Last Week in Event SPACE: Hitachi/Honda, AOF, Unizo, SVI, Maanshan, Osram, Genting, KCC

Last Week in Event SPACE ...

• The Tender Offers for Honda Motor (7267 JP)'s three large auto parts affiliates Showa Corp (7274 JP), Keihin Corp (7251 JP), and Nissin Kogyo (7230 JP) will likely succeed. If investors get up in arms about the price - one might expect noise on Showa - there could be a bump and then it would succeed.
• It is unorthodox, and perhaps not the gentlemanly thing, but Charter Hall (CHC AU)'s sale of 19.9% in Australian Unity Office Fund (AOF AU) to "friendly hands" serves to reinforce that the Offer will get up.
• Short tendering into the close of the conditional offer of SVI Pcl (SVI TB) appeared to be the trade.
• It is not clear Unizo Holdings (3258 JP) is playing ball. Blackstone is giving them the benefit of the doubt, trying to get them over the line, but Travis is not sure they will get there.
• Maanshan Iron & Steel H (323 HK) easily achieves the tendering condition. It's now a short just ahead of the close of the Offer.

• ams AG (AMS SW) takes another crack at OSRAM Licht AG (OSR GR), using a different bidding entity to get around the one-year waiting time.
• Genting Bhd (GENT MK)'s discount to NAV and implied stub are at 12-month NAV lows, but questions remain as to whether Resort World Las Vegas has the necessary growth to be materially accretive.
• Kcc Corp (002380 KS) and sibling separation.

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

• There are precedents for this type of action. Most recently in Vocus Communications (VOC AU) 2014/2015 takeover of Amcom Telecommunications (AMM AU). It's unorthodox - even debatable - however, Australia's Federal Court and ASIC have previously found no issue.
• Given the Vocus precedent, it is logical to assume the Court and ASIC will similarly sign off on Charter's stake divestment. Although the stake in question here is larger, it's not apparent this alters the approval process.
• Currently trading at a gross/annualised return of 1%/12.2%. It is worth noting Amcom's Scheme Meeting was pushed back by four weeks after Vocus sold its stake. Applying a similar delay to AOF's Meeting sees the annualised spread at 7.5%. I'd buy here. This was a done deal before, and is even more so with 19.9% of shares out "expected" to vote for the Offer. The only hiccup is a delay in the Scheme Meeting.

(link to my insight: AOF's Offer Is A-OK After Charter's Exit)

Unizo Holdings (3258 JP) (Mkt Cap: $1.6bn; Liquidity: $24mn)

Unizo announced its quarterly earnings for Q2 2019. Earnings were in line with forecasts of 10 October 2019 when the forecast was last revised. In H1 the company sold 10 investment real estate properties, 4 hotels, and one golf course. Some of the sales were likely meant to generate profits to offset losses from other sales. Because one cannot be sure how the company would plan on using the cash for the benefit of shareholders, and because there is one tender offer currently underway and one proposal for a tender offer in full negotiation mode, the earnings "surprise" from selling assets is effectively meaningless (and it is not a surprise anyway as they had previewed it earlier).

• Depending on how you look at the cost of selling down assets, and the cost of keeping the company alive afterwards, adjusted NAV (current book value adjusted for the after-tax value of unrealized gains, less another adjustment to keep the company alive) could be anywhere from ¥7,000-8,000/share. A simple number from the company's presentation might be ¥7,867/share. Any way you look at it, unless a buyer goes quite hostile and liquidates the assets and the employees quickly, ¥5,000/share is not a bad price.
• Even if UNIZO "consents", Travis doesn't think Blackstone pays more than ¥5,000 initially. He is not sure Fortress would want to "consent" to what Blackstone might agree to. He is also not sure either Fortress or Blackstone want to go really overtly hostile despite Blackstone saying that it will entertain all possibilities. If someone goes hostile, we will surely get a tender offer. If they do not, there is a possibility there is no successful tender near-term.
• Travis thinks the stock trading over ¥5,000/share is a good place to get out of a long position. While he thinks the risk-adjusted value of the stock as the situation is now below ¥5,000, he would not necessarily go short. The stock is illiquid - the lack of volume while the stock is trading above ¥5,000/share suggests that there are a fair number of people "stuck" in the arb trade, unwilling to hurt their mark or cascade things lower. He thinks most participants see a Tender Offer, or an EGM to try to spill the board. The "Real NAV" provides them with some comfort that there is value and not much downside gap risk.

(link to Travis' insight: UNIZO: Results All Over the Place, Assets Are For Sale, and TOB Kerfuffle Is Extended)

Genting Bhd (GENT MK) / Genting Singapore (GENS SP)

(link to my insight: StubWorld: Las Vegas Bet To Elevate Genting?)

Briefly ...

Sanghyun Park discussed Orion Holdings (001800 KS) and discount to NAV of 54.5%, a year high. Orion Corp (271560 KS) accounts for 75% of the NAV and 174% of the parent's market cap. I see the discount no NAV at 57% against a one-year average of 50%. The pushback - the parent's liquidity is less than US$1mn/day.

Kcc Corp (002380 KS) (Mkt Cap: $1.9bn; Liquidity: $4mn)

(link to my insight KCC Corp Split-Off - A Breakup for 3 Sons)

OSRAM Licht AG (OSR GR) (Mkt Cap: $4.2bn; Liquidity: $48mn)

The previous week, ams AG (AMS SW) announced that it intended to launch a new Offer for Osram at the same price (€41.00/share) as the last Offer which did not meet the minimum acceptance threshold of 62.5% (which had been lowered from 70%) including shares owned by ams after on-market purchases of 19.9%. This one has a lower minimum threshold of 55% and is seemingly declared final, with a possible launch by month-end, and closure expected in H1 2020, from which point a Domination Agreement and Profit and Loss Pooling Agreement vote would almost certainly proceed.

• ams and Osram have been in discussions since early October to obtain an agreement for management support. Getting ams to honour the ideas behind the Zukunftskonzept OSRAM Agreement of July 2017 would likely go a fair way to getting this deal supported by management. Last time they got to 51.6%. With a little more visible support from Osram's executive committee and board, more lead time, and without the prospect of a higher Bain+Advent deal waiting in the wings, this should get done.
• Trading at €40.00/share, that provided a 2.5% gross spread and a decent annualized spread, but without a doc and without Osram management agreement, it suggests a strong degree of market confidence that it gets done. Strategically, ams has probably made a mistake. They should have raised the price a little and lowered the minimum threshold as they did (though perhaps a little less). If they get this deal done, they will pay more than €41/share on the back end to get minorities out.
• ams is not going away. They own 19.99%, which makes it more difficult for others to get a deal done. Travis thinks this deal gets done and would buy at €40.00/share and add on weakness.

(link to Travis' insight: New ams Deal for Osram In Store - It's Doable)

Tata Motors DVR (TTMT/A IN) / Tata Motors Ltd (TTMT IN)

Along with 2Q results, the Board of Directors of Tata Motors approved a preferential allotment of ordinary shares and warrants to the promoter, Tata Sons, for an aggregate consideration of INR 6,494 crore (US$920m) subject to shareholder approval.

• PRC department stores and supermarket operator Springland International Holdings (1700 HK) has received a privatization Offer by way of a Scheme at $2.30, a 63.1% premium to last close, and a four-year high. The Offeror is Chen Jiangqiuang, director, holding 73.22%. The offer is final. The Scheme Doc will be dispatched on or before the 14 Jan. The headcount test applies.
• Bellamy's Australia (BAL AU)'s Scheme Booklet has been registered with ASIC. The Scheme Meeting is to be held on the 5 Dec with an expected implementation date of 23 Dec.
• Northern Star Resources (NST AU) has issued a compulsory acquisition notice for Echo Resources (EAR AU).
• Results of the Offer for Dalian Port (Pda) Co Ltd H (2880 HK): 856,346,695 H Shares, representing approximately 6.64% of the total issued share out of the company and approximately 16.60% of the H shares. 16.8% of H shares are in public hands; but 24.99% of total issued shares (A + H) remain in public hands. Share were not suspended.

• Shareholders overwhelmingly voted For TPV Technology (903 HK)'s Scheme. The For vote was 99.81%. For the majority in number clause, 25 CCASS participants voted For, 3 against. Drilling down into CDP, which was counted as one vote, 10 votes cast on behalf of CDP voted for the Scheme, one against. Last day of trading is the 4 November. Cheques dispatched on the 21 Nov.

• Huaneng Renewables Corp H (958 HK) has delayed the despatch of the composite document to 29 November - on or before.
• Brookfield's Offer for Aveo Group (AOG AU) has received FIRB approval.

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.

I don't see any large moves this week.

The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.