Last Week in Event SPACE ...
(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)
Coca Cola Amatil (CCL AU) (Mkt Cap: $6.3bn; Liquidity: $25mn)
Australia's largest non-alcoholic beverage bottler CCL has announced an indicative proposal from Coca-Cola European Partners plc (CCEP) by way of a Scheme of Arrangement (for $12.75/shares, cash, less any final 2H20 dividends declared and paid prior to the implementation of any Scheme). A separate acquisition of CCL shares held indirectly by Coca Cola Co (KO US) (TCCC) - 30.807% of shares out - which would be on terms less favourable than the terms offered to CCL’s independent shareholders. A$12.75/share is a 25%/38% premium to the one-month/three-month VWAP. The offer backs out a 12.0x/14.3x FY19/FY20E EV/EBITDA, both exceeding the median for peers.
(link to my insight: Coca Cola Amatil: Flat Or Fizzy?)
Shimachu Co Ltd (8184 JP) (Mkt Cap: $2.1bn; Liquidity: $26mn)
Yomiuri newspaper has an article which says that Nitori Holdings (9843 JP) will, within this week, launch a Tender Offer for Shimachu, putting itself in competition with Dcm Holdings (3050 JP) which has already launched a Tender Offer at JPY 4200/share, currently set to expire on the 16 November. The possibility of Nitori coming in was flagged by the Nikkei on the 20th, late, and Shimachu shares jumped more than 10% the next day, and have recently been trading in the JPY 4,700-4,800 area. This development was discussed in Nitori To Make a Rival Bid for Shimachu? More Fun To Go after discussing the original Tender Offer by DCM (which was stated as too light a bid) in DCM Does a Full Takeover of Shimachu - Looks Like a Strong Price. Look Again.
link to Travis Lundy's insights:
Gaming Out a Nitori Bid for Shimachu
Nitori Bids UP For Shimachu - Now Things Slow Down
AMP Ltd (AMP AU) (Mkt Cap: $3.7bn; Liquidity: $19mn)
Aussie wealth manager AMP announced it has received an indicative, non-binding, conditional proposal from US-based Ares Management Corp (ARES US), by way of a Scheme. No price was mentioned. The take-private proposal follows a tortuous period for what was once an Australian icon. The final report of a royal commission last year exposed damaging internal practices - such as billing deceased customers and lying to regulators - culminating in net cash outflow and the exit of Catherine Brenner (chairman). Amidst the ongoing net outflow - which has continued into the 3Q20 - chairman David Murray resigned in August over his handling of a sexual harassment issue.
(link to my insight: AMP: Ares' Proposal For The Once Mighty)
Hitachi Ltd (6501 JP) (Mkt Cap: $32bn; Liquidity: $100mn)
The previous Friday saw an article out of the Nikkei suggesting Hitachi might sell half its stake in Hitachi Construction Machinery (6305 JP) ("HCM") to a third party, at a discount, and that it might start a sale process on Hitachi Metals (5486 JP) "this month." It seems unlikely Hitachi would themselves be throwing in the towel 5 months later before the start of the time frame in which top management of the two subsidiaries are supposed to be able to compete globally. All of this is likely getting done with the will and direction of the subsidiaries themselves. This strikes Travis Lundy as some kind of agreement with management of HCM that they would not be averse to receiving expert help from outside while remaining listed. This changes things.
link to:
Travis' insight: The Right Trade May Be Hitachi
Mio Kato's insight: HCM – Profit Beat and Discussion of Hitachi Stake
Link Administration Holdings (LNK AU) (Mkt Cap: $1.8bn; Liquidity: $10mn)
Back on the 12 October, Link announced a conditional, non-binding indicative proposal from a consortium comprising PEP and the Carlyle Group, by way of a Scheme. The indicative cash price was A$5.20/share, a 30% premium to last close. On the 23 October, Link said the proposal from PEP/Carlyle "materially undervalued the company". PEP/Carlyle have now tabled a A$5.40/share non-binding indicative Offer, in cash. The proposal includes an option of a cash offer for Link ex-Property Exchange Australia (PEXA) of 3.80/share, along with the ability to take an indirect interest in PEXA. PEP/Carlyle said it requires six weeks of due diligence, and if DD access is not provided by the 28 October, they will walk. For just a 3.8% bump, that is a tad aggressive. That adds risk to a firm deal unfolding.
(link to my insight: Link Admin: Hardball Tactics After Meagre Bump)
Medical & Biological Laboratories (4557 JP) (Mkt Cap: $0.2bn; Liquidity: $2mn)
JSR Corp (4185 JP) ("JSR") announced a Tender Offer to acquire the remaining shares in its 50.8%-owned subsidiary MBL. MBL specializes in clinical diagnostics and research reagents and has recently added COVID-19 research/testing-related products to its portfolio. The Offer Price would be ¥4400/share in cash which translates to a deal size of ¥11.2bn (~US$107mn). The Tender Offer Period will be from 28th Oct-2020 to 10th Dec-2020. The Deal has a minimum acceptance condition which requires the Acquirer to reach two-thirds control.
(link to Janaghan Jeyakumar's insight: JSR (4185 JP) Tender Offer for Medical & Biological Labs (4557 JP))
In NPS Takes a Stand Against LG Chem's Plan to Separate the Battery Business, and NPS Says No to LG Chem Split: October 30 Voting Race Update, both Douglas Kim and Sanghyun Park discussed the announcement that the Korea National Pension Fund Service (NPS) will likely vote against LG Chem Ltd (051910 KS)'s plan to separate the rechargeable battery business. On 16 September, LG Chem announced its plan to separate the rechargeable battery business and since then its share price has declined 13% (15 September to 27 October). This is perhaps the biggest activist move by the NPS this year on a Korean large-cap company in 2020.
On 24th August 2020, Allcargo Logistics (AGLL IN) announced it had received a “Delisting Proposal Letter" from members of its Promoter Group. After market-close on 22nd October, the company announced the voting results for the delisting offer which confirmed that the shareholders have approved the transaction. As the control premium embedded in the current price seems insufficient, Janaghan expects more upside on both an outright and market-neutral basis. Allcargo Logistics (AGLL IN): Shareholder Vote Encouraging. Buying Opportunity
In Senshukai Hopes for Rebirth with JR East, Michael Causton discusses East Japan Railway Co (9020 JP) (JR East) agreeing to a capital and business alliance with Senshukai (8165 JP) last month. As part of the deal, JR East will take a 12.5% stake in Senshukai.
Pac's discount to NAV of ~52% is at its all-time low. The implied stub, stripping out its ~82% holding in Props, is around its lowest level since Properties was listed in Jan 2012. Pac/Prop jointly announced this week it is in discussions to sell a multi-story building in Taikoo Shing. This is Cityplaza One. "No agreement has been reached." Reportedly private equity company Gaw Capital is offering to buy the 21-story, 58k square metre building for HK$10bn (US$1.29bn). Gaw is well acquainted with this site. Back in June 2018 when Prop sold two office towers (Cityplaza Three and Four) for US$1.9bn, Gaw acquired a 49% stake in that sale.
The proposed office sale comes at a time when the Hong Kong property market, consistently viewed as having the world's most expensive property values, is stress-tested. September was the fourteenth consecutive month that the total amount of office space leased in Hong Kong declined, with 243,500 sqft returned to the market according to JLL. In Central, the vacancy edged above 6% in the 3Q, the first time since December 2005. It is now at 6.8% (end-September 2020), up from 3.6% at the beginning of the year. The overall vacancy rate for Hong Kong is 8.3%, up from 6% at the end of December 2019.
Props booked an impairment charge of HK$2.6bn in the 1H20, a little under 1% of total investment property. Does the reported selling price for Cityplaza One provide a wider context, with Hong Kong comprising 85% of property assets? I would argue Props' P/B metric does not fully reflect the "B" when taking into account the current cap rates.
I would still continue to avoid both Cathay Pacific Airways (293 HK) and Swire Pac. Despite trading at a miserly 0.2x P/B on a look-through basis, Pac could still be on the hook to throw more money at Cathay; and apart from its beverage ops, the remaining stub ops are loss-making and/or unexciting. Swire Prop appears okay - neither outwardly cheap nor overly expensive. I think a material impairment charge to investment property is feasible in the 2H20. For the brave, at these extreme levels, you could start to set up the stub - long Pac, Short Prop. It should, at least, go on the watchlist as something to put on when the momentum stops.
(link to my insight: StubWorld: Swire Shedding Property Amidst Leasing Funk)
Jardine Matheson Holdings (JM SP) / Jardine Strategic Holdings (JS SP)
JMH announced a US$500mn share buyback program extending until 30 June 2021. Any shares purchased will be canceled. JMH is not regulatorily obligated to inform the market of any forward buyback program after moving its primary listing to London's standard board in 2014. Why this announcement is being made now is not immediately apparent. Apart from the obligatory SGX share repurchase announcement, JMH has provided zero guidance on the size of the intended buyback to date. The transparency now, however, is welcome.
(link to my insight: Jardine Matheson's Buybacks: A Bargain Upon Itself)
I estimate LVS is trading at a ~57% premium to its NAV against a 12-month average of 46%. Reportedly LVS is tapping market interest for the Venetian Resort Las Vegas, the Palazzo, and the Sands Expo Convention Center. Should they be sold - properties could fetch upwards of US$6bn - LVS' gaming portfolio would focus on Singapore (Marina Bay Sands) and Macau (Sands China). In FY19, US/Macau/Singapore accounted for 14.9%/62.5%/22.5% of the US$13.7bn in revenue, and 10%/31%/57% of EBITDA (US$5.4bn).
(link to my insight: StubWorld: Macau/Sing Focus As LVS To Ditch LV; CK Hutch In Tower Talks)
Shimao Property Holdings (813 HK) / Shimao Services Holdings (873 HK)
SSH is the spin-off of Shimao Prop, who will own 66.5% in SSH after the IPO, down from 90% currently. Similar to KWG Living Group (3913 HK), SSH's implied PER is in keeping with its generous growth the last two years, and arguably can be justified, to some degree, when comparing PER/Growth to peer comps.
(link to my insight: Shimao Services: KWG Living-Like Valuation; Parent Trading Rich)
Evergrande Real Estate Group (3333 HK) (Mkt Cap: $25bn; Liquidity: $53mn)
About 9-10 weeks ago, Chinese authorities called a dozen large real estate developers onto the carpet with very little lead time and askedproposed mandated they participate in a "pilot programme" called Three Red Lines. "Pilot programme" is a nice way of saying - "Here are the new rules, and they apply to you first." Five weeks after the meeting, it was reported in local media that the company had sent a letter asking for assistance to the Guangzhou government four days after the Three Red Lines intro meeting, warning of the possibility of funding difficulties and default.
(link to Travis' insight: Evergrande Equity De-Placement: Musical Shares)
Nexon (3659 JP) (Mkt Cap: $24.7bn; Liquidity: $98mn)
(link to Travis' insight: Is It Safe to Short NEXON into the Inclusion?)
On 26 October the European Commission cleared Lvmh Moet Hennessy Louis Vuitton (MC FP) proposed acquisition of Tiffany & Co (TIF US). Separately, the WSJ reported that Tiffany is nearing an agreement to accept a lower price in its takeover by LVMH. The companies have come to a preliminary agreement on new deal terms that would call for LVMH to pay $131.50, down from the prior $135. (link to Jesus Rodriguez Aguilar's insight: Tiffany - LVMH: Preliminary Agreement at a Lower Price)
With the rights exercise price so far below where the real-time TERP stands, it would seem shareholders have become significantly more bullish on Rolls-Royce Holdings (RR/ LN). Shares squeezed hard, up 32% on the 28 October. (link to Travis' insight: Rolls Royce Rights Roll Off)
With the merger of CaixaBank SA (CABK SM) and Bankia SA (BKIA SM) is progressing at speed, Jesus finds the spread attractive. But at 1.66% (gross) and payment in March, there's not a lot in it. (Link to Jesus' insight: Bankia - CaixaBank: Merger in Progress, Spread Attractive)
Nova Resources BV has agreed to acquire the remaining 60.62% interest in Kazakh copper miner Kaz Minerals (KAZ LN) it does not already own. Nova will pay 640p per share in cash, a 12.1% premium to last close. The bid represents 3x implied EV/Forward revenue (vs. 2.0x mean for comparable miners), 5.4x EV/Forward EBITDA (vs. 4.5x for comparable miners), and 7.2x P/Forward EPS. Antofagasta trades at 3.2x EV/Forward revenue and 6.2x EV/Forward EBITDA. The current price of 626p offers an okay 2.2% gross spread (c.9% annualised). (Link to Jesus' insight: KAZ Minerals Buyout: Over to Youe)
After trading at a premium of just over 10% for a long time, HDFC Bank (ADR) (HDB US) is (at the time of Brian Freitas's insight HDFC Bank ADR - Too High a Premium to Pay) trading at a 20% premium to HDFC Bank (HDFCB IN) with the spike coming in the last couple of weeks during which time the volumes on the ADR have been higher than normal. While there may be more flow coming on the ADR, Brian feels that the premium should peak in the near future and recommend selling the ADR, buying the local shares (or the single stock futures) and hedging the USDINR FX. With local shares available to foreign investors, existing holders of ADRs should look to switch to the local line.
KOSPI200 Index Rebalance Preview. At the current time, Brian sees nine stocks being added to and deleted from the index with another three stocks as very close adds and deletes. There could be an additional change with Big Hit Entertainment (352820 KS) getting index inclusion as a Fast Entry - this change could be announced ahead of the regular review announcement or as a part of the regular announcement, though the implementation will be at the same time as the December review. Brian's insight: KOSPI200 Index Rebalance Preview: Review Period Nearly Complete, Nine (Or Ten) Possible Changes
Ant Group (6688 HK). The H-shares will get Fast Entry into the FTSE GEIS and the FTSE China 50 Index on 11 November, followed by inclusion in the MSCI GIMI on 18 November. Inclusion in the Hang Seng China Enterprises Index (HSCEI INDEX) should happen in March 2021 and the earliest inclusion in the Hong Kong Hang Seng Index (HSI INDEX) would happen in June 2021 (though the more likely date is in September 2021). With the limited free float on the A-shares and the larger free float on the H-shares, the A/H premium could be very high. Brian's insight: Ant Group - Fast Entry for H-Shares; A-Shares Have to Wait
MSCI to Update India Foreign Ownership Limits. MSCI announced it would implement changes to the Foreign Ownership Limits (FOL) for Indian securities coinciding with the November 2020 Semi-Annual Review. MSCI has deferred implementation in the past on concerns of timeliness, quality and standardization of data from the two Indian depositories, NSDL and CDSL. With the changes now to be made, there will be a few more additions to the MSCI India index in the upcoming review and there will be weight increases for quite a few stocks as a result of the increase in FOL. Brian's insight: MSCI to Update India Foreign Ownership Limits
KOSDAQ150 Index Rebalance Preview. At the current time, Brian sees 16 potential inclusions and exclusions with a one-way turnover of 6.94%. This includes the fast entry inclusion of Kakao Games (293490 KS). Brian's insight: KOSDAQ150 Index Rebalance Preview: Reversion Sets Up an Attractive Entry Point
Sensex Index Rebalance Preview. Dr. Reddy's Laboratories (DRRD IN) continues to remain a high probability inclusion, and Oil & Natural Gas Corp (ONGC IN) is the corresponding deletion candidate. There is a lower probability of Britannia Industries (BRIT IN) being included in the Sensex, in which case Tata Steel Ltd (TATA IN) would be deleted. Brian's insight: Sensex Index Rebalance Preview: Take Profit on Strong Outperformance
CSI300 Index Rebalance Preview. There were 21 changes to the index at the June review, and we expect up to 24 changes in the December review. Estimated one-way turnover is 4.06% and there are 4 inclusions and 11 deletions that could have more than 1 day of ADV to trade. Brian's insight: CSI300 Index Rebalance Preview: 21 Changes in June, Could Be 24 in December
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 |
China Water Affairs (855 HK) | 18.36% | Huatai | China Merch |
Dalian Port (Pda) Co Ltd H (2880 HK) | 16.60% | China Merch | Outside of CCASS |
Akeso Biopharma Inc (9926 HK) | 15.99% | China Merch | Outside of CCASS |
Jinhai (2225 HK) | 51.42% | Guotai | China Tonghai |
China Financial Services Holdings (605 HK) | 10.74% | CCB | Outside of CCASS |
Zhou Hei Ya International (1458 HK) | 20.97% | Citi | Outside of CCASS |
EDICO Holdings Ltd (8450 HK) | 20.00% | Sanfull | Outside of CCASS |
China Smartpay Group Holdings (8325 HK) | 18.98% | Central Wealth | Outside of CCASS |
CSPC Pharmaceutical Group (1093 HK) | 18.50% | HSBC | Outside of CCASS |
Polytec Asset Holdings (208 HK) | 29.22% | Hantec | Outside of CCASS |
Beijing Sports and Entertainment Industry (1803 HK) | 27.11% | Silverbricks | Guoyuan |
The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.
Name | % chg | Into | Out of |
Ming Yuan Cloud Group (909 HK) | 45.20% | UBS | Outside of CCASS |
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