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

Kosaido (7868): A Story Being Told, A Story Being Bought

Kosaido Moves Quickly Post Failed Tenders

Murakami Group Tender for Kosaido Fails... Spectacularly

Quiddity Advisors

Equity Bottom-Up

<p>Just over a year ago, the newly-arrived CEO of <a href="https://www.smartkarma.com/entities/kosaido-co-ltd" target="_blank" data-smartkarma-citation="entities:15158:1" rel="noopener">Kosaido Co Ltd (7868 JP)</a> came out with an MBO proposal for the company, which most of the directors duly rubber-stamped. It was the wrong price. The main business of the company was struggling, but this was not new - it had struggled for many years. But the story was that Bain was going to help the company revive that business and lead it into the 20th century.</p><h2>That was.... 🐂💩.</h2><p>The CEO wanted to buy the company at about 0.5x book because it owned 61% of another company which was hardly mentioned on the company's website or IR materials, but it was responsible for an average of 95% of the company's OP for the previous several years. That was the Tokyo Hakuzen funeral parlour business, which itself was just coming out of its own self-imposed doldrums because of the long business slowdown related to the renovation of its largest facility.</p><p>Known activist Murakami-san jumped in and started buying. The shares went up. We covered the situation aggressively. </p><div><div><div>
<table class="table table-striped"><tbody>
<tr><td colspan="4"><h2>Previous Insights on the Kosaido Situation Published on Smartkarma...</h2></td></tr>
<tr>
<td><strong>Date</strong></td>
<td><strong>Buy/Sell</strong></td>
<td><strong>Price</strong></td>
<td><strong>Insight</strong></td>
</tr>
<tr>
<td>21-Jan</td>
<td>Buy</td>
<td>¥609</td>
<td><a href="https://www.smartkarma.com/insights/smallcap-kosaido-7868-jp-tender-offer-wrong-price-but-whaddya-gonna-do" target="_blank" data-smartkarma-citation="insights:27405" rel="noopener">Smallcap Kosaido (7868 JP) TOB: Wrong Price But Whaddya Gonna Do?</a></td>
</tr>
<tr>
<td>7-Feb</td>
<td>Sell</td>
<td>¥775</td>
<td><a href="https://www.smartkarma.com/insights/kosaido-activism-drives-price-30-through-terms" target="_blank" data-smartkarma-citation="insights:27821" rel="noopener">Kosaido: Activism Drives Price 30+% Through Terms</a></td>
</tr>
<tr>
<td>19-Feb</td>
<td>Sell</td>
<td>¥703</td>
<td><a href="https://www.smartkarma.com/insights/kosaido-tob-7868-jp-situation-gets-weird-activists-and-independent-opposition-to-an-mbo" target="_blank" data-smartkarma-citation="insights:28052" rel="noopener">Kosaido (7868 JP) Situation Gets Weird - Activists+Indie Opposition to MBO</a></td>
</tr>
<tr>
<td>26-Feb</td>
<td>Buy</td>
<td>¥738</td>
<td><a href="https://www.smartkarma.com/insights/kosaido-7868-jp-tob-extended" target="_blank" data-smartkarma-citation="insights:28240" rel="noopener">Kosaido (7868 JP) TOB Extended</a></td>
</tr>
<tr>
<td>19-Mar</td>
<td>Buy</td>
<td>¥748</td>
<td><a href="https://www.smartkarma.com/insights/kosaido-7868-jp-reno-goes-bigger-but-tob-price-this-time-is-final-so-what-next" target="_blank" data-smartkarma-citation="insights:28664" rel="noopener">Kosaido (7868 JP) - Reno Goes Bigger But TOB Price Is Final So What Next?</a></td>
</tr>
<tr>
<td>21-Mar</td>
<td>Buy</td>
<td>¥737</td>
<td><a href="https://www.smartkarma.com/insights/murakami-san-goes-hostile-on-kosaido-7868-jp-overbids-bain-s-final-offer" target="_blank" data-smartkarma-citation="insights:28716" rel="noopener">Murakami-San Goes Hostile on Kosaido (7868 JP), Overbids Bain's "Final" Offer</a></td>
</tr>
<tr>
<td>24-Mar</td>
<td>Sell</td>
<td>¥859</td>
<td><a href="https://www.smartkarma.com/insights/kosaido-7868-jp-reaches-value-you-can-sell" target="_blank" data-smartkarma-citation="insights:28775" rel="noopener">Kosaido (7868 JP) Reaches Value You Can Sell</a></td>
</tr>
<tr>
<td>25-Apr</td>
<td>Sell</td>
<td>¥771</td>
<td><a href="https://www.smartkarma.com/insights/kosaido-the-bull-case-the-bear-case-and-the-base-case" target="_blank" data-smartkarma-citation="insights:29416" rel="noopener">Kosaido: The Bull Case, The Bear Case, and the Base Case</a></td>
</tr>
<tr>
<td>23-May</td>
<td>Sell</td>
<td>¥724</td>
<td><a href="https://www.smartkarma.com/insights/murakami-group-tender-for-kosaido-fails-spectacularly" target="_blank" data-smartkarma-citation="insights:29978" rel="noopener">Murakami Group Tender for Kosaido Fails... Spectacularly</a></td>
</tr>
<tr>
<td>27-May</td>
<td>Sell</td>
<td>¥708</td>
<td>
<a href="https://www.smartkarma.com/insights/kosaido-moves-quickly-post-failed-tenders" target="_blank" data-smartkarma-citation="insights:30072" rel="noopener">Kosaido Moves Quickly Post Failed Tenders</a> </td>
</tr>
<tr>
<td>29-Nov</td>
<td>Buy</td>
<td>~¥900</td>
<td>
<a href="https://www.smartkarma.com/insights/kosaido-7868-a-story-being-told-a-story-being-bought" target="_blank" data-smartkarma-citation="insights:34886" rel="noopener">Kosaido (7868): A Story Being Told, A Story Being Bought</a> </td>
</tr>
</tbody></table>
<p>My theory - discussed in insights above - was that after the Tender Offer - which was full of talk of rehabilitating old Japanese businesses - the Bain/management-owned Kosaido would squeeze out minorities (which included a lot of Buddhist Temples) in the funeral parlour business and own the entire company at book value, and then they would sell down the businesses they were purportedly trying to save. </p>
<p>Long story short, Murakami overbid Bain, neither tender was a success, the shares fell, one large holder sold his stake to a Chinese businessman. The company switched out its board, the CEO resigned, and the company became an instant model of better-than-expected governance for shareholders. In autumn, the company sold part of its publishing business to someone, the company published a "<a href="https://contents.xj-storage.jp/xcontents/AS01383/64013624/9f7d/4768/9dd7/a664eb1a6ed0/140120191107421436.pdf" target="_blank" rel="noopener">Roadmap</a>" to revitalization which included "capital policy" measures, and the media started talking about the Chinese businessman (who happens to have been the man behind the China-boom at Laox) exporting the model of funeral parlours to China (they exist, but the practice has a complicated social history). </p>
<p>My last piece at end-November concluded...</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/497/original/Screenshot%202020-02-05%20at%205.17.12%20PM.png?1580894246" class="editor-image img-responsive" data-smartkarma-image-id="116497"></figure><p>The stock price fell back 10%, it was a good buy, and in the 6 weeks since then, the stock is up about 30%. Part of that is related to the New News.</p>
<h2>The NEW News</h2>
<p>Last week, a new shareholder appeared on the Large Shareholder List. That is <a href="https://www.aso-corp.jp/" target="_blank" rel="noopener">Aso Corp</a> (yes, the one related indirectly to politician Taro Aso). They started buying in late November, helping the stock price rise. They didn't push at the peak. They bought back on the dip and two weeks ago went over 5% (it looks like they owned a bit under 2% prior to starting to increase their position in late November). </p>
<p>MORE importantly, last Friday, Kosaido itself <a href="https://contents.xj-storage.jp/xcontents/AS01383/0eb27c47/c661/4ce4/b39c/49c13585b72f/140120200128451776.pdf" target="_blank" rel="noopener">announced</a> that it would merge with its subsidiary, <em>Tokyo Hakuzen</em>. To add insult to injury, it announced the company would take an extraordinary loss of 400mm yen to do so, and Kosaido also announced it would pay no dividend this year. All told, it is a picture of awful but necessary measures.</p>
<p>There you have it. That's the deal done, and it is being done FOR shareholders.</p>
<p>It is a BIG WIN.</p>
<p>If you want to read the background of why this is important, you need only read <a href="https://www.smartkarma.com/insights/kosaido-7868-a-story-being-told-a-story-being-bought" target="_blank" data-smartkarma-citation="insights:34886" rel="noopener">Kosaido (7868): A Story Being Told, A Story Being Bought</a> from late November. </p>
<p>More discussion below the fold.</p>
<p></p>
<p></p>
</div></div></div>

Just over a year ago, the newly-arrived CEO of Kosaido Co Ltd (7868 JP) came out with an MBO proposal for the company, which most of the directors duly rubber-stamped. It was the wrong price. The main business of the company was struggling, but this was not new - it had struggled for many years. But the story was that Bain was going to help the company revive that business and lead it into the 20th century.That was.... 🐂💩.The CEO wanted to buy the company at about 0.5x book because it owned 61% of another company which was hardly mentioned on the company's website or IR materials, but it was responsible for an average of 95% of the company's OP for the previous several years. That was the Tokyo Hakuzen funeral parlour business, which itself was just coming out of its own self-imposed doldrums because of the long business slowdown related to the renovation of its largest facility.Known activist Murakami-san jumped in and started buying. The shares went up. We covered the situation aggressively. 

Previous Insights on the Kosaido Situation Published on Smartkarma...

Date
Buy/Sell
Price
Insight


21-Jan
Buy
¥609
Smallcap Kosaido (7868 JP) TOB: Wrong Price But Whaddya Gonna Do?


7-Feb
Sell
¥775
Kosaido: Activism Drives Price 30+% Through Terms


19-Feb
Sell
¥703
Kosaido (7868 JP) Situation Gets Weird - Activists+Indie Opposition to MBO


26-Feb
Buy
¥738
Kosaido (7868 JP) TOB Extended


19-Mar
Buy
¥748
Kosaido (7868 JP) - Reno Goes Bigger But TOB Price Is Final So What Next?


21-Mar
Buy
¥737
Murakami-San Goes Hostile on Kosaido (7868 JP), Overbids Bain's "Final" Offer


24-Mar
Sell
¥859
Kosaido (7868 JP) Reaches Value You Can Sell


25-Apr
Sell
¥771
Kosaido: The Bull Case, The Bear Case, and the Base Case


23-May
Sell
¥724
Murakami Group Tender for Kosaido Fails... Spectacularly


27-May
Sell
¥708

Kosaido Moves Quickly Post Failed Tenders 


29-Nov
Buy
~¥900

Kosaido (7868): A Story Being Told, A Story Being Bought 


My theory - discussed in insights above - was that after the Tender Offer - which was full of talk of rehabilitating old Japanese businesses - the Bain/management-owned Kosaido would squeeze out minorities (which included a lot of Buddhist Temples) in the funeral parlour business and own the entire company at book value, and then they would sell down the businesses they were purportedly trying to save. 
Long story short, Murakami overbid Bain, neither tender was a success, the shares fell, one large holder sold his stake to a Chinese businessman. The company switched out its board, the CEO resigned, and the company became an instant model of better-than-expected governance for shareholders. In autumn, the company sold part of its publishing business to someone, the company published a "Roadmap" to revitalization which included "capital policy" measures, and the media started talking about the Chinese businessman (who happens to have been the man behind the China-boom at Laox) exporting the model of funeral parlours to China (they exist, but the practice has a complicated social history). 
My last piece at end-November concluded...
The stock price fell back 10%, it was a good buy, and in the 6 weeks since then, the stock is up about 30%. Part of that is related to the New News.
The NEW News
Last week, a new shareholder appeared on the Large Shareholder List. That is Aso Corp (yes, the one related indirectly to politician Taro Aso). They started buying in late November, helping the stock price rise. They didn't push at the peak. They bought back on the dip and two weeks ago went over 5% (it looks like they owned a bit under 2% prior to starting to increase their position in late November). 
MORE importantly, last Friday, Kosaido itself announced that it would merge with its subsidiary, Tokyo Hakuzen. To add insult to injury, it announced the company would take an extraordinary loss of 400mm yen to do so, and Kosaido also announced it would pay no dividend this year. All told, it is a picture of awful but necessary measures.
There you have it. That's the deal done, and it is being done FOR shareholders.
It is a BIG WIN.
If you want to read the background of why this is important, you need only read Kosaido (7868): A Story Being Told, A Story Being Bought from late November. 
More discussion below the fold.




Kosaido Governance Ever Better - Death Is a Growth Business