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Last Week in Event SPACE: ARA Logos/ESR-REIT, Z Energy, Ausnutria, MatsukiyoCocokara

499 Views17 Oct 2021 07:48
SUMMARY

Last Week in Event SPACE ...

  • Plus, other events, CCASS movements (flagging possible Offers and IPO lock-ups), and Mood Spins.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)

M&A - ASIA

ARA LOGOS (ALLT SP) (Mkt Cap: $1bn; Liquidity: $3mn)

ESR-REIT (EREIT SP) and ALOG have proposed a S$1.4bn merger, where ESR-Reit will acquire all of ALOG's units in a cash & scrip transaction by way of a Scheme. ALOG unitholders will receive an indicative Scheme Consideration of S$0.95/ALOG unit, comprising S$0.095 in cash and 1.6765 new ESR-Reit units, to be issued at S$0.51/unit. However, if using ESR's last closing price, the implied Offer is $0.8746/unit, or a 6.46% discount last close. That discount to the undisturbed is less than inspiring. However, the indicative Offer Price is a six-year high, you're receiving 90% of the consideration in scrip, and the exchange ratio is in line with the 12-month average. That's probably enough to get it over the line

  • The proposed merger is expected to result in a DPU accretion of 5.8% for ESR REIT unitholders and an 8.2% accretion to ARA unitholders and will lead to a top 10 S-REIT by free float market cap. There will be little to no impact from the merger on bringing passive inflows into the merged entity.
  • For ALOG unitholders, the Scheme requires more than 50% in number, representing not less than 75% in value of unitholders. Ivanhoe Cambridge Asia Inc with ~8.74% of ALOG units has signed an irrevocable undertaking to vote in favour of ALL resolutions. All shareholders can vote. Note: Soilbuild's Scheme vote was close. 89.32% voted FOR but the headcount just snuck in at 56.56%. For ESR-Reit unitholders, this requires more than 50% of the total number of votes cast.
  • This deal was largely expected. Back in August, ESR Cayman (1821 HK) announced it was acquiring unlisted ARA Asset Management for US$5.2bn - see ESR Cayman (1821 HK) Takes Out ARA Asset Management. ALOG is managed by ARA LOGOS Logistics Trust Management Limited, a wholly-owned subsidiary of LOGOS. ARA Asset Management Limited is a majority shareholder of LOGOS, which operates as ARA’s logistics real estate platform. ESR Funds Management Limited, the manager of ESR-Reit, is owned by ESR Cayman Limited (67.3%), Shanghai Summit Pte. Ltd. (25.0%), and Mitsui & Co., Ltd (7.7%).

Links to:
my insight: ARA Logos (ALLT SP) To Merge with ESR-REIT (EREIT SP)
Brian Freitas' insight: ESR-REIT's Proposed Merger With ARA LOGOS Logistics Trust)

Z Energy Ltd (ZEL NZ) (Mkt Cap: $1.3bn; Liquidity: $6mn)

Back on the 23 August, Kiwi fuel distributor ZEL announced it had received a non-binding indicative acquisition proposal from Ampol (ALD AU). The Offer of NZ$3.78/share, by way of a Scheme, was a 22% premium to the last closing price. Ampol was granted four weeks of exclusive due diligence. On the 27 September, the DD was extended by a further two weeks. ZEL and Ampol have now announced a binding Scheme under which ZEL shareholders would receive $3.78/share plus NZ$0.05/share in dividends - or NZ$3.83/share all-in. ZEL shareholders will also be entitled to further dividends (upward of NZ$0.10/share) if the takeover is not completed by the end of March.

  • The proposal remains subject to approvals from ZEL's shareholders, and both the New Zealand Commerce Commission and the New Zealand Overseas Investment Office. It is also conditional on the transition of the Marsden Point fuel refinery to an import-only terminal. Ampol has committed to a full divestment of its Gull service stations in New Zealand to address potential competition issues.
  • This looks done. OIO approval will likely be the biggest sticking point, although Ampol is already in the good books after receiving OIO approval back in 2017 in its acquisition of Gull.
  • The shareholder meeting to vote on the Scheme is expected to be held early in 2022 with the transaction expected to be wrapped up in the 1H22.

(link to my insight: Z Energy (ZEL NZ) Enters Into Scheme With Ampol)

Ausnutria Dairy Corp (1717 HK) (Mkt Cap: $1.9bn; Liquidity: $6mn)

Ausnutria is suspended pursuant to the Hong Kong Code on Takeovers and Mergers. Shares had gained 7.8% on Monday (the 11th) on the largest volume since November of last year. SOE CITIC Group is the largest shareholder with 22.05%, having being introduced as a strategic investor back in October 2018. Reportedly Inner Mongolia Yili Industrial Group (A) (600887 CH), China’s biggest dairy producer, has been running a ruler over the infant-formula firm.

  • An Offer could be done by way of a Scheme. The headcount test applies. Or more likely this involves an S&P then an MGO - such that Yili (if indeed it is the acquirer) enters into various S&Ps with CITIC, Center Laboratories (4123 TT), and/or senior management - who collectively hold 56.6% - triggering an unconditional MGO. Or various S&P combinations of the above could trigger an MGO, with say a 50% acceptance hurdle - taking the view Yili wishes to keep Ausnutria listed. This is not too dissimilar to Yili's Offer for China Zhongdi Dairy (1492 HK) last year - see Zhongdi Dairy (1492 HK): Doc Out. Compulsory Acquisition Afforded. Yili attempted to take over organic milk supplier China Shengmu Organic Milk (1432 HK) in 2017 by way of a conditional MGO (the S&P involved 37% of shares out), however, the transaction was terminated on 28 April 2017.
  • Ausnutria is currently trading around multi-year high lows on all metrics despite edging towards an all-time profit high. Optically, this could easily be pitched around HK$12/share, around the Covid cliff, or 44.5% upside. In the Zhongdi Dairy transaction, the average PER/P/B of its three peers was 13.2x/1.0x - on a trailing twelve months basis - compared to 16.7x/1.2x for Zhongdi under the Offer.
  • Whether a firm Offer is by way of a Scheme or MGO, pre-conditions, which cannot be waived, will likely include approvals from NDRC, MoC, SAFE, and possibly the Shanghai Stock Exchange. It would not be a massive transaction for Yili so shareholder approval may not be required.

MatsukiyoCocokara (3088 JP) (Mkt Cap: $7.3bn; Liquidity: $22mn)

Nearly 21 months after starting talks to merge when a rival had made a bid for Cocokara Fine (3098 JP), Cocokara and Matsumoto Kiyoshi Holdings (3088 JP) announced a merger in February 2021 which undervalued Cocokara, to the chagrin of Travis Lundy's earlier ratio guesstimates and activist investors disappointed with how cheaply Matsumoto Kiyoshi acquired control. The merger between Matsumoto Kiyoshi and cocokara fine resulting in a NEWCO called MatsuKiyoCocokara is now effective. The result is the largest drug store operator in Japan by revenues for the year to March 2022, and a company with big plans for cost synergies and revenue growth opportunities.

  • The NEWCO is now likely to gain MSCI inclusion, as suggested in Travis' MatsukiyoCocokara & Co - The Merger insight of late February. MSCI inclusion is not guaranteed, but he expects it is highly likely as it meets the hurdle by my calculation. The combination means a buy of ~13 million shares between end-October and end-November which is 9% of shares out, 21% of Total Real World Float, and much more of likely Effective Real World Float (because of a chunk of the actively-managed position is likely long-term holders with zero interest in selling a small index inclusion uptick).
  • MatsuKiyo successfully weaned itself off sales growth to improve profitability to near industry highs. The process of creating synergies at cocokara fine has already started, and is expected to continue. Store placement means that cocokara stores will likely always be a bit less profitable per store unit and revenue per employee will be lower, but the company clearly sees ways to lift margins across the platform through synergies and applying common SKU lineups and operational procedures and logistics.
  • And the Street has not incorporated the companies Integration Plan targets for organic revenue growth. Given MatsuKiyo knows how to get growth, and it knows how to get margins, Travis would not bet against MatsuKiyoCocokara obtaining the planned synergies and he would not bet against them cracking on to get some of the higher revenue target. In addition, Real World Float is about to get smaller because of large index inflows. Index buying in the next six weeks is 23-27 days of ADV and is a very big portion of what he sees as Effective Real World Float.

(link to Travis' insight: MatsuKiyoCocokara Merged - Interesting Implications Indeed)

Yorkey Optical Intl Cayman (2788 HK), an optical and opto-electronic products manufacturer, has now announced an Offer, by way of a Scheme, from Asia Optical Co (3019 TT), Yorkey's largest shareholder. The consideration is $0.88/share, a 54.4% premium to last close - and shares gained 14% on Friday. The Offer Price has not been declared final. No dividends are expected to be declared during the Offer period. The blocking stake at the forthcoming Court Meeting is 5.837% of shares out. Activist investor David Webb holding at least 5.01%, has been consistently vocal about Yorkey's large net cash position, and demanding a distribution of the surplus cash. With Webb close to holding a blocking stake, an illiquid arb situation, and the fact Hong Kong events have been somewhat of a disaster this year, expect this to trade wide to terms. A bump in terms, somewhat of a rarity for HK events, cannot be ruled out. The Offer Price has not been declared final. Link to my insight: Yorkey Optical (2788 HK)'s Scheme: What Will Webb Do?

EVENTS

On average, J-REITs have historically outperformed the TSEREIT Index in the wake of follow-on equity offerings, with win rates exceeding 80%. While the offerings are mostly of interest to primary market investors, Janaghan Jeyakumar also sees such offerings as catalysts for strong secondary market performance making these events worth tracking for secondary market investors too. Hulic Reit Inc (3295 JP) has now announced a follow-on equity offering after market-close to fund part of their recent property acquisitions. The primary offer quantity is 82,800 units. In addition, there will also be an over-allotment quantity of 4,200 units. The total size of this offering could be roughly ¥14.6bn (~US$130mn). This is the second such follow-on offering this year, with a previous offering announced in March covered in JREIT Offering: Hulic Reit Inc (3295 JP) - Take It (Vs Comps) at the time. Link to Janaghan's insight: Hulic Reit (3295 JP): Offering Could Trigger Outperformance Vs Peers.

Yuexiu Transport Infrastructure (1052 HK) has announced that CAMC and CITIC have submitted the application materials on the registration and listing of CAMC-Yuexiu Expressway Close-end Infrastructure Securities Investment Fund to the CSRC and the Shenzhen Stock Exchange. The application concerns the Wuhan - Xiaogan Expressway (漢孝高速公路) or Han-Xiao Expressway, one of 10 expressways operated by Yuexiu. The spin-off, should it proceed, is not expected to have a material impact on Yuexiu. But this could pave the way for additional expressways to be bundled into a REIT which should lift valuations. Additionally, selecting Yuexiu to pilot this REIT should be viewed as a vote of confidence in the company's assets. Yuexiu's three-year average trailing/forward P/B prior to the onset of Covid was 0.92x and 0.87%. That would indicate ~30% upside to the current price based on today's valuations. Link to my insight: Yuexiu (1052 HK): REIT Application Lodged

Power disruptions are expected to prevail into winter due to the tight supply of thermal coal. This may be further exacerbated via global supply chain disruptions. In a rising market for coke products, China Risun (1907 HK)may benefit from the widening spread between the prices of raw materials and their products. In a falling market, that spread may narrow. From the second half of 2016, that spread has widened. Near term, expect profitability to remain stable. Risun doesn't appear overly expensive, relative to historical pricing. Given its size, it has an advantage when negotiating the purchase of raw materials. Risun's share price may have doubled since the beginning of the year, but so has the top line in the 1H21 and the bottom line nearly four-fold. Its one-year forward PER is 6.3x against 5.4x currently. Around 16% upside to the forward average is around its all-time high close (last month) of $5.85/share. Link to my insight: China Risun (1907 HK): Even Greater Profits Or A Steel Trap? & Mio's insight: China Risun – Coke-Coking Coal Spread Inverting).

In Celltrion Inc - The Minority Shareholders Upheaval & Concerns About Potential Inheritance Tax Issue, Douglas Kim explains the recent minority shareholders upheaval of Celltrion Inc (068270 KS). He also discusses the increasing concerns about the excessive inheritance taxes and the transition of the major shareholding from the former Chairman of Celltrion Group Seo Jung-Jin to his sons; the timing of the merger of the three major Celltrion companies (Celltrion Inc, Celltrion Healthcare (091990 KS), and Celltrion Pharm (068760 KS)); & rising inventory at Celltrion Healthcare & tax Issue for Founder Seo Jung-Jin.

STUBS

Distributor and exporter of processed frozen seafood Asian Sea Corp (ASIAN TB) (ASC) has announced it intends to spin-off and separately list Asian Alliance International (AAI), a manufacturer of tuna products and pet food. AAI is currently a wholly-owned subsidiary of ASC. The goal is to issue new shares accounting for 20% of AAI on a fully diluted basis, and for ASC to place out shares totaling 10% on a fully-diluted basis. ASC's effective interest would therefore decline to 70% with 30% in public hands. Pre-emptive rights for existing ASC shareholders will also be afforded, up to 20% of the IPO. In the 1H21, AAI accounted for 53%, 61%, & 55% of ASC's revenue, net profit & net assets, and has effectively been the group's growth driver in recent years. At Bt16.30/share ASC's share price is 25% adrift of its all-time high in early August, but still 880% up from its Covid low in March last year. Link to my insight: Towards A New Holdco As Asian Sea (ASIAN TB) Spins Off Pet Food Sub & Devi Subhakesan's insight: Asian Sea Corp (ASIAN TB): Spin-Off Listing of Pet Food Likely Intended to Unlock Value

M&A - EUROPE

Fastighets Ab Balder (BALDB SS) intends to make an offer to acquire the remaining 66.33% stake in Entra ASA (ENTRA NO) for NOK 24.5 bn after it crossed the 33.3% mandatory offer threshold on 12 October. Under the Offer, Balder intends to acquire the remaining 120,811,936 shares of Entra at NOK 202.5/share. Balder prefer Entra to continue to be listed on the Oslo Stock Exchange. The consideration represents 29x EV/EBITDA, 27.0x deal value/est. FFO, deal value/consensus NAV of 119.4% and c. 2.3% premium to EPRA NRV. Link to Jesus Rodriguez Aguilar's insight: Balder/Entra ASA: Game of Thrones in Scandinavian Real Estate.

On 7 October, Hellman & Friedman (H&F) matched EQT’s €470/share offer for zooplus AG (ZO1 GR), for an implied equity value of c. €3,360 mn. H&F recovers the leading position, as it already counted with the support of the Board of zooplus AG, as well as irrevocable undertakings for c. 17% of zooplus AG’ share capital. Those supports include the Management Board Members and Maxburg Beteiligungen GmbH & Co. KG, a longstanding key investor in zooplus AG who is also represented on its Supervisory Board. Those commitments remain therefore binding. The acceptance period for H&F's offer will therefore be extended to 3 November. Link to Jesus' insight: Hellman & Friedman Matches EQT in Contest for Zooplus AG.

The bid was saved at the eleventh hour. As per the CNMV release, IFM achieves 10.83% of the capital of Naturgy Energy Group SA (NTGY SM) in the takeover bid. The fund waives the minimum requirement of 17% and complete the deal. There is no apportionment. Link to Jesus' insight: IFM/Naturgy: Tender Results & Ibex-35 Index Implications.

SHARE CLASS

M&A RISK ARB WEEKLY ROUND-UP

  • This insight provides a quick summary of gross/annualised (where possible) spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and how those spreads have changed over the last week; plus the next hard events over the coming weeks. I number 40, mostly firm, deals around the region.

INDEX REBALS

OTHER M&A & EVENT UPDATES

CCASS

My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.

Often these moves can easily be explained - the placement of new shares, rights issue, movements subsequent to a takeover, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.

Name

% chg

Into

Out of

Heng Hup (1891 HK)51.01%ShenwanOutside CCASS
China Bright Culture Group (1859 HK) 10.27%FutuSt Chart
Amuse (8545 HK)15.50%EasyQuasar
CBK (8428 HK)11.95%Grand ChinaChina Prospect
Source: HKEx
The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.

Name

% chg

Into

Out of

Linklogis (9959 HK) 16.70%CICCOutside CCASS
Source: HKEx

I listen to a bunch of music when writing insights. Here are a handful of tunes, old & new, that piqued my interest during the week: Canned Heat's On The Road Again, Rosebud's Box Car, Kalabrese's Pain A Rollin' Away, Sofy's Strawberry Milkshake.

What are you listening to?

Enjoy your Sunday!
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