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

Overbid: JAG Special Committee Plays Stupid so Murakami Plays Hardball

Japan Asia Group MBO Fails, Now JAG Against Murakami's Higher Bid

Japan Asia Group (3751) : Defense Against Hostile TOB Is Bad News

Japan Asia (3751 JP) Management Buyout: Should There Be a BUMP?

Murakami Fund's Tender for JAG (3751):  May Be Rangebound Near-Term

Quiddity Advisors

Event-Driven

Kudos to <a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a> who wrote about this deal on 5 November asking the question <a href="https://www.smartkarma.com/insights/japan-asia-3751-jp-management-buyout-should-there-be-a-bump" target="_blank" data-smartkarma-citation="insights:44928" rel="noopener">Japan Asia (3751 JP) Management Buyout: Should There Be a BUMP?</a> where the obvious answer was yes because a) it was too cheap, and b) the substantial debt meant that buying it one turn of EBITDA higher meant a 40% bump in share price, and c) it wasn't going to be that easy to get to the minimum because the acquirers did not have that many friendly shareholders on the register. 
Renowned Japanese activist Yoshiaki Murakami agreed with the idea it was cheap, bought 5%, then bought more, and earlier this month had accumulated more than 20%. He met with them, and finally decided to launch his own tender offer at +40% after the chairman refused to raise the price and Carlyle could not provide a "rational solution" (the letter by Murakami is definitely worth reading). Today, we have new news. The bid by the Chairman and Carlyle is now doubled, from ¥600/share to ¥1,200/share. 
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There are, to be sure, a few small tweaks to the deal behind the scenes, and more money is good for shareholders, but all the tweaks involve moving around assets between the parties who buy the company from shareholders and only does it AFTER the deal is done. It does not involve anything but the agreement of who gets what after the deal is done.
This is literally just one party being shamed into not getting a free $150mm+ at the expense of the shareholders. 
But the chairman - supported by the directors and independent directors - decided that it was OK for the shareholders to be given ¥600/share in the first place instead of ¥1,200/share. Then they supported the deal when questioned, and when someone prominent had built up a 20% stake making their life difficult, they couldn't be bothered to come to the table in any real manner. 
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When a Private Equity Fund and a Chairman decide to buy a company from its shareholders, independent directors need to get better advice. They need to listen to shareholders or people who speak to or for shareholders. Theoretically, that's their job but in Japan they seem particularly bad at doing so. But the shareholders are the ones who make a deal successful or not.
It should also be a wake-up call for Real Investors.
If you make noise on a deal, rather than accept it "because there is nothing I can do is there" then you encourage others to do so too. As I argued in <a href="https://www.smartkarma.com/insights/japan-needs-more-cowbell" target="_blank" data-smartkarma-citation="insights:41191" rel="noopener">Japan Needs More Cowbell</a> and in an FT Alphaville <a href="https://www.ft.com/content/dd680521-a9cc-4b1c-922d-4787d2a314f6" target="_blank" rel="noopener">Opinion</a> a year ago, Japan's investors need to take their opinions and needs to the wider market. If you own it and you 
Murakami-san is getting a 75% return on his 3-month investment in <a href="https://www.smartkarma.com/entities/japan-asia-group-ltd" target="_blank" data-smartkarma-citation="entities:12428:1" rel="noopener">Japan Asia (3751 JP)</a> because of his efforts, and his diligence in pointing out the deficiencies of the bid. He bought 20% of the company and he had at it.
That's good for Murakami-san. And it could be good for the market. But investors have to make use of this. Active shareholders should be active, not passive. 
More below the fold.

Kudos to Janaghan Jeyakumar, CFA who wrote about this deal on 5 November asking the question Japan Asia (3751 JP) Management Buyout: Should There Be a BUMP? where the obvious answer was yes because a) it was too cheap, and b) the substantial debt meant that buying it one turn of EBITDA higher meant a 40% bump in share price, and c) it wasn't going to be that easy to get to the minimum because the acquirers did not have that many friendly shareholders on the register. 
Renowned Japanese activist Yoshiaki Murakami agreed with the idea it was cheap, bought 5%, then bought more, and earlier this month had accumulated more than 20%. He met with them, and finally decided to launch his own tender offer at +40% after the chairman refused to raise the price and Carlyle could not provide a "rational solution" (the letter by Murakami is definitely worth reading).  Today, we have new news. The bid by the Chairman and Carlyle is now doubled, from ¥600/share to ¥1,200/share. 



There are, to be sure, a few small tweaks to the deal behind the scenes, and more money is good for shareholders, but all the tweaks involve moving around assets between the parties who buy the company from shareholders and only does it AFTER the deal is done. It does not involve anything but the agreement of who gets what after the deal is done.
This is literally just one party being shamed into not getting a free $150mm+ at the expense of the shareholders. 
But the chairman - supported by the directors and independent directors - decided that it was OK for the shareholders to be given ¥600/share in the first place instead of ¥1,200/share. Then they supported the deal when questioned, and when someone prominent had built up a 20% stake making their life difficult, they couldn't be bothered to come to the table in any real manner. 




When a Private Equity Fund and a Chairman decide to buy a company from its shareholders, independent directors need to get better advice. They need to listen to shareholders or people who speak to or for shareholders. Theoretically, that's their job but in Japan they seem particularly bad at doing so. But the shareholders are the ones who make a deal successful or not.
It should also be a wake-up call for Real Investors.
If you make noise on a deal, rather than accept it "because there is nothing I can do is there" then you encourage others to do so too. As I argued in Japan Needs More Cowbell and in an FT Alphaville Opinion a year ago, Japan's investors need to take their opinions and needs to the wider market. If you own it and you 
Murakami-san is getting a 75% return on his 3-month investment in Japan Asia (3751 JP) because of his efforts, and his diligence in pointing out the deficiencies of the bid. He bought 20% of the company and he had at it.
That's good for Murakami-san. And it could be good for the market. But investors have to make use of this. Active shareholders should be active, not passive. 
More below the fold. 

Japan Asia Group (3751): Murakami Wins the Mother Of All Bumps +100%