Last Week in Event SPACE: Haier, NTT Doco, Tesla, Beijing Jingneng, China Biologics, HK IPO Lock-Ups

A voluntary conditional offer is now announced at HK$2.70/share from Beijing Energy Holdings (BEH), Jingneng's controlling shareholder, a 70.89% premium to the undisturbed price. The Offer price is final. No dividends are expected during the Offer period. Jingneng is incorporated in the PRC, and as such, there are no rights to compulsorily acquire shares or to require an Offeror do so. The only mechanism available to privatise is via a Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against). Additionally, as this is a "voluntary conditional offer", a tendering condition of 90% is also present.

• BEH concert parties hold 46.81% of its H shares or 1.324bn shares. Therefore independent H-shareholders total 1.505bn shares, implying a blocking stake at the H-share Class Meeting of 150.5mn shares or 5.32% of H Shares out. SAIF IV GP Capital holds 173.5mn shares as at 30 August 2018. SAIF was a cornerstone investor in Jingneng's IPO in June 2011 - see page 266 of the Offer Doc. According to the HKEx - here and here - SAIF has made no changes to its holding since May 2013. The IPO price was $1.67/share. I expect SAIF to be onboard with the Offer.
• The average premium for past Merger by Absorption deals is 47%, implying $2.30/share. The average EV/EBITDA and P/B for recent privatization of energy plays is 10.4x and 0.7x. The Offer terms back out a 6.5x and 0.9x. Optically, the Offer Price is close to a five-year high.
• Precedents are a mixed bag on timing - but generally, they are wrapped up in around five months. There is a tendering condition which typically adds to the timetable. There is also a question mark over whether FY20 financials will need to be incorporated into the Composite doc, should it be delayed, which may push out the timetable.

Korean Air Lines (003490 KS) (Mkt Cap: $3.7bn; Liquidity: $89mn)

On November 16th, KAL stated that it will acquire Asiana Airlines (020560 KS) for ₩1.8tn ($1.6bn) that would create the 10th biggest airline by fleets in the world. In this deal, the Korean Development Bank (KDB) will help Hanjin Group Chairman Cho Won-Tae & related parties retain control of Hanjin Kal and the Korean Air.

• But Douglas Kim reckons there is an increasing probability that the combined Korean Air and Asiana Airlines may require further financial assistance from the Korean government in 2021 and beyond. This could be due to a combination of factors including lack of a significant turnaround in global travel along with higher than expected interest rates which could add to the financial burden.
• Perhaps the worst-case scenario is that the combined Korean Air + Asiana Airlines becomes another KEPCO, which would be culminated with KDB taking over this combined entity and appointing its own CEO. In this scenario, the minority shareholders of Korean Air could be big losers, as KDB may not be willing to inject additional large sums of capital without becoming the controlling shareholder of Korean Air.

(link to Douglas' insight: Korean Air + Asiana Airlines - Is This Becoming Another KEPCO?)

Pressance Corp (3254 JP) (Mkt Cap: $1.2bn; Liquidity: $5mn)

On Friday 13th November 2020, Open House (3288 JP) and 32%-owned affiliate Pressance announced a revision of their shareholder agreement and a quasi-MBO Partial Tender Offer and Capital Injection which would, as a result of both being successful, get Open House to 65% ownership and would get Pressance an additional JPY 5bn in capital. The Tender Offer Price set is ¥1,850/share, which is 6.25x trailing 12-month earnings and 6.9x March 2022e EPS, and about 6x EV/EBITDA (which is a faulty measure because the capital-recycling nature of the businesses).

• Travis expects this price is viewed as cheap by its major institutional holders, but the question is whether growth will continue or it has seen its best days. Open House is obviously expecting to grow faster. Given they have gone big on this twice this year, and have their experience and Pressance's experience through covid, I expect they know what they are doing.
• This is a VERY easy buy at this price if you think cross-holders will not tender. If you have a hankering to buy more and get long at a lower-than-undisturbed price, and particularly if you are a tax-exempt investor, buying a lot to tender everything and get long seems like a very good way of investing funds for the near-term.
• If you like it, buy more, and either tender or not tender the increased stake. A growth-oriented company Open House is buying a growth-oriented company Pressance from its minority holders. It sees a good deal at ¥1,850/share. If you'd like to sell the ¥1,850/share price, do NOT sell your shares in the market at this price. Instead, wait and tender everything.

(link to Travis' insight: Pressance (3254 JP) Partial Tender - YUMMY!)

(link to Janaghan Jeyakumar's insight: Batu Kawan (BAK MK)'s Mandatory Offer for CCM: Low Risk Risk Arb)

Oshadhi Kumarasiri discussed Gome Electrical Appliances (493 HK)'s buybacks in Gome Retail: Easy Prey.

TSE Mothers-listed Rarejob announced after market-close on 13th Nov 2020 they had received approval to move to the First Section of the Tokyo Stock Exchange as of 20th November 2020. TSE1 reassignment triggers inclusion into the TOPIX Index and the Inclusion Event can be expected to be at the close of trading 29th December 2020.

• Janaghan estimates the Inclusion quantity to be 610,000-732,000 shares. This translates to an estimated Inclusion Size of ¥1.34-1.60bn and an estimated Impact of 5-6 days of volume going by 3-month ADV.
• This is a fast-growing business. Revenue and EBITDA CAGR are projected to be 18.5% and 45.8% respectively from FY19 to FY21E. It is currently trading at EV/Revenue and EV/EBITDA multiples of 3.6x and 21.1x, respectively, which are much higher than the estimated medians of 0.9x and 5.4x for peers (other ed-tech companies).
• Janaghan would be LONG between now and the Inclusion Date (29th December 2020). He believes that the trading range of ¥2,000-¥2,750 already accounts for TSE1-promotion speculation and I do not expect the share price to deviate excessively from this range during this holding period

IKC announced today after market close they had received approval (J-only) to move from the Second Section to the First Section of the Tokyo Stock Exchange as of 4th December 2020. TSE1 reassignment triggers inclusion into the TOPIX Index and the Inclusion Event can be expected to be at the close of trading 28th January 2021. Janaghan estimates the Inclusion Size to be ¥0.71 - 0.85bn and the Impact to be 3-4 days of volume going by 3-month ADV.

• Revenue, EBIT, and NP CAGRs are projected to be 6%, 19%, and 16% respectively from FY20 to FY23E. On an LTM basis, I.K Co.,Ltd.'s EV/Revenue, EV/EBITDA, and PER multiples of 0.4x, 7.8x, and 13.0x are fairly inexpensive on a growth-adjusted basis and are very close to our estimated average for peers.
• Janaghan would recommend avoiding this event. "Small Size Small Impact" (RED) category events exhibit extreme variance in outcomes and for that reason, he also recommends not shorting the stock until the Inclusion Event is complete. Given the very small market cap of this company, he would not recommend shorting the stock at all.

Gremz (pronounced "Grimss"), announced after the close on 16 November 2020 they had received approval to move to the First Section of the Tokyo Stock Exchange as of 24th November 2020. TSE1 reassignment triggers inclusion into the TOPIX Index and the Inclusion Event can be expected to be at the close of trading 29th December 2020.

• The inclusion is a nice event, but between the tachiaigai bunbai and now, on 26 October, the company raised its H1 earnings forecast. It raised its revenue forecast by 1%, OP by 29.5%, and Net Profit by 36%.
• On a fundamental basis, you could not pay Travis to be short this stock even if the TOPIX inclusion parameters were weak. He would recommend being long or staying long the stock

In Nexi SpA (NEXI IM): The Nets Purchase Is a Good Deal... I See a Rerate in Short and Longer Term, Patryk Basiewicz discussed Nexi SpA (NEXI IM), the leading Payment company in Italy reaching an agreement to purchase Nets, a European peer, who has roots in the Nordics but recently has expanded into Central, Eastern and Southern Europe. It is an all-share deal, but with Nexi assuming EUR1.8bn of Nets' debt. The headline value of Nets is EUR7.8bn, but with an earnout component of EUR250, the headline value is closer to EUR8bn.