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

DP World: Lousy Governance Is in Traders' Favor Here

DP World Countdown Begins - Scheme Doc Out

Quiddity Advisors

Event-Driven

Dubai-owned ports operator DP World has been a fixture in the M&amp;A and offshore M&amp;A space the last decade, with a dozen and a half transactions to its credit the last 5-6yrs - all but one a purchase (it sold Chilean Puertos y Logistica last year to a unit of Caisse de dépôt et placement du Québec). The goal has been to transition away from being a pure ports operator to become the world's leading end-to-end logistics provider.Occasionally its deals have made really public news, in particular the pre-IPO deal in 2006 to buy The Peninsular and Oriental Steam Navigation Company (P&amp;O), a British-owned company which operated 5 major US ports (and 16 smaller ones) which was strongly supported by the Bush administration, questioned by the Coast Guard, then in Feb 06 <a href="https://www.treasury.gov/press-center/press-releases/Pages/js4071.aspx" target="_blank" rel="noopener">approved</a> by CFIUS. Then when a US partner of P&amp;O saw they might get forced into a partnership with DPW, they raised the issue with their Democratic Party Congresspeople, who raised a stink. DPW offered to postpone. In early March, the US House voted overwhelmingly to block the deal via a bill, and the next day, DPW effectively withdrew its bid for ownership and said it would sell the package to a US entity. It was eventually bought by AIG.The stock IPOed in November 2007 at US$1.30/share (equivalent to US$26/share; the stock underwent a 1:20 reverse split in 2011) and then fell like a rock. Four months after listing the stock was trading 40% lower. A year after that, at the lowest point in the GFC (early March 2009), the stock traded as low as 85% below the IPO price. The stock took the next nine years to (impressively) climb back up to IPO price-equivalent in January 2018 before falling back by half as of yesterday.<h2>The NEW News</h2>Earlier today, <a href="https://www.smartkarma.com/entities/dp-world" target="_blank" data-smartkarma-citation="entities:22734:1" rel="noopener">DP World (DPW DU)</a> made an <a href="https://www.dpworld.com/news/dp-world-to-delist-from-nasdaq-dubai/" target="_blank" rel="noopener">announcement</a> that Port and Free Zone World, a wholly-owned subsidiary of state investment vehicle Dubai World, is set to acquire the 19.55% of DP World's shares listed on the Nasdaq Dubai (the other 80.45% is owned by the SOE). The Offer Price is US$16.75, which is a 28.8% premium to Sunday's closing price of US$13/share.The statements by the CFO and CEO point to how taking a long-term view is optimal for the company, whereas markets take a short-term view. <blockquote>
“The DP World Board has concluded that the disadvantages of maintaining a public listing outweigh the benefits. Delisting from Nasdaq Dubai is in the best interest of the company, enabling it to execute its medium to long-term strategy. DP World is focussed on the transformation of the Group and takes a long-term view of investment returns and value creation. In contrast, public markets typically hold a short-term view. As a result of this gap, the DP World strategy is not fully appreciated by the equity markets, and consequently is not reflected in the company’s share price performance.” Yuvraj Narayan, Group Chief Financial, Strategy and Business Officer of DP World
“The global ports and logistics industry has been undergoing a significant transition as a result of the consolidation of the customer base and the vertical integration of several competitors. DP World must be able to continue responding effectively to this rapidly changing landscape and to invest in the future.
Returning to private ownership will free DP World from the demands of the public market for short term returns which are incompatible with this industry, and enable the company to focus on implementing our mid-to-long-term strategy to build the world’s leading logistics provider, backed by our globe-spanning network of ports, economic zones, industrial parks, feeders, and inland transportation.
Our focus will continue to be on integrating our acquisitions with our global network of interconnected ports, logistics businesses and economic zones. DP World’s world-spanning footprint puts us in a strong position to lead the disruption of the industry creating a better future for all cargo owners through smarter trade.” Sultan Ahmed bin Sulayem, Group Chairman and Chief Executive Officer of DP World
</blockquote>The statements out are what they are. Investors can ignore them. That is not what is happening here. The powers that be in Dubai are squeezing minorities out at a huge discount to where these assets would trade if sold on their own. It is far, far below where peers trade.The claim that public markets cannot support such a long-term business is strange.<ul>
<li>The market supports Brookfield (either <a href="https://www.smartkarma.com/entities/brookfield-asset-manage-cl-a-0483cfb5-71a5-4931-af80-901e5f30aace" target="_blank" data-smartkarma-citation="entities:23741:1" rel="noopener">Brookfield Asset Management (BAM US)</a> or <a href="https://www.smartkarma.com/entities/brookfield-infrastructure-partners-l-p" target="_blank" data-smartkarma-citation="entities:571:1" rel="noopener">Brookfield Infrastructure Partners Lp. (BIP US)</a>) just fine.</li>
<li>And does so with higher than the six turns of 2020e EBITDA (the debt/EBITDA ratio which DPW would have post the leveraged buyout (after it takes on an additional $8.1bn of net debt to complete the transaction and pay back the acquirer).</li>
<li>Brookfield has higher debt multiples, and trades at 2-3x the EV/EBITDA ratio and similarly high multiples of EV/EBITDA less capex) compared to DPW (depending on how you measure Brookfield EV/EBITDA, and there should be some question about that).</li>
<li>DPW has better ROA, better ROE, better ROC, and better Net Income Margins than either of the Brookfield businesses. </li>
</ul>The difference, of course, is investor trust in management and board governance. Minorities were basically always stuck here. And just how stuck they are/always were is shown in the call presenting the deal. There were some unhappy campers.It is not a pretty governance picture. More below.

Dubai-owned ports operator DP World has been a fixture in the M&amp;A and offshore M&amp;A space the last decade, with a dozen and a half transactions to its credit the last 5-6yrs - all but one a purchase (it sold Chilean Puertos y Logistica last year to a unit of Caisse de dépôt et placement du Québec). The goal has been to transition away from being a pure ports operator to become the world's leading end-to-end logistics provider.Occasionally its deals have made really public news, in particular the pre-IPO deal in 2006 to buy The Peninsular and Oriental Steam Navigation Company (P&amp;O), a British-owned company which operated 5 major US ports (and 16 smaller ones) which was strongly supported by the Bush administration, questioned by the Coast Guard, then in Feb 06 approved by CFIUS. Then when a US partner of P&amp;O saw they might get forced into a partnership with DPW, they raised the issue with their Democratic Party Congresspeople, who raised a stink. DPW offered to postpone. In early March, the US House voted overwhelmingly to block the deal via a bill, and the next day, DPW effectively withdrew its bid for ownership and said it would sell the package to a US entity. It was eventually bought by AIG.The stock IPOed in November 2007 at US$1.30/share (equivalent to US$26/share; the stock underwent a 1:20 reverse split in 2011) and then fell like a rock. Four months after listing the stock was trading 40% lower. A year after that, at the lowest point in the GFC (early March 2009), the stock traded as low as 85% below the IPO price. The stock took the next nine years to (impressively) climb back up to IPO price-equivalent in January 2018 before falling back by half as of yesterday.The NEW NewsEarlier today, DP World (DPW DU) made an announcement that Port and Free Zone World, a wholly-owned subsidiary of state investment vehicle Dubai World, is set to acquire the 19.55% of DP World's shares listed on the Nasdaq Dubai (the other 80.45% is owned by the SOE). The Offer Price is US$16.75, which is a 28.8% premium to Sunday's closing price of US$13/share.The statements by the CFO and CEO point to how taking a long-term view is optimal for the company, whereas markets take a short-term view. 
“The DP World Board has concluded that the disadvantages of maintaining a public listing outweigh the benefits. Delisting from Nasdaq Dubai is in the best interest of the company, enabling it to execute its medium to long-term strategy. DP World is focussed on the transformation of the Group and takes a long-term view of investment returns and value creation. In contrast, public markets typically hold a short-term view. As a result of this gap, the DP World strategy is not fully appreciated by the equity markets, and consequently is not reflected in the company’s share price performance.” Yuvraj Narayan, Group Chief Financial, Strategy and Business Officer of DP World
“The global ports and logistics industry has been undergoing a significant transition as a result of the consolidation of the customer base and the vertical integration of several competitors. DP World must be able to continue responding effectively to this rapidly changing landscape and to invest in the future.
Returning to private ownership will free DP World from the demands of the public market for short term returns which are incompatible with this industry, and enable the company to focus on implementing our mid-to-long-term strategy to build the world’s leading logistics provider, backed by our globe-spanning network of ports, economic zones, industrial parks, feeders, and inland transportation.
Our focus will continue to be on integrating our acquisitions with our global network of interconnected ports, logistics businesses and economic zones. DP World’s world-spanning footprint puts us in a strong position to lead the disruption of the industry creating a better future for all cargo owners through smarter trade.” Sultan Ahmed bin Sulayem, Group Chairman and Chief Executive Officer of DP World
The statements out are what they are. Investors can ignore them. That is not what is happening here. The powers that be in Dubai are squeezing minorities out at a huge discount to where these assets would trade if sold on their own. It is far, far below where peers trade.The claim that public markets cannot support such a long-term business is strange.
The market supports Brookfield (either Brookfield Asset Management (BAM US) or Brookfield Infrastructure Partners Lp. (BIP US)) just fine.
And does so with higher than the six turns of 2020e EBITDA (the debt/EBITDA ratio which DPW would have post the leveraged buyout (after it takes on an additional $8.1bn of net debt to complete the transaction and pay back the acquirer).
Brookfield has higher debt multiples, and trades at 2-3x the EV/EBITDA ratio and similarly high multiples of EV/EBITDA less capex) compared to DPW (depending on how you measure Brookfield EV/EBITDA, and there should be some question about that).
DPW has better ROA, better ROE, better ROC, and better Net Income Margins than either of the Brookfield businesses. 
The difference, of course, is investor trust in management and board governance. Minorities were basically always stuck here. And just how stuck they are/always were is shown in the call presenting the deal. There were some unhappy campers.It is not a pretty governance picture. More below.

Brookfield Infrastructure Partners L.P. (BIP US)

DP World Squeezeout - Governance Discount Deserved (And Served) So Minorities Lose