Last Week in Event SPACE: Nippon Suisan, M1, Alpine, Spring REIT, Asahi Intecc, Sinotrans Shipping

Last Week in Event SPACE ...

• Better than expected trial results for Amarin (AMRN US)'s Vascepa is positive for Nippon Suisan Kaisha (1332 JP)
• Two monsters broke through the surface and jointly bid for M1 Ltd (M1 SP), but they probably need to splash out a little more
• The Alps Electric (6770 JP)/Alpine Electronics (6816 JP) deal remains bad, and the newly-announced ¥100 special dividend is simply not enough
• PAG's fast-tracked hostile offer for Spring Real Estate Investment Trust (1426 HK) may just get up
• Asahi Intecc (7747 JP) is the biggest TSE section reassignment-induced TOPIX inclusion in quite a while
• Sinotrans Shipping (368 HK)'s privatisation offer is priced to complete
• Silver and gold together in Great Panther (GPL US)'s acquihire of Beadell Resources (BDR AU)

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

Nippon Suisan Kaisha (1332 JP) (Mkt Cap: $1.9bn; Liquidity: $15mn)

Amarin (AMRN US) just released the results of its Reduce-It trial which indicated that (a) there is a 25% reduction in risk for cardiovascular events (heart attacks or strokes) for patients who used Amarin's drug, Vascepa, and (b) zero increase in safety risks.

• Amarin's CEO, John Thero, said Vascepa will most likely get the "fast-track" approval in the EU if Reduce-It trial results were higher than 20%. The next hurdle is that the Reduce-It trial data will be reviewed at the upcoming November 10th American Heart Association's conference.
• This is bullish for Nissui, if/when they get tapped to supply Amarin with high purity fish-oil EPA for Vascepa. SC Capital has been pushing the stock since earlier this month.

(link to SC Capital's insight: Nippon Suisan--Amarin Reports 25% Risk Reduction in Clinical Trial, Better than Lipitor Results)

Alpine Electronics (6816 JP) (Mkt Cap: $1.3bn; Liquidity: $6.7mn)

After Alps Electric (6770 JP) and Alpine announced a proposed business integration and holding company formation at an exchange ratio of 0.68, which was roundly criticized, Alps announced this week that Alpine would like to pay a special ¥100 yen dividend to shareholders of record on 15 October 2018 on the condition that the merger is approved in December. Alps accepted this, but they did not change the ratio.

• Travis reckons ¥100/share is simply the wrong number. It does not even cover the increased Alpine earnings between announcement and March 2019 above what company forecasts had assumed in calculating the ratio. And it definitely does not include the difference in those forecasts drawn out over many years in the future.
• He expects that with what appears to be a large enough holding to block the merger, this deal may still be in trouble. However, it may depend on what one large activist with positions in both Alpine and Alps looks to do.
• Travis recommends long Alpine and possibly also long Alps. Being long Alps might be a good hedge against the merger going through. Medium-term, he thinks the ratio here is still 30-50% too low, and Alps could turn to buy the remainder of Alpine in a tender offer.

(link to Travis' insight: Alps Tosses Alpine Shareholders a Peanut. I'd Toss It Back)

Briefly ...

With LG Uplus Corp (032640 KS) and Cj Hellovision (037560 KS) prices likely to be pegged at a market cap ratio of max 10% ahead of a possible merger; the LG Uplus/ KT Corp (030200 KS) appears pegged at a market cap ratio of max 100%. Sanghyun Park goes some way to explaining the rationale in his insight: LG Uplus & KT & CJ Hello Are Moving Like a Pendulum: Short-Term Trade Idea on LG Uplus.

M1 Ltd (M1 SP) (Mkt Cap: $1.1bn; Liquidity: $0.7mn)

On 27 September, Keppel Corp Ltd (KEP SP) and Singapore Press Holdings (SPH SP) announced a joint venture company (Konnectivity Pte Ltd, currently majority owned by Keppel) was making a pre-conditional offer for the remaining M1 shares the two parties do not own. Keppel owns 79.22% of Keppel Telecom & Transport (KPTT SP) which owns 19.33% of M1. SPH separately owns 13.45% of M1 so combined they own 32.78%. Axiata is M1's largest shareholder at 28.7% and is not party to the proposed transaction.

• The stock will almost certainly trade through terms early. The expectation is that Axiata will come back and launch something a bit higher, then maybe Keppel will come over the top. Or there will be pressure to have Keppel and SPH pre-empt.
• Travis thinks this deal gets done at S$2.06 or higher. He does not see another 20% of bumps to come, but it may need a bump to get done. And Keppel takes it. There is simply too much uncertainty in the sector for a player who does not have substantial local infrastructure and permanence to come and supercede them.
  • Keppel Corp also announced a Scheme Proposal whereby Keppel will pay S$1.91 for all remaining shares of KPTT (which was concurrently suspended with M1) - a 40% premium to the previous close and to 1-month VWAP prior to the announcement. This should go through. It is a nice price. Furthermore, it allows one to get out of a low ROE business at a decent premium to NAV.

link to Travis' insights:
M1 - Monsters Splash Out. A Little
Keppel Corp Proposes Scheme Takeover of KT&T

Spring Real Estate Investment Trust (1426 HK) (Mkt Cap: $651mn; Liquidity: $0.4mn)

A week after Spring announced the proposed acquisition of retail assets in Huizhou, 14.8%-shareholder PAG Real Estate announced a voluntary conditional general offer at $4.85/unit, a 61.7% premium to the prior day's close, and an all-time high price for the stock.

• This is a hostile Offer from PAG for Spring and is conditional on PAG + tendered units reaching 50% of units outstanding AND independent unitholders voting down the proposed Huizhou acquisition. If PAG is successful, it will call an EGM seeking unitholder approval to oust Spring's Manager.
• PAG has previously had a run in with Spring's Manager, who it sought (& failed) to remove last year after Spring's questionable investment in UK auto-repair shops, a transaction that narrowly, but legally via last-minute shareholder reshuffling in Mercuria, avoided being deemed a connected transaction.
• PAG has a case. Spring's share price performance is underwhelming. Recent acquisitions are debatable; and in the case of funding for Huizhou, dilutes existing shareholders. Still, for PAG to get to 50%, 66% of minority shareholders will need to tender; 84% if the Huizhou deal completes first (the EGM will be held on the 29 Oct). That's doable, but it will be tight. PAG's Offer doc is now out and could technically turn unconditional on the 15 Oct. Trading at a gross spread of 20%. The downside is ~25% should the deal break. I'd take that risk/reward.

(link to my insight: Spring REIT And The Final Straw For PAG)

Wheelock Properties (S) (WP SP)(Mkt Cap: $1.8bn; Liquidity: $4.9mn)

Surprisingly, Wheelock & (20 HK) announced a 2-day extension for its privatisation of WP, then followed with another announcement that the offer was final. The Offer closes on the 2 Oct. Wheelock currently controls 85.52%.

• This is really in the hands of "strong holders" who may want to hold for a time. The company is extremely de-levered and de-risked as an asset and therefore if one has very good funding, could be a very interesting trade over time.
• If one wants to own this trade, one has to aggressively manage queue priority at S$2.10, and one might have to bid S$2.11.
• If one is willing to own 3% and to block compulsory takeout of minorities in order to try to achieve a quiet resolution at a higher price later, that is a different trade with a different negotiation process.

links to Travis' insights:
Wheelock Props (WP SP) - Two Day Extension, Declared Final
Wheelock Properties - Offer Light, Acceptances Light, Offer Extended

Sinotrans Shipping (368 HK)(Mkt Cap: $921mn; Liquidity: $0.9mn)

China Merchants Group Limited, the indirect 65.13% shareholder in Sinotrans, is proposing to take the company private at HK$2.70 (a 49.2% premium to the last closing price of HK$1.81) by way of a scheme.

• The Scheme is primarily contingent on independent shareholders approving the Offer. There is no headcount test. A blocking stake at the Scheme meeting of 3.13% of shares out; however the Offeror is the major shareholder and an SOE. No other bidder will emerge.
• This Offer appears full, is pitched at a punchy premium to the undisturbed price, and should complete. possibly before year-end. This will trade tight. Assuming payment late December, shares will likely trade to the mid $2.60s.

(link to my insight: Sinotrans Shipping's Proposed Privatisation)

Beadell Resources (BDR AU) (Mkt Cap: $74mn; Liquidity: $0.2mn)

Great Panther Silver (GPL US) announced a friendly acquisition of Beadell by way of a Scheme Implementation Deed. The Scheme is under a scrip exchange of 0.0619 GPL shares for each BDR share, valuing each Beadell share (at the time) at A$0.086. That was a 51% premium to BDR's Friday close and a 69% premium to the 20-day VWAP up to and including 21 Sep. That is a healthy premium and should be welcomed by Beadell investors.

• Neither stock trades much value per day. There will certainly be flowback (or "flowfront"), and as a cross-border trade, the spread will trade wide. As a junior miner deal, the spread will trade wide. A lack of GPL borrow will cause the deal to trade wide.
• Medium-term, Travis would be inclined to be long silver vs gold, so big picture he would be OK switching Beadell into Great Panther (or a better silver miner). However, he recommended the right trade at announcement was to take the money and run.

(link to Travis' insight: Silver and Gold: Great Panther to Acquire Beadell)

Delong Holdings (DLNG SP) (Mkt Cap: $560mn; Liquidity: $0.3mn)

Best Grace Holdings (the Offeror), a wholly-owned vehicle of Ding Liguo, the Executive Chairman and CEO of Delong, has made a voluntary conditional cash offer for Delong at $7.00/share. The Offer is conditional on 90% acceptance and 75.56% is already secured.

• On principle, this Offer is not fair to minorities, after the Offeror, essentially a doppelganger of the current majority shareholder of Delong, paid Evraz PLC (EVR LN) $7.42/share (6% higher than the Offer price) a little over three months ago, for its 15.04% stake.
• The counter-argument is that the Offer price represents a decade-high price since the collapse of Evraz's possible mandatory general offer for Delong in 2008, after it failed to secure PRC anti-trust approval. The stock is illiquid - trading ~US$0.3mn/day - and this Offer does provide minorities the opportunity to exit. Plus, the share price has increased >330% in the past 12-months.
• But Delong still looks cheap, on a standalone basis and versus peers. And Ding should have provided minorities with a similar exit price to that afforded Evraz. Currently trading at a gross/annualised spread of 0.72%/4.7%, assuming payment the last week of November.

(link to my insight: Delong's Low-Ball Offer)

Scottish Pacific (SCO AU) (Mkt Cap: $434mn; Liquidity: $1.4mn)

Private equity firm Affinity Equity Partners and SCO have signed a Scheme Implementation Agreement. The deal is for AEP to acquire 100% of Scottish Pacific at A$4.40/share, a lifetime high, or A$630mm.

• This deal looks pretty well wrapped up, but there are a couple of large shareholders with large positions and a penchant towards independent thinking. Ellerston Capital holds 16.58% and is an "active investor's active investor", and Wilson Asset Management (4.04% according to Bloomberg) has been known to be activist.
• Travis sees little "buyer risk" in terms of AEP potentially walking away. He expects this to trade reasonably tight. There may be early hopes for a competitive bid but this looks like a decent bid and may knock out.

(link to Travis' insight: HK PE Firm Affinity Equity Partners Launches Scheme for Scottish Pacific (SCO AU))

Elna Co Ltd (6972 JP)(Mkt Cap: $112mn; Liquidity: $0.6mn)

Taiyo Yuden (6976 JP) announced that it was going to merge with ELNA, effectively buying/squeezing out the minorities in ELNA. This will take the form of a share exchange whereby 4 shares in ELNA will get you 1 share in Taiyo Yuden. Given that Taiyo Yuden traded today at ¥2,554/share, this means your ELNA shares trading at ¥883 yen today are worth a quarter less (¥638.5).

• This is a takeunder which looks pretty bad on the face of it. It is also a rescue. The company had negative equity as of the end of last year and is losing more money this year. It would likely need another equity injection to stay listed and/or alive.
• There is not much investors can do, though there could be an appraisal rights case given how far ELNA's share price is about to fall tomorrow. Investors interested in that angle should consult a lawyer.
• Travis expects this deal will go through because investors do not have much choice.

(link to Travis' insight: Taiyo Yuden (6976 JP) Takeunder of ELNA (6972 JP))

Briefly ...

Tegel Group Holdings (TGH NZ) has announced it has received Overseas Investment Office approval for Bounty Holdings New Zealand Limited’s acquisition of the company. The Offer has now been declared unconditional. Shares are expected to be suspended on the 25 October.
(link to my insight: Tegel Receives OIO Approval)

Two years after completing its partial offer to purchase 51% of Accretive (8423 JP), Fuyo General Lease (8424 JP) announced a Tender Offer to take out the rest of the minorities at ¥415/share. Don Quijote Holdings (7532 JP), with 26.15%, has signed an agreement not to tender, and to vote its shares with FGL in a subsequent EGM to squeeze out minorities. This is a done deal and zero risk to the deal going through. There is not much you can do about it. The two parties together have 77%. That is more than the 66.67% they need to vote it through.
(link to Travis' insight: Fuyo General Lease Tender For Accretive (8423) - Done Before It Starts)

Asahi Intecc (7747 JP) (Mkt Cap: $5.4bn; Liquidity: $23.4mn)

On the 3rd of September, Asahi announced (Japanese, English) a move from TSE2 and NSE2 to TSE First Section as of 21 September. TSE1 reassignment triggers inclusion into the TOPIX Index. Based on the TOPIX Index Methodology, the inclusion event will be at the close of trading October 30, 2018.

• This is the biggest TSE section reassignment-induced TOPIX inclusion in quite a while. It is (at current price) something like US$500-600mm to buy. It is also 20-25 days of volume on an undisturbed basis - half of which was recently placed.
• The stock is not cheap (70x trailing and 53x consensus June 2019 numbers), and the market cap has risen far enough that Travis thinks the stock could be in line for an MSCI inclusion in November. But the quantity of shares which MUST be bought is large, and the number of people who MUST sell is not nearly as large.
• Travis would be long, and buy more on dips expecting further gains as those who pre-position for the index inclusions to come buy more.

(link to Travis' insight: Asahi Intecc (7747 JP) TSE1 (Finally) And a BIG TOPIX Inclusion)

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.