Last Week in Event SPACE (15 July 2017)

(Hat tip to Travis Lundy for his sizeable contribution to this week's wrap)

In M&A World

• Global Logistic Properties Ltd (GLP SP)
  In the BIG News Of The Week, a consortium comprised of CEO Ming Z. Mei, HOPU, Hillhouse Capital, China Vanke Co Ltd (H) (2202 HK) and the financial services investment arm of Bank Of China Ltd (H) (3988 HK) have made an offer for Global Logistic Properties Ltd (GLP SP). Pranav Raodiscusses in his latest piece.
  • GLP has been exploring ways to 'exit' (or not) since Q4 last year.
  • For months it has been half-expected that the China consortium with CEO Ming Mei would be the eventual winner, and there has been significant discussion as to why in the pages of Smartkarma before this - recently with Latest FT Report, If Accurate, Could Further Undermine GLP Bidding Process by Daniel Hellberg, who has been all over this process since the beginning, and back in February by my GLP – A Moving Target.
  • The deal is for S$3.38/share plus a non-reductive dividend of S$0.06/share and the deal has been declared final. GIC, with a 36.84% stake, has made an irrevocable undertaking.
  • As with other aspects of this deal and the structure of GLP and its investments, there has been some dissatisfaction about the possibilities. However, this deal comes at what could be perceived as a great price. It also gets shareholders almost to the high end of the range that rival Warburg was rumored to be willing to pay.
  • There are approvals required. Antitrust in a number of countries and NDCR/MOFCOM/SAFE in China, and CFIUS in the US, but unusually the Offeror has stated "The Acquisition is not conditional on any of the Antitrust Approvals, the approval of the Acquisition and/or the Scheme from CFIUS, Third Party Consents and the Fund Management Consents being obtained."
  • I recommend you read Pranav's piece.
• Idemitsu Kosan Co Ltd (5019 JP) has priced its deal. Travis Lundy twice revisited Idemtisu’s fractious family/management relationship as the deal was announced and a petition for injunction was filed the week before, and this week saw the deal price at ¥2600/share, which is 20.3% below the price the day before the announcement. The stock has traded 15.3mm shs on pricing day and the two subsequent days out of the 48mm to sell. I'd note that according to Travis' figures, something like 9-12mm of those shares issued will be absorbed by passive funds over time, most by end-August I expect.
• Orient Overseas International Ltd (316 HK) last weekend finally announced a deal which most industry experts believe has been in the pipeline for donkeys' years.
  • Smartkarma's Pranav Rao discussed the news that COSCO, with seemingly unlimited capacity to buy or build, would finally acquire OOIL in OOIL: Industry Consolidation Continues. That piece started with a reference to Daniel Hellberg's analysis from January, suggesting such consolidation was inevitable.
  • Charles De Trenck followed on with more analysis of the situation, also suggesting it had been inevitable, but also showing weakness in how the situation was dealt with in Hong Kong markets. Purchase vehicles were set up in May, COSCO was suspended in Shanghai for a long while, then finally a deal was announced in Hong Kong almost two months after the entities were established, but the companies denied a bid was on the table. Drewry Maritime Financial Research also discussed the deal. Worth a read.
  • The offer, at 1.4x book, appears quite generous, but it will have to go through all the normal hoops (the Anti-Monopoly Bureau of MOFCOM, NDRC, SASAC, SAFE, European Commission, USA HSR Act, and COSCO shareholder approval), in addition to CFIUS. Long stop is June 30, 2018 but it might take more.
  • Daniel Hellberg noted in his earlier piece that such a combination would put more than 50% of global shipping capacity in 4 hands, and this might give pause to anti-trust regulators.
  • Pranav noted, and I agree, that CFIUS may become a problem because of the Long Beach Port (2nd busiest shipping port in the US). The earlier and infamous Dubai Ports World - P&O transaction from 2006, which Arzish Baaquie highlighted in Is There A Cure For CFIUS? showed that port ownership by a foreign government (or SOE) may be a red line.
  • Pranav also discusses a possible listing rule breach. I would dig into Pranav's piece for more info. I would not expect that in and of itself to derail a deal, but it could produce noise.
• Belle International Holdings Limited (1880 HK)
  • I discussed the changes in the shareholder registry in this situation in Belle International – Registering Changes. After considerable time sifting through the registry I found some aspects worth a second look. While it is not clear that the people who should look will do so, everyone involved on the arb side should take a look.
• Sky PLC (SKY LN)
  • Roderick Manalo offered Sky / Fox: UK Political Impacts and Risks of a New General Election which takes a deep dive into the mechanism of how government could change ahead of deal closing which might affect the closure of the deal. It's an interesting read, but in the end, he thinks the deal gets done anyway as long as Ofcom and the CMA decide the UILs sufficiently address their public interest concerns.
• United Engineers Ltd (UEM SP)
  • After a significantly drawn-out sale process, earlier this week Oversea Chinese Banking Corp. Limited (OCBC SP) and Great Eastern Holdings Ltd (GE SP) announced they were in the final stages of discussion with potential buyers. Rumored interested parties Perennial Real Estate Holdings Limited (PREH SP) and Yanlord Land Group Ltd (YLLG SP) went into halt. By Thursday night we had a deal for a consortium of these two entities and other parties to buy out OCBC's and Great Eastern's holdings in UE as discussed in Pranav Rao's United Engineers: Going Once, Going Twice, Sold.
    • The undertakings by OCBC and GE offer their combined 33.4% stake, however the deal will need at least 50% to complete.
    • Pranav notes that the deal price of S$2.60/share puts UEM at a valuation higher than the median of comps in terms of P/NAV and P/RNAV, but that is a 4% discount to the previous close and the lowest price in 6 months. Deal price speculation was indeed high.
    • As a result, this doesn't look like a completely done deal. Though if it does complete, there is an interesting side offer on WBL Corporation at S$2.07/share.

Other Events

• The story around Toshiba Corp (6502 JP) continues to see its twists and turns. The stock fell 11.57% on the week, falling for the fourth week in an row. The stock is now down 24.8% since the announcement of its demotion from the TSE1 to the TSE2 on June 23rd.
  • It was discovered over the last weekend that Western Digital Corp (WDC US) had indeed offered to pay the same price as the Preferred Bidder status winner (the Bain/INCJ/DBJ/SK Hynix). This was discovered in court documents which were discussed by Travis Lundy in Toshiba Memory Deal Changing Shape But Likely a Temporary Stalemate.
  • Early in the week also saw the idea that SK Hynix Inc (000660 KS)might give up its right to convert its loans to CBs and from CBs to equity in TMC. That idea was dashed by the SK Hynix CEO on Wednesday who spoke to reporters in Seoul saying they had no intention of doing so.
  • Coincident with the first part of the last point, it was reported that Toshiba was continuing talks with WDC and Hon Hai as alternate bidders.
  • Thursday brought revelations from one Japanese paper that Toshiba's auditor had spoken to regulators and Toshiba about the fact it would not provide an opinion on annual accounts as things stood. This is what Travis had been expecting at some point, but this news was met with denials from Toshiba. Coincidentally, on the same day, the JICPA sanctioned Toshiba's former auditors Shin Nihon over its role in the restatement of Toshiba accounts in the years up to and including the year to March 2015. The head of the JICPA also said at a press conference it was probing PwC Aarata over its decision to disclaim its opinion on Toshiba accounts in April, but this was known as soon as Q3 accounts were released April 11 so cannot be considered new news. In any case, I expect it will not change PwC's course of action from here on out. Everybody has pretty much committed to their path except for the TSE, and what the TSE does is anyone's guess.
  • On Friday, all eyes were on the California Supreme Court's hearing regarding Western Digital Corp (WDC US)'s petition for an injunction on the sale of TMC. The Supreme Court delayed a decision on the matter until July 28. WDC's press release claimed a victory which preserved the injunction until the arbitration could be settled. Toshiba's press release (only in Japanese) today said they would not sell the business before July 28th.
  • The Saturday Asahi paper suggested that SK Hynix's investment in the consortium would be JPY 520bn, which is a fair bit higher than previously expected. The paper also said Japan Post's portion would be 30bn yen, and Toshiba would invest 200bn yen, which goes back to Travis' concept that the Bain/INCJ structure acts as a placeholder for Toshiba to invest.

For more, read on below the fold...