Last Week in Event SPACE: FamilyMart, Monex, Investa, Seven, Adeka, HK & Shanghai Hotels

Last Week in Event SPACE ...

• The MSCI A Share Phase II inclusion could be a damp squid
• There will be no near-term selldown in Familymart Uny Holdings (8028 JP) because of changes in free float
• Monex Group Inc (8698 JP)'s fortunes are held hostage by FSA's decision on Coincheck
• Blackstone's offer for Investa Office Fund (IOF AU) looks done after ICPF's side deals tease out an agreeable higher proposal
• Opposing views on Adeka Corp (4401 JP) after it announced a partial tender offer for Nihon Nohyaku (4997 JP)
• Seven Group Holdings (SVW AU)'s uncomplicated capital structure unification should win pref share support
• The removal of circular links via Hyundai Heavy Industries Holdings (267250 KS)'s purchase of shares in Hyundai Heavy Industries (009540 KS) from Hyundai Mipo Dockyard (010620 KS), is positive

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

Since MSCI announced in June 2017 that Chinese A-Shares would, at long last, be admitted into the MSCI Emerging Market and All World Country Indices, there has been a relatively steady pickup in both net and gross flow through the Northbound Hong Kong-Shanghai and Hong Kong-Shenzhen Connect mechanisms.

• Travis Lundy expects the index inclusion on 31 August will be a net inflow - by itself - of perhaps RMB 13-18bn. That compares to RMB 77bn of net inflows since the 31 May inclusion. As it is, Travis expects this inclusion "event" to be something of a damp squib.
• The MOST important thing is not this inclusion, but how quickly MSCI moves to increase the FIF (Foreign Inclusion Factor) and to what level. MSCI's president said some nice things about the subject on the day of the May inclusion, but Travis has seen little positive newsflow in that direction since.

(link to Travis' insight: MSCI A Share Phase II Inclusion - A Nothing 🍔)

Familymart Uny Holdings (8028 JP) (Mkt Cap: $13.2bn; Liquidity: $68.5mn)

Travis asked the TSE's Index team for ongoing guidance on the Extraordinary Review of Free Float Weight (which is normally due after a Corporate Action) with regard to the just-finished Partial Tender Offer for 10.88mm shares of FamilyMart by Itochu Corp (8001 JP).

• Short answer: there will be no near-term selldown because of the increase in non-free-float shares held by Itochu. The possibility that there will be a ~2mm share selldown by TOPIX and JPNK400 passive investors in late September or October this year because of a change in FFW, offset by a possible mitigating change in float because of corporate cross-holder selldown, is going to be delayed until October 2019.

• The 12mo Mean Target Price among Street analysts for FamilyMart is ¥8,570, ~15% lower than Friday's close. The 12mo Mean Target Price for Lawson Inc (2651 JP) is right at Friday's closing price. For Seven & I Holdings (3382 JP) it is 21% higher. The Street still thinks FamilyMart is a sell, and its comps are relative buys.

(link to insight: FamilyMart Tender and TOPIX Changes)

Monex Group Inc (8698 JP) (Mkt Cap: $1.3bn; Liquidity: $158mn)

Monex's share price recently fell below ¥500 level for the first time since the acquisition of the troubled cryptocurrency exchange, Coincheck, in April 2018, having touched an all-time high of ¥714 in early May when the acquisition was first rumoured. Monex’s share price rebounded this week following an announcement of a share buyback - 5mn shares, ~2% of shares out, at ¥550/share.

• The decline is not without merit. Bitcoin has fallen from around US$9,800 in the first week of May to around US$6,600 currently. And the start date for the operations of Coincheck has been held up due to a delay in obtaining regulatory approval from Japan’s financial regulator, the Financial Services Authority (FSA). Other cryptocurrency exchanges have faced since similar FSA delays.

• Prior to the acquisition of Coincheck, Monex was trading at a P/E multiple of around 14x. Assuming the same for Monex if Coincheck doesn’t restart its operations this year, LightStream Research estimates Monex is worth ¥253/share –~54% downside. However, if Coincheck starts its operations as planned, at an implied P/E multiple of 25x, this translates to ¥666/share - ~21% upside. That's quite some range. One for the brave.

(link to Supun Walpola's insight: Monex Group Inc (8698 JP): Buy the Dip?)

Briefly ...

Hyundai Heavy Industries (009540 KS) (Mkt Cap: $7bn; Liquidity: $26.5mn)

Mid-week, Hyundai Heavy Industries Holdings (267250 KS) purchased 2.7mn shares of HHI at ₩117,000/share from Hyundai Mipo Dockyard (010620 KS) for ₩318bn. This is another positive catalyst for HHI and HHIH, since it removes HHI and Hyundai Mipo's circular links, plus it results in HHIH owning a 31.67% stake in HHI.

links to:
Douglas Kim's insight: Hyundai Heavy Industries: Three Key Catalysts
Sanghyun Park's insight: HHI Group Restructuring Is Completed: Strong Sentimental Booster for HHI & Mipo

Hongkong & Shanghai Hotels (45 HK) (Mkt Cap: $2.2bn; Liquidity: $12.4mn)

According to CCASS, on the 22 August, 11.47% of HSH was transferred into Satinu Markets Limited's account, out of Haitong's and SHK's. This is Tai United Holdings (718 HK)'s stake as can be seen from this HKEx disclosure filing in June of this year. I discussed Tai United's Mid-2017 rapid-fire on-market purchases of HSH in my insight: Hongkong & Shanghai Hotels - Check-Out Time. Tai United was subject to an MGO earlier this year, elevating Chua Hwa Por's stake slightly above 85% - and the stock was suspended on the 19 April. Shares resumed trading after the free float was restored to 25% on the 25 April. Tai United is now selling its entire stake in HSH (@HK$12.80/share) and declaring a special dividend. The buyer? Solis Capital Limited. No word on who owns Solis.

Global Power Synergy Company Ltd (GPSC TB) (Mkt Cap: $3.2bn; Liquidity: $7.5mn)

Athaporn Arayasantiparb, CFA provides an update on the GPSC-Glow deal with the key highlight that GPSC will be will be lowering its bid for Glow by 2% to Bt94.8/sh.

(link to Athaporn's insight: PTT Group: GPSC-Glow Deal Update / Getting GGC Back on Track)

Investa Office Fund (IOF AU) (Mkt Cap: $2.2bn; Liquidity: $12.4mn)

A proverbial rollercoaster ride this week, kicking off with major shareholder (19.95%) ICPF selling about half its stake to Oxford and stating it won't support Blackstone's scheme; only for Blackstone to substantially bump the offer to ~A$5.35 (net of an earlier A$0.1015/share distribution) up from ~A$5.15. The week concluded with ICPF supporting Blackstone's revised (& final) offer.

• The side deal with Oxford was unusual and was ostensibly an astute/bold/risky move to flesh out a higher offer from Blackstone.
• The management platform fee is typically based on funds under management. Presumably, Macquarie and ICPF's management platform transaction last week (for the entire Investa platform, not just IOF), which precipitated ICPF's right to vote, has a clause in place to cater for the fact this platform may not include IOF going forward. Should Blackstone be successful, it can simply remove the manager.
• My view was that this deal had all the hallmarks of a bump and ICPF ultimately accepting, all of which played out. This is a done deal and will trade tight to terms tomorrow.

links to my insights:
ICPF Should Accept Blackstone's Revised Final Offer for Investa
Investa Office: Scuppered Deal OR Still Room for a Bump?
Investa Office's Offer Looks Set to Get Bumped

Nihon Nohyaku (4997 JP)(Mkt Cap: $481mn; Liquidity: $1.4mn)

Adeka Corp (4401 JP) announced a partial tender offer (and participation in a third-party allotment) to make Nihon a consolidated subsidiary, seeking to attain a 51% share in the company, up from 23.1% currently.

• At 30x PER (higher with the capital injection) and ~12x EV/EBITDA, Travis considers this an expensive deal for ADEKA which trades at 11x PER and 5x EV/EBITDA (not including the ¥30bn of shareholdings it carries). He would not want to be long ADEKA necessarily if the market thinks 5x EBITDA is the right number, as on a consolidated basis this looks dilutive for ADEKA.
• The Tender Offer Price of ¥900 is a 30-35% premium to last and 52-week average and well over a 52-week high. It is more than 40% below its 5yr high. Some people may be unhappy with this and individuals who hold the shares at a higher in-price may not want to tender. Travis' initial crack at an expected pro-ration is 30-45%, and if anything, he'd expect the number to be probably closer to the top end of that range.
• In a follow-up insight, Mio Kato, CFA examined the fundamentals of both companies and generally considered growth prospects to be reasonable. He believes ADEKA remains undervalued and that there is potential for the stock to re-rate following this acquisition as investors affirm the company's more aggressive stance and some intriguing potential for glass fibre reinforced plastic and graphene products.

links to:
Travis' insights: ADEKA Partial TOB for Nihon Nohyaku (4997 JP) : Part I & ADEKA Partial TOB for Nihon Nohyaku: The Arb Grids
Mio's insight: Adeka Partial TOB for Nihon Nohyaku: LT Fundamentals for These Strong Niche Players Are Good

Seven Group Holdings (SVW AU) / Seven Group Holdings Ltd (SVWPA AU)

Seven said it will unify its capital structure via an offer for its preference shares, more commonly known as TELYS4. The offer, which requires 75% approval from TELYS4 holders, provides a scrip or cash/scrip option AND a voluntary scrip option should the resolution fail.

• This appears a done deal. TELYS4 shares are illiquid and have historically traded at a discount to par value. The conversion helps mitigate the risks posed by the pre-election tax reform, which would effectively reduce the value of imputation credits, and in turn the value of TELYS4.
• The conversion proposal enables TELYS4 holders to remain invested and retain exposure to SVH's ongoing core competencies. SVH's FY18 net profit increased by 72% yoy, comfortably beating analyst expectations. The conversion will also increase the free float by 5%, resulting in a greater ASX index weighting and potentially paving the way for MSCI inclusion.

(link to my insight: Seven's Elegant Pref Share Solution)

Tegel Group Holdings Ltd (TGH NZ) (Mkt Cap: $265mn; Liquidity: $0.5mn)

Bounty Fresh's Offer for Tegel at NZ$1.23/share closed yesterday, the last day in which to tender as it cannot be extended, having reached the end of the permissible Offer period under New Zealand's Takeovers Code.

• The offer remains subject to approval from the Overseas Investment Office (OIO). Under the Takeovers Code, Bounty can declare the offer unconditional 30 days after the extended Closing Date (yesterday), or 24 September. If approved, payment under the Offer will be made within 7 days.
• Tendering + Bounty's 16.3% stake cleared 90% on 23 August (94.476% to be exact). Assuming OIO approval is forthcoming, Bounty can now force compulsory take-up.

(link to my insight: Tegel: A Game of Chicken)

Briefly ...

Apn Outdoor (APO AU) (Mkt Cap: $820mn; Liquidity: $12mn)

The ACCC cleared JCDecaux's proposed acquisition of APN. The scheme is still subject to both FIRB and OIO approvals, which are expected to be received ahead of the shareholder vote in October, with implementation before the end of the year. Here is my earlier insight: JCDecaux’s Offer for APN Does Ad Up. ACCC concurrently gave the nod to oOh!Media Ltd (OML AU)'s proposed acquisition of Adshel Street. APN is a done deal.

Eclipx (ECX AU) has rejected a Sg Fleet (SGF AU) indicative proposal of $2.00 in cash plus 0.15 SGF share per ECX share or approximately $2.52/share, a 34% premium to the undisturbed price. ECX closed Friday at $2.63/share.

Change Inc (3962 JP) (Mkt Cap: $226mn; Liquidity: $1.4mn)

Change Inc announced (Japanese-only) that the TSE had approved its application to move from the MOTHERS Section to the First Section of the TSE as of the 3rd of September 2018. That means a TOPIX Inclusion event on 30 October 2018.

• The stock has not gone up in the past year the way a spivvy stock should. The stock pays no dividend, the kabunushi yutai program is not overly compelling, and there is likely market overhang not too far above the current price.
• The tachiaigai bunbai offering coming this week is larger than the inclusion at its largest. The stock is expensive. Revenues are growing but this does not seem to be a particularly high-moat set of businesses and not a grouping which deserves medium-term to trade at 20x book. Travis would feel very comfortable avoiding this unless the tachiaigai bunbai takes place at end-August at a considerably lower price.

(link to Travis' insight: Change (3962 JP) Is Coming, But It's Optional)

My ongoing series flags large moves in CCASS holdings over the past week or so (~10%), 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, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.