Last Week in Event SPACE:  Afterpay, SPH, ESR Cayman, Prosus/Naspers, Kingsoft, Milton, SOHO China

Square Inc (SQ US) and Afterpay have announced a firm merger, the completion of which will create Australia's largest-ever buyout, exceeding Unibail-Rodamco SE (UL NA)'s 2017 takeover of Westfield Corp (WFD AU). Under the terms of the Offer, by way of Scheme, Afterpay shareholders will receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay ordinary share. Based on Square’s closing price of US$247.26 on July 30, 2021, this represents an implied transaction price of ~A$126.21 per Afterpay share, or a premium of ~30.6%. Following completion of the transaction, Afterpay shareholders are expected to own ~18.5% of the merged entity on a fully diluted basis.

• The deal will strengthen Afterpay’s consumer base of 16mn with 70mn annual active Cash App customers. This will also bring Afterpay’s merchant base more consumers through Cash App, and at the same time, reach new Cash App audiences in global geographies. The agreement will help accelerate Afterpay's footprint in the US. The latest annual figures showed sales in the US increasing 177% yoy in FY21.
• Afterpay allows retailers to offer its customers the option of paying for products in four installments, without interest, if the payments are made on time. Afterpay does not technically charge interest, but enforces "late fee" charges on the installments.
• All of this is not lost on ASIC, which issued a critical report on BNPL last November highlighting one in five customers missing payments and "while working for the majority of users, some consumers are suffering harm". Similar issues have surfaced in the US, UK, and the EU, and Afterpay has had to adhere to more consumer-friendly rules on late fees in the US. Just this month, Paypal Holdings (PYPL US)'s new BNPL offering in Australia will not charge late payment fees.
• Assuming no regulatory roadblocks, this looks done. The merger terms enable Aussie investors to continue to have indirect exposure to Afterpay, but also into a significantly larger global payments business.

Singapore Press Holdings (SPH SP) (Mkt Cap: $2.3bn; Liquidity: $17mn)

Links to:
Travis' insight: Alamak! SPH Restructuring Restructured as Keppel Bo Jios SPH Holders
Brian's insight: Keppel Corp to Acquire SPH Ex Media: Details and Index Implications

The Prosus deal to buy 45% of Naspers is the biggest exchange offer outside the US in... well... forever. It has significant effect on the South African capital markets, on Emerging Markets indices, and on the primary avatar of Naspers' original tech investment portfolio, now called Prosus. It is something of a pain in the neck for investors, but then again, so is the entire construct. But it is a Really Big Deal, contingent on 45.33% of the weight of Naspers shareholdings agreeing to receive Prosus shares for some of their Naspers shares at what was, as of the end of the trading day Friday, a 5% premium to the close.

• This is a long and sordid deal with complications everywhere in the holder structure. The key thing to understand is whether passive funds and active institutional funds will tender. Locals outside the money management business basically do not matter.
• Travis expects the tender to go through. He currently expects pro-ration of 54-64%. He expects shares that investors do not want to tender will get borrowed and tendered anyway by arbitrageurs. It is obviously a less sexy trade now to buy and borrow and tender to cover a short Prosus position than it was 5% ago. But it is still worthwhile. Travis expects the deal may widen somewhat into the close because he does not believe that arb capacity is sufficiently large to carry all the local selling interest. Separately, the fact that the spread is this wide tells you that there is considerable interest to not be long Naspers after the Offer.
• If you are a passive investor in MSCI EM or FTSE EM, Travis would recommend tendering then selling the Prosus shares received in place of selling Naspers shares in the downweight. If you are a passive investor in MSCI ACWI or FTSE Global/International, I would recommend tendering to get the Prosus. If you are a passive investor in MSCI EAFE or FTSE DM (i.e. you do not own Naspers now but will have to buy Prosus), and you are flexible, Travis recommends replacing some of your Prosus with Naspers.

(link to Travis' insight: Naspers-Prosus - Estimating Pro-Ration and Analysing Index Events)

• Hong Kong tech stocks have been battered of late on general risk aversion given all that has happened with Chinese regulators and internet names. In contrast, PRC domestic investors have pushed up the Star 50 Index by ~27% in the last five months - and the largest constituent of that index is Beijing Kingsoft.
• The pushback on the trade here is that the stub ops are not performing at the same level as Beijing Kingsoft.
• Nevertheless, a 60% NAV discount for a simple net cash holding company, Kingsoft provides an inexpensive exposure to Beijing Kingsoft - and it is the largest shareholder. I would simply opt for mean reversion here - and even a 47% discount to NAV is wide. And short interest, both in HK$ and % terms, is rolling over, with the % level back to the Covid low in March last year.

Back on the 10 February 2021, private hospitals and medical centers operator New Frontier made an announcement it had received a preliminary non-proposal binding letter from a buyer-group, including President Carl Wu, Carnival Investments, Vivo Capital Fund IX, Max Rising International Ltd (a company affiliated with Carl Wu) - among others. The group offered to acquire shares of New Frontier for $12 in cash, a 27.9% premium to last close. New Frontier has now entered into a definitive merger agreement, also at US$12/share.

• The merger is conditional on an affirmative vote from shareholders representing at least two-thirds of the shares out, and that the aggregate quantity of dissenting shares shall be less than 10% of shares out.
• The announcement is silent on the buyer consortium's % holding, but I estimate it to be at least 37%. This looks pretty clean. Possible completion late 4Q21.

(link to my insight: Hollysys (HOLI US): Competing Proposal From Founder)