Last Week in Event SPACE: Samsung, Hyundai, Sirtex, BWX, Genting

Last Week in Event SPACE ...

• How the Lee family may reshuffle various interests in Samsung Electronics Co Ltd (005930 KS)
• A win for minorities as the Hyundai Group scraps the Hyundai Mobis Co Ltd (012330 KS)/ Hyundai Glovis Co Ltd (086280 KS) spin-off/merger
• A game of chicken as CDH and Varian Medical Systems Inc (VAR US) vie for Sirtex Medical Ltd (SRX AU)
• An opportunistic offer from BWX Ltd (BWX AU)'s management
• Concerns on the timing of the planned launch of 20th Century Fox World may account for Genting Bhd (GENT MK)'s 12-month NAV discount low

Samsung Electronics Co Ltd (005930 KS) (Mkt Cap: $314bn; Liquidity: $629mn)

In a series of insights, Sustinvest discussed how Samsung C&T Corp (028260 KS)may acquire an additional 2.66% in SamE shares to promulgate the Lee family's control rights over SamE; while also addressing tighter capital adequacy requirements recommended (but not yet legally enforced) by the KFSC.

• The Lee family, directly and indirectly, own 9.9% shares in Samsung Electronics, yet it can exercise control rights of 19.75% over SamE. Therefore under the convoluted Samsung circular structure, it should be either Samsung C&T or the Lee family that is incentivised to buy SamE shares held by Samsung Life Insurance Co., Ltd (032830 KS) and Samsung Fire & Marine Ins (000810 KS).
• However, to circumvent "holding company" guidelines, Sustinvest proposes Samsung C&T acquiring SamFire's 1.44% stake in SamE and additional SamE shares (1.08%) from SamLife. This ensures C&T is not the largest shareholder in SamE. This would be a significant transaction - ₩9.07tn - which C&T may fund from the sale of Samsung Biologics Co., Ltd (207940 KS).
• There are additional steps involved, such as splitting SamE into a Holdco & Opco, and one possible sequence of events is detailed in Sustinvest's 4th installment.

(link to Sustinvest's insight: Samsung Life Does Not Necessarily Need to Sell Off All Samsung Electronics Shares (Part 1 of 4)

Very briefly ...

Hyundai Mobis Co Ltd (012330 KS) (Mkt Cap: $21.2bn; Liquidity: $51mn)

In a major victory for Elliott Management, the Hyundai Motor Group canceled plans to spin-off Mobis and merge with Hyundai Glovis Co Ltd (086280 KS). Proxy advisory companies Glass Lewis and ISS mentioned the cancellation would be in the best interests of the minority shareholders. Douglas Kim considered the near-term trading opportunity would favour Mobis over Glovis as the spin-off plan was expected to boost Glovis' share price. Sanghyun Park seconded that opinion.

links to:
Douglas' insight: Hyundai Mobis Cancels Its Plans for the Spin-Off & Merger with Hyundai Glovis)
Sanghyun's insight: HMG Restructuring Situation Assessment

Very briefly ...

LG Corp (003550 KS) (Mkt Cap: $12.2bn; Liquidity: $18.6mn)

With the passing away of Koo Bon-moo, LG Group is now officially in the hands of the fourth generation leader, Koo Gwang-mo. Sanghyun delves into the Koo family structure, inheritance tax and which stocks may be of interest in the succession process.

(link to Sanghyun's insight: LG Group Succession Process Summary)

Sirtex Medical Ltd (SRX AU) (Mkt Cap: $1.2bn; Liquidity: $11.2mn)

After gatecrashing Varian Medical Systems Inc (VAR US)'s Scheme offer of $28/share, CDH announced a $33.60 conditional offer. Instigating a game of chicken, Variant says it won't counter.

• How to price the situation? If you think it it is a toss-up for the Sirtex Board, then it is 50% chance of something like A$27.80 - i.e. the Varian deal with near-term execution and a slight discount for the time and hassle - and a 50% chance of A$31.30-32.00 level - i.e. a 5-7% discount to terms for a four-month trade. That would suggest the "fair" value is A$29.55-29.90. Which is about where it closed on Friday.
• Travis Lundy would personally price this more like a 60/40 in favor of CDH. He also believes FIRB, HSR, and CFIUS will be fine, but just in case, he would price it wider.

(link to Travis' insight: Sirtex Has A CDH Proposal - Another Game of Chicken?)

BWX Ltd (BWX AU) (Mkt Cap: $557mn; Liquidity: $4mn)

Two of BWX's senior executives and Bain Capital have launched an unsolicited offer of A$6.60/share in cash, or an alternative deal which involves scrip in an Acquisition Entity for 75%, and 25% cash. The offer is a 50% premium to the undisturbed price, however, BWX touched an all-time high in January this year of A$8.19, before dropping below $5/share are reporting a 34% decline in half-year net profit. The offer is subject to unanimous recommendation by the IBC and one ID labeled the offer a "fairly opportunistic approach".

• One can be sure that Bain will not do this without knowing all the numbers to date and their idea of prospects. But numbers aren't due for three months. Because Travis is not confident there is another deal here - acquisition multiples in the space recently have not been overly high - and that this is an indicative, non-binding, conditional proposal, he expects it could trade wider than other deals where a stock is "put into play."

(link to Travis' insight: BWX - More Than One Game of Chicken Here)

Very briefly ...

Santos Ltd (STO AU)rejected Harbour Energy's final (& revised) $US$5.21/share offer citing a rally of 14% and 18% in Brent oil prices and shares of its domestic peers, respectively, since the initial proposal. A possible delay in funding may have compromised Harbour's offer; while it is speculated Santos' alleged A$3bn tilt for Quadrant Energy may have spurred the rejection.

AAG Energy Holdings Ltd (2686 HK) announced that Transcendent Resources, a wholly-owned sub of Fosun International Ltd (656 HK), is also in discussions to acquire a majority stake in AAG's shares. AAG is currently subject to a partial offer from Xinjiang Xintai Natural Ga-A (603393 CH) as discussed in my insight AAG Energy's Partial Offer from Xinjiang Xintai.

Genting Malaysia Bhd (GENM MK) / Genting Singapore Plc (GENS SP)

Currently trading at a discount to NAV of 41%, a 12-month low, and compares to its one-year average of 34%. A simple GENT/GENS ratio is nudging a 5-year low. The underperformance potentially reflect concerns on the timing of the planned launch of 20th Century Fox World. Howard J Klein also notes RWLV's questionable room capacity expansion; while there may be some pushback following the recent federal election result as Najib’s maternal grandfather, Mohamad Noah Omar (one of Umno’s founders), was a business partner with Lim Goh Tong (Genting's founder).

PTT PCL (PTT TB) / PTT E&P (PTTEP TB)

Currently trading roughly flat to its NAV, which compares to its one-year average discount of 4%. PTTEP accounts for only 25% of PTT's NAV so it is a weak-ish stub. My insight primarily focused on the IPO of PTTOR, tentatively scheduled for 2019, which will include Amazon Coffee, Thailand's leading coffee chain.

(link to my insight: StubWorld: Genting, PTT, Takara)

En Japan Inc (4849 JP) (Mkt Cap: $2.6bn; Liquidity: $18mn)

The inclusion event will take place at the close of trading July 30, 2018. The float will increase by ~7mm shares to say 30mm shares. That would suggest a TOPIX inclusion of 75% of 13-15% of that, which would be 3.0-3.4mm shares, or half the 6.3mn share offering. If the placement is done in a sticky fashion with retail and some decent long-only investors, Travis sees the shares as being squeezy post-placement.

(link to Travis' insight: EN-Japan Offering - Big And Small At the Same Time)

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.

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.

HengTen Ltd (136 HK) had a noticeable uptick (+4.69%) on Thursday. I flagged this company in my March insight HengTen Networks - Notable Shareholding Movement in what appeared to be the transfer of Tencent Holdings Ltd (700 HK)'s 19.7% stake in the company.