp;ust=1509426720767000&amp;usg=AFQjCNFc0D9UdmK7dG4MsFAoHFlQgjTZSw">Neusoft Corp A (600718 CH)</a> in 2015 (i.e. the reduction of listed shareholdings in favor of <em>more-difficult-to-track </em>unlisted shareholdings). It includes ¥53.3bn of net cash. </div><div></div><p>As of June end, one could "adjust" EV or market cap to the tune of something like ¥770/share of net cash and ¥613/share of listed equities. It also had ¥200/share of unlisted equities ("affiliates" only created after the sale of related listed equities) and ~¥400/share of unencumbered inventories. If one were to assume a distribution of the shares and cash, that would leave an "EV" or market cap of ¥844/share at share exchange terms based <span class="aBn" tabindex="0" data-term="goog_1991723582"><span class="aQJ">on Friday's </span></span>close of Alps (¥3275 x 0.68 = ¥2227; ¥2227 - (¥770+¥613) = ¥844). If one wanted to adjust it further, one might add back the ¥200+/share of unlisted shareholdings, and assume some value for the inventories. That could be between ¥200 and ¥600/share.</p><p>One could suggest a "net" value of the company to be anywhere from ¥244 to ¥844/share. </p><p>The company, in its estimates provided to financial advisors, suggested that Alpine would see its OP increase by 38.5% in the year to March 2019 and 33.3% in the year to March 2020. Based on this year's OP forecast of ¥6.5bn, that means OP forecasts of ¥9bn and ¥12bn for March 2019 and 2020 respectively. That is ¥130 and ¥174/share of OP for those two years. </p><p>The business value proposed for Alpine is somewhere between 1.5x and 4.9x March 2020 OP. The DCF calculation of the fair value estimate/ratio of Alpine or Alpine vs Alps appears to ignore the equity and cash holdings of Alpine. Completely. </p><p>So yes, the current ratio is not enough.  So Oasis has a point. Alpine investors should familiarize themselves with the document, and I have provided analysis below which supports their conclusions, if not their numbers exactly. </p><p>Read on for more discussion. This is a first crack at the problem. There will be follow-on discussion of the process. </p>

At the end of July 2017, Alps Electric Co Ltd (6770 JP) and Alpine Electronics Inc (6816 JP) announced that Alps would acquire Alpine some 17+ months later in a share exchange (the longest period Travis or I have ever seen), bringing the prodigal child back to the parent after 50 years in the wilderness.  The announcement provided a one-day 23+% premium for Alpine shareholders.Long-term shareholders of Alpine understood immediately that the share exchange ratio agreed upon was inadequate given Alpine’s substantial holdings of cash and investment securities, and there have been rumblings.Today, the rumblings heard in the distance have become lightning and storms.  So What’s New?On the morning of the day when Alps and Alpine are scheduled to release Q2 and H1 earnings, Oasis Management Company has announced it holds 9.18% of Alpine and has set a campaign to rally other shareholders against the deal as it stands now.There is a website called https://www.protectalpine.com/ and a presentation here.  They are both worth a read.But First, The Deal...The deal as announced in July was relatively simple. It involves a simple share exchange ratio whereby Alpine shareholders receive 0.68 shares of Alps Electric for every share of Alpine they hold. After the shares are exchanged, giving everybody shares in the Alps HD (Alps Holding) entity, the Alps business will dropped down into a newly created subsidiary so the Holding Company will hold 100% of Alps, 100% of Alpine, a bunch of other smaller entities, and the 46.6% stake in Alps Logistics Co Ltd (9055 JP) held by Alps. The details are shown in a diagram on p6 of the Announcement of Share Exchange. Despite the fact that the details were quite simple, and could normally be executed in a matter of months (many parent-sub deals can get done this way in 5 months, sometimes less), this is a 17-month process. It is not clear why. The Presentation makes clear the schedule could be changed.ScheduleEventDateBoard Resolution and Announcement of Holding Co Formation, Share Exchange Agreement27 July 2017Alps Board of Directors to Meet to Approve Absorption-Type Company Split Agreementlate December 2017Alps AGM to approve Absorption Type Company Split Agreement, Amendments to Art. of Incorp.late June 2018Alpine EGM to approve Share Exchange Agreementmid-December 2018Last Trading Date of Alpine shares25 December 2018Delisting of Alpine shares26 December 2018Effective Date of Share Exchange1 January 2019Effective Date of Absorption-Type Company Split1 April 2019 (expected)Relevant DocumentsDocumentIssuerLanguageLinkAnnouncement of Share Exchange, etcAlpineEnglish🤖Summary Presentation of Business IntegrationAlpineEnglish🤖Business Integration Press ReleaseAlpsEnglish🤖Financial Documents &amp; Web PagesDocumentDocument/PageLanguageLinkAlpineIR NewsEnglish🤖AlpineIR Library PageEnglish🤖AlpineIR Library PageJapanese🤖AlpineFinancial StatementsEnglish🤖AlpinePresentations &amp; Medium Term PlansEnglish🤖AlpineAnnual ReportsEnglish🤖AlpineCorporate Governance ReportsEnglish🤖AlpsIR NewsEnglish👻AlpsIR Library PageEnglish👻AlpsIR Library PageJapanese👻AlpsAnnual ReportsEnglish👻AlpsFactbookEnglish👻AlpsCorporate Governance ReportsEnglish👻 Is This A Fair Deal?It would be extremely difficult to come to that conclusion.Despite Alps having within Alps Philosophy (J, E) - as one of its 5 Business Approaches - that "We will act fairly and from a global perspective" and that one of its five related Action Guidelines states "Alps people will act fairly, working to adhere to world rules and to understand different cultures", it would be extremely difficult to explain how Alps' and Alpine's treatment of Alpine's minority shareholders is "acting fairly according to world rules."I would note that the Japanese Corporate Governance Code has as its FIRST General Principle the rule of Securing the Rights and Equal Treatment of Shareholders, with its sub-explanation including the following: Given their particular sensitivities, adequate consideration should be given to the issues and concerns of minority shareholders and foreign shareholders for the effective exercise of shareholder rights and effective equal treatment of shareholders.The base situation, here, however is that Alpine has a very large amount of cash holdings and shareholdings.This includes listed shareholdings worth ¥42.24bn yen as of the close of business of Friday October 27th, and it includes ¥14bn of unlisted holdings purchased after Alpine sold shares in Neusoft Corp A (600718 CH) in 2015 (i.e. the reduction of listed shareholdings in favor of more-difficult-to-track unlisted shareholdings). It includes ¥53.3bn of net cash. As of June end, one could "adjust" EV or market cap to the tune of something like ¥770/share of net cash and ¥613/share of listed equities. It also had ¥200/share of unlisted equities ("affiliates" only created after the sale of related listed equities) and ~¥400/share of unencumbered inventories. If one were to assume a distribution of the shares and cash, that would leave an "EV" or market cap of ¥844/share at share exchange terms based on Friday's close of Alps (¥3275 x 0.68 = ¥2227; ¥2227 - (¥770+¥613) = ¥844). If one wanted to adjust it further, one might add back the ¥200+/share of unlisted shareholdings, and assume some value for the inventories. That could be between ¥200 and ¥600/share.One could suggest a "net" value of the company to be anywhere from ¥244 to ¥844/share. The company, in its estimates provided to financial advisors, suggested that Alpine would see its OP increase by 38.5% in the year to March 2019 and 33.3% in the year to March 2020. Based on this year's OP forecast of ¥6.5bn, that means OP forecasts of ¥9bn and ¥12bn for March 2019 and 2020 respectively. That is ¥130 and ¥174/share of OP for those two years. The business value proposed for Alpine is somewhere between 1.5x and 4.9x March 2020 OP. The DCF calculation of the fair value estimate/ratio of Alpine or Alpine vs Alps appears to ignore the equity and cash holdings of Alpine. Completely. So yes, the current ratio is not enough.  So Oasis has a point. Alpine investors should familiarize themselves with the document, and I have provided analysis below which supports their conclusions, if not their numbers exactly. Read on for more discussion. This is a first crack at the problem. There will be follow-on discussion of the process. 

Alps Deal for Alpine Not Fair - Oasis Is Right