Last Week in Event SPACE: Robinson, Delong, GBST, Coway, Hydoo, Sunac, Hang Lung

Last Week in Event SPACE ...

• In effect, under the Robinson Delisting Offer, you are simply getting an allocation in the Central Retail IPO for the money you invest in Robinson Public Company (ROBINS TB), marked at THB 66.5/share. If there is an uplift in multiple from one to the other, you don't get the upside. But if the IPO doesn't go through because the market falls, you get the downside.
• The Offer for Delong Holdings (DLNG SP) is entirely the wrong price, but this is a problem endemic to companies where minorities do not "defend their biftek".
• The market obviously expects SS&C Technologies (SSNC US) to come back for GBST Holdings (GBT AU). FNZ has a matching right. The question may be how far, if at all, SS&C got into the due diligence.
• The sale of Woongjin Group's Coway Co Ltd (021240 KS) would be one of the largest M&A deals in Korea this year.
• The listed history of Hydoo International Holding (1396 HK) has been a disaster. It looks ripe for takeover and corporate "cleansing" by someone.
• The Hang Seng Indexes Company Limited will announce the results of the Q219 review on 16 August -Sunac China Holdings (1918 HK) in, Hang Lung Properties (101 HK) out?
• Plus, other events, CCASS movements and Mood Spins.

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

Robinson Public Company (ROBINS TB) (Mkt Cap: $2.3bn; Liquidity: $9mn)

On the 26th of July, Robinson's Board passed a resolution to propose that an EGM of Shareholders consider and approve the Delisting of the Company's shares, pursuant to the business restructuring of the subsidiaries of Central Retail (192323Z TB), Robinson's parent, holding 53.8% of the shares of Robinson. The nominal "Value" of the Delisting Offer will be THB 66.5/share. That was "derived from various methods." That is misleading, however.

• Consideration for the shares will NOT be cash. There is NO cash alternative here at all. Consideration will be a variable number of shares in the Robinson parent Central Retail which is the second largest retail operator in Thailand. The thing is... Central Retail isn't listed yet and won't be listed for probably 6-8 months after shareholders of Robinson must decide whether to support delisting or not.

• The Preliminary Swap Ratio between Robinson and Central Retail shares would be decided when the bankers and company come up with a range for the IPO price. The Final Swap Ratio will come when the bookbuilding is complete and the IPO price is decided. This deal appears structurally designed to disadvantage Robinson minority investors, and it is not in any way a "clean" arbitrage.

• The best and highest use of this event is for a long-only investor to decide they want to get long Central Retail at the IPO price, expecting both you will want to stay long AND you think the price of the stock will jump sharply on the first trade and stay permanently higher.
• The RIGHT WAY to do this would be for Central Retail and Robinson to assign a share ratio that would get Robinson investors long a fixed number of shares so as to not lose their market exposure between now and the event. There are a lot of risks to doing this trade. If the market goes up between now and then, you are missing out. And there are no good or easy hedging strategies.

(link to Travis Lundy's insight: Robinson Delisting Central Retail IPO Exchange Offer - Interesting, but Disadvantaged)

Delong Holdings (DLNG SP) (Mkt Cap: $560mn; Liquidity: $0.5mn)

In June 2018, a company called Best Decade - owned by Delong's CEO Ding Liguo and his spouse - acquired a 15.04% stake in Delong from Evraz PLC (EVR LN) at $7.42/share. That lifted the CEO's stake to 75.56%. Just over three months later at the end of September 2018, another vehicle of the CEO called Best Grace made a voluntary conditional cash offer for the rest of the company at S$7.00/share. As I wrote in Delong's Low-Ball Offer, under the Singapore Code on Take-Overs and Mergers, Best Grace would not be obligated to offer minority shareholders a similar price as three months had elapsed since that acquisition.

• That Offer ended up being withdrawn about two weeks later because it fell foul of Rule 17.1 of the Code, since, as I wrote, "that is the highest price at which a person acting in concert with the Offeror has bought for cash, during the six months prior to the date of the Offer Announcement, of Shares carrying 10% or more of the voting rights", although the wording in 17.1 is a little vague. In any event, the Bidder was required to bump to $7.42 and as they didn't have sufficient funds under the revised Offer, the Offer was withdrawn.
• So now we have a new deal. Last year's S$7.00 offer came at a 1.7% premium to undisturbed. This year's is at a 16.5% premium, which is still not great. And it is at 0.6x tangible book value. It is 1.7x EV/EBITDA. But it is the steel business in China and one could imagine not everything trades at book in that case, and one wonders about the cycle, but 1.7x EV/EBITDA is low by anyone's standards.
• However, unlike last year's effort, this year's Offer has substantial Irrevocable Undertakings, which will get the acquirer to 88.56%. That means just 1.44% - or 12.6% of the remaining 11.44% of shares out - need to accept the Offer for this to go to a delisting. Travis (and I) expect it will be difficult to find enough shares to not get to 90% which would then trigger delisting. All they need to do is purchase about 1.59mm shares in the market at terms or below to get this to 90%. Which they did on the 30 July - buying 861,700 shares (0.78% of shares out).

(link to Travis' insight: Delong - Another Offer by the CEO. Still The Wrong Price But Whaddya Gonna Do?)

GBST Holdings (GBT AU) (Mkt Cap: $181mn; Liquidity: $1mn)

GBST announced that it had entered into a "binding" Scheme Implementation Deed with FNZ Group at A$3.85/share. The Board unanimously recommends. That is now a 94% premium to the April 11th undisturbed price and a 106+% premium to the 1-month VWAP as of then. This is the culmination of various back & forths (and seven bids) between the two companies including an extraordinary night on the 25 July when three Offers were tabled, one with a 98-minute expiry period.

• After the FNZ bid was made known, the shares traded above the A$3.85 bid all day long, and indeed above bid+break fee (A$3.89/share) almost all day long, getting there in the fourth minute of trading.
• The obvious expectation is that SS&C Technologies (SSNC US), which was previously in exclusive DD at $3.60/share, will overbid. If they do, FNZ can match. As a result of FNZ's games, we know that FNZ is willing to go to A$4.00/share, so SS&C would realistically need to go to something like A$4.10-4.15/share and hope that FNZ is unwilling to match.

• SS&C had three weeks from the start of information transfer, and it isn't clear when that started. But the SID with FNZ appears to put a halt to the further transfer of info and appears to require the return and destruction of GBST materials in SS&C's possession now.

(link to Travis' insight: FNZ Deal for GBST Finally In, and the Market Expects More Already)

Coway Co Ltd (021240 KS) (Mkt Cap: $5.2bn; Liquidity: $14mn)

It was reported in several local Korean media that SK Networks (001740 KS), Gs Retail (007070 KS), and KKR are interested in bidding for Coway. The Woongjin Group is seeking about ₩2tn for a 25.08% stake in Woongjin Coway (including management premium), which would be about 31% higher than (the then) current price (₩82,000).

• There are other potential candidates including the Lotte Group, Hyundai Department Store, Shinsegae, and The Carlyle Group that have yet to finalize their potential interest. LG Electronics has decided not to bid for Coway.
• The sale of Coway would be one of the largest M&A deals in Korea this year. Among the three leading potential acquirers, the KKR private equity firm has the deepest pockets. Overall, GS Retail has a better balance sheet than SK Networks, which faces a higher potential dilution risk.
• A key reason why the Woongjin Group has been forced to sell Woongjin Coway only a few months after it acquired the company is due to the bankruptcy of Woongjin Energy (a producer of solar wafers), which is one of the affiliates of Woongjin Group. This resulted in the downgrade of the Woongjin Group's credit rating from BBB+ to BBB-. Since the news came out about the Woongjin Group's intent to sell Woongjin Coway on June 27th, the shares of Woongjin Coway are down 2.2%.

(link to Douglas Kim insight: Korea M&A Spotlight: Who Will Buy Woongjin Coway? (SK Networks, GS Retail, or KKR?))

Hydoo International Holding (1396 HK) (Mkt Cap: $223mn; Liquidity: $0.1mn)

On the 25th of July, with no news in the market or amongst competitors the shares in trade center developer Hydoo saw volume reach 10x the previous three months' average volume and enjoy a 26% intraday price range and a 17% jump by day end. The next day (Friday) the shares were up a further 3.6% on almost twice the 3-month average volume. This past week, Hydoo's shares were halted pending the release of an announcement pursuant to the Code on Takeovers and Mergers.

• The IPO in late 2013 at HK$2.15 went nowhere, and then when the blackout period ended Morgan Stanley and others published research, the stock went up 80% or more in a month. The stock then dropped 30-40% in the next 3 months.
• In May 2014, the founder, CEO and chairman and CEO of the company Wong Choihing was replaced by Wang Deweng - Wong's brother. Turns out Wong was "assisting the Authorities in providing certain information." Wong was subsequently dismissed from all his roles in the company and his brother took over as chairman. The stock recovered briefly to the IPO price about the time that Hong Kong-Shanghai Connect was launched, and that was the peak. The shares were back below HK$2.00/share by year-end and never saw the IPO price again.
• 2018 revenues were 40% lower than 2013 revenues. Operating income was only 20% of 2013 levels. Net Income in 2018 was more than 90% down from the five-year prior level. It looks cheap - the stock is now trading at 0.3x book and 5.7x EV/EBITDA with a non-negligible land bank. But the company has USD bonds with a 12% coupon which mature in May 2020 which appear to be trading at 96 cents on the dollar, making a yield to worst of about 18%.

(link to Travis's insight: Hydoo International (1396 HK) Down ~80% from IPO - A Takeover Bid In the Offing)

HSI Rebalance

The Hang Seng Indexes Company Limited (HSIL) will announce the results of the 2019 Q2 review of the Hang Seng Family of Indexes on 16 August. The constituent changes will be effective from 9 September and the rebalancing trades will need to be done at the closing auction on 6 September.

• Brian Freitas believes Sunac China Holdings (1918 HK) and Enn Energy Holdings (2688 HK) are possible inclusion candidates and Hang Lung Properties (101 HK) and Want Want China Holdings Ltd (151 HK) as potential deletion candidates in this review. There is a possibility that Sino Land Co (83 HK) could be deleted if HSIL assigns a higher weight to trading turnover.
• Brian estimates 6.3 and 9.4 days of turnover for HLP and Want Want. Short interest is 8 days and 45.7 days respectively. Brian estimates 2.9 and 7.5 days of turnover for Sunac and ENN. Short interest is 6 days and 11.6 days respectively.

(link to Brian's insight: Hang Seng Index Rebalance Preview - September 2019)

For the month of July, 17 new deals were discussed on Smartkarma with an overall deal size of US$27bn. Of note, Health Management Intl (HMI SP)'s Offer Price represented a 25-30% premium to the 1, 3, 6, and 12-month VWAPs, however the share price mysteriously moved ahead of the announcement, resulting in a premium to the undisturbed of 14%. Both Maanshan Iron & Steel H (323 HK) and Dalian Port (Pda) Co Ltd H (2880 HK) involved behind-the-scenes restructurings of government-controlled shareholders. Neither Offers are intended to seek delisting, therefore the low premium to last close. The average premium for the new deals announced in July was 34%, while the average for the first seven months of 2019 is ~31%.

(link to my insight: (Mostly) Asia M&A: July 2019 Roundup)

• The Scheme Doc is out for Asia Satellite Telecom Holdings Ltd (1135 HK). EGM to be held on the 23 August with an expected payment, should the vote get up, on the 12 September. The IFA considers the Offer fair and reasonable.

• The ACCC announced that it was seeking views on Nutrien Ltd (NTR CN)'s undertaking to sell down assets in its attempted takeover of Ruralco Holdings (RHL AU). The ACCC is asking for comment as to whether the undertaking proposed (sell down of three rural merchandise stores) is sufficient. Parties wishing to make submissions should do so by 5 August 2019. The indicative date for the final decision on the matter is 15 August 2019.
  

• Wellcom (WLL AU) has entered a SID with Innocean Worldwide (214320 KS) to be acquired at $6.70/share or a 27.6% premium to last close. Chairman Wayne Sidwell will maintain his 15% under the Deed.
  
• Kidman Resources (KDR AU)'s Scheme Booklet was lodged with ASIC on the 1 August and will be dispatched to shareholders on the 6 August. The Scheme Meeting will take place on the 3 September. The IE concluded the Offer is fair & reasonable.

• Nomura Research Institute Ltd (4307 JP)'s tender offer is now complete. There were 101.91mm shares to buy. 101.932mm shares were tendered.

• DuluxGroup Ltd (DLX AU)'s shareholders approved the scheme - 97.58% FOR. The 21 August is the implementation date.

• There is a joint press release out by Meridian Foundation (14.19%) and Beisheim Group (6.36%) in which they state their intention to commence negotiations to form a pool of their holdings of METRO AG (MEO GR) totalling 20.55% of Metro AG. The two parties agree to vote together and to look for opportunities to increase their stake. This makes the 67.5% threshold tougher. Not impossible but tougher.

• Cocokara Fine (3098 JP) announced that the Independent Committee looking into the two merger proposals from Sugi Holdings (7649 JP) and Matsumotokiyoshi Holdings Co (3088 JP) have not finished their review and expect to be able to make a further announcement starting sometime around or after the middle of August.

• Maanshan Iron & Steel H (323 HK) reports that the deal has received German and Korean antitrust approvals.
• Bandhan Bank (BANDHAN IN) shareholders have agreed the Scheme of Amalgamation to absorb Gruh Finance (GRHF IN). The voting results are here.
• At the end of July, Toshiba Corp (6502 JP) had ¥195bn to buy back in four months and small change. Last month Toshiba bought back 6,085,000 shares for ¥20.694bn, which is a much slower pace than needed. That leaves them with ¥175bn to buy back in 66 trading days. At an average daily trading value in the past 6 months of ¥7.5bn, that means Toshiba would have to buy back 35% of volume.

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, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.