Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

HK Type 4 license through Ballingal Investment Advisors Ltd. ("BIA" or "BIAL")

BACKGROUND
I have 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money. 

4 years in fixed income macro, 8 years running internal hedge fund and 4yrs investment banking at Citi in Japan, 3 years running an Asia multi-strat portfolio at a hedge fund, 4+yrs as an independent special situations analyst.

Pan-Asia Catalysts/Events

MatsuKiyoCocokara Merger and Implied Forward Forecasts

A Quick Run Through Fundamentals Before The MatsumotoKiyoshi and Cocokara Fine Merger

Cocokara/MatsuKiyo - Big Gains Since Delay, Stay Long Both

Cocokara/MatsuKiyo - Disappointing But Not Disappointing

Quiddity Advisors

Event-Driven

<p>Just under two years ago, <a href="https://www.smartkarma.com/entities/cocokara-fine-inc" target="_blank" data-smartkarma-citation="entities:15447:1" rel="noopener">Cocokara Fine (3098 JP)</a> was being courted by multiple suitors, and in early Q3 after the Independent Review Committee decided to negotiate with <a href="https://www.smartkarma.com/entities/matsumotokiyoshi-holdings-co" target="_blank" data-smartkarma-citation="entities:2259:1" rel="noopener">Matsumotokiyoshi Holdings Co (3088 JP)</a> rather than <a href="https://www.smartkarma.com/entities/sugi-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:9255:1" rel="noopener">Sugi Holdings (7649 JP)</a>, it looked like a deal was forthcoming. However in early 2020, it was announced that the decision on a ratio was put off and the two companies agreed to a delayed-vs-expectations integration process.</p><p>Rather than push a deal forward at that moment, the two companies agreed at the end of January 2020 that MatsuKiyo would put up funds (which turned out to be ¥38.4bn) to buy shares of cocokara in a third-party placement of 20% of the company (<a href="https://corp.cocokarafine.co.jp/news/pdf/20200331_TD01.pdf" target="_blank" rel="noopener">completed 31 March</a>), and the two companies would work on a plan to introduce synergies, and then the ratio would be decided when management teams at both firms had a better idea of what effect the synergies might have on future management profit forecasts.</p><p>Subsequent earnings announcements have suggested that synergies have been found. </p><div>
<table class="table table-striped"><tbody>
<tr><td colspan="3" style="width: 724px;"><h2>The Schedule of the Integration</h2></td></tr>
<tr>
<td style="width: 128px;"><strong>Date</strong></td>
<td style="width: 330px;"><strong>Detail</strong></td>
<td style="width: 224px;"><strong>Comment</strong></td>
</tr>
<tr>
<td style="width: 128px;">31 Jan 2020</td>
<td style="width: 330px;">Business Integration &amp; Capital Alliance Announcement</td>
<td style="width: 224px;">The New Deal</td>
</tr>
<tr>
<td style="width: 128px;">31 Jan to 30 April 2020</td>
<td style="width: 330px;">Submission of Capital Alliance/Integration to JFTC, JFTC Approval, Cocokara Share Issuance, Equity Affiliate status</td>
<td style="width: 224px;">JFTC Approval, and investment made March 2020</td>
</tr>
<tr>
<td style="width: 128px;">THE NEXT YEAR</td>
<td colspan="2" style="width: 330px;"><p>The two companies will work on the synergies and discuss their vision, plans, etc, and come up with a Merger Ratio, which will be in part dependent on the new management profit forecasts built up after several months or a year's worth of effort at finding synergies.</p></td>
</tr>
<tr>
<td style="width: 128px;">Feb 2021</td>
<td style="width: 330px;"><p>Execution of definitive agreement related to the Business Integration</p></td>
<td style="width: 224px;">The Merger Ratio Announcement</td>
</tr>
<tr>
<td style="width: 128px;">June 2021</td>
<td style="width: 330px;"><p>Ordinary general meetings of shareholders of both companies (resolution regarding approval of the Business Integration)</p></td>
<td style="width: 224px;">The Approvals</td>
</tr>
<tr>
<td style="width: 128px;">1 Oct 2021</td>
<td style="width: 330px;"><p>Effective Date of the Business Integration</p></td>
<td style="width: 224px;">The Merger</td>
</tr>
</tbody></table>
<p>The cocokara/MatsuKiyo price ratio fell to 1.28 and that was a great time to buy. My trade recommendations on the ratio are marked in the chart below.</p>
<p>Then covid-19 effects knocked markets for a loop and the ratio dropped from 1.43 a month later to 1.20 in mid-March to 1.40 again at end-March as share prices fluctuated wildly. The ratio stabilized in the 1.37-1.43 range until end-May when the ratio jumped. It then moved up steadily to 1.80 last week before dropping to 1.76 where it was in September when I recommended buying both names, noting that Matsumoto Kiyoshi had underperformed its peers.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/186/347/original/Screenshot+2021-02-02+at+9.09.30+PM.png?1612271389" class="editor-image img-responsive" data-smartkarma-image-id="186347"></figure></section><p></p>
<p>The ratio has fallen since then but both stocks are up, MatsuKiyo up more.</p>
<h3>Where We Are Now</h3>
<p>Just over a week ago, on 22 January 2021, cocokara fine announced that because of the announcement of the state of emergency related to covid-19, workers and service providers working from home might experience some delay in preparing the financial releases and therefore the announcement of Q3 earnings would be put off from the regularly scheduled date of 29 January to 12 February 2021. The statement says no analyst meeting to discuss Q3 results will be held. </p>
<p><strong>A decision on the definitive agreement on Business Integration is due in February 2021.</strong></p>
<p>Now cocokara is releasing earnings on 12 February, and I believe one should expect Matsumoto Kiyoshi results on the same day. </p>
<p>Hmmm...</p>
</div>

Just under two years ago, Cocokara Fine (3098 JP) was being courted by multiple suitors, and in early Q3 after the Independent Review Committee decided to negotiate with Matsumotokiyoshi Holdings Co (3088 JP) rather than Sugi Holdings (7649 JP), it looked like a deal was forthcoming. However in early 2020, it was announced that the decision on a ratio was put off and the two companies agreed to a delayed-vs-expectations integration process.Rather than push a deal forward at that moment, the two companies agreed at the end of January 2020 that MatsuKiyo would put up funds (which turned out to be ¥38.4bn) to buy shares of cocokara in a third-party placement of 20% of the company (completed 31 March), and the two companies would work on a plan to introduce synergies, and then the ratio would be decided when management teams at both firms had a better idea of what effect the synergies might have on future management profit forecasts.Subsequent earnings announcements have suggested that synergies have been found. 

The Schedule of the Integration

Date
Detail
Comment


31 Jan 2020
Business Integration &amp; Capital Alliance Announcement
The New Deal


31 Jan to 30 April 2020
Submission of Capital Alliance/Integration to JFTC, JFTC Approval, Cocokara Share Issuance, Equity Affiliate status
JFTC Approval, and investment made March 2020


THE NEXT YEAR
The two companies will work on the synergies and discuss their vision, plans, etc, and come up with a Merger Ratio, which will be in part dependent on the new management profit forecasts built up after several months or a year's worth of effort at finding synergies.


Feb 2021
Execution of definitive agreement related to the Business Integration
The Merger Ratio Announcement


June 2021
Ordinary general meetings of shareholders of both companies (resolution regarding approval of the Business Integration)
The Approvals


1 Oct 2021
Effective Date of the Business Integration
The Merger


The cocokara/MatsuKiyo price ratio fell to 1.28 and that was a great time to buy. My trade recommendations on the ratio are marked in the chart below.
Then covid-19 effects knocked markets for a loop and the ratio dropped from 1.43 a month later to 1.20 in mid-March to 1.40 again at end-March as share prices fluctuated wildly. The ratio stabilized in the 1.37-1.43 range until end-May when the ratio jumped. It then moved up steadily to 1.80 last week before dropping to 1.76 where it was in September when I recommended buying both names, noting that Matsumoto Kiyoshi had underperformed its peers.

The ratio has fallen since then but both stocks are up, MatsuKiyo up more.
Where We Are Now
Just over a week ago, on 22 January 2021, cocokara fine announced that because of the announcement of the state of emergency related to covid-19, workers and service providers working from home might experience some delay in preparing the financial releases and therefore the announcement of Q3 earnings would be put off from the regularly scheduled date of 29 January to 12 February 2021. The statement says no analyst meeting to discuss Q3 results will be held. 
A decision on the definitive agreement on Business Integration is due in February 2021.
Now cocokara is releasing earnings on 12 February, and I believe one should expect Matsumoto Kiyoshi results on the same day. 
Hmmm...


Cocokara/​MatsuKiyo Deal Finally Coming?

Cocokara Fine

Cocokara/​MatsuKiyo Deal Finally Coming?

Cocokara/MatsuKiyo Deal Finally Coming?