Last Week in Event SPACE: Samsung, NTT Data, Investa, Pacific Textile, Sino Gas, Jardines

Last Week in Event SPACE ...

• The disposal of shares in Samsung Electronics Co Ltd (005930 KS) was well-telescoped, however, there is uncertainty as to how many additional shares will be divested by Samsung Life Insurance Co., Ltd (032830 KS)
• The idea that NTT (Nippon Telegraph & Telephone) (9432 JP) might buy the rest of NTT Data Corp (9613 JP) is unlikely
• Third time's a charm for Investa Office Fund (IOF AU)
• Almost 12 months have lapsed since Toray Industries Inc (3402 JP) bought a 28.03% stake in Pacific Textiles Holdings (1382 HK), spurring speculation Toray would take its stake up to 50% within a year
• Sino Gas & Energy Holdings Limited (SEH AU)'s shareholders and analysts are caught by surprise as management recommend an Offer from Lone Star

Samsung Electronics Co Ltd (005930 KS) (Mkt Cap: $307bn; Liquidity: $672mn)

A proverbial tetrad of insights discussed this well-flagged deal, wherein Samsung Life Insurance Co., Ltd (032830 KS) and Samsung Fire & Marine Ins (000810 KS) announced they would sell 0.36% (22.98mn shares) and 0.06% (4.02mn shares) respectively in SamE. The transaction size of ₩1.34tn (~US$1.24 bn) represents just 2 days of ADV and should, therefore, be easy to digest. The buyer(s) of the shares has not been disclosed.

• After the disposal, SamLife (7.92%) and SamFire's (1.38%) combined holding in SamE would be 9.3%, and should SamE cancel its remaining treasury shares, the combined shares will be exactly 10%. This is no coincidence. At or below 10% does not violate the Act on the Structural Improvement of the Financial Industry, and Sanghyun Park specifically discusses the overall mechanics of this 10% rule.
• While it appears that the Samsung Group has bought more time from the government for its restructuring, the main concern is whether the sell-down will be enough or is this just the start, which will lead to a long overhang.

links to:
Sustinvest's insight: Samsung Life & Samsung Fire Sell Samsung Electronics Shares to Make Their Combined Shares Below 10%
Douglas Kim's insight: Why 1.3 Trillion Won Block Sale of Samsung Electronics by Samsung Life and Samsung F&M?.
Sanghyun's insight: Samsung Electronics Voting Stock Holding % Checkup - Block Deals Intention
Sumeet Singh's insight: Samsung Electronics Placement - Well Flagged and Relatively Small Deal Versus ADV.

NTT Data Corp (9613 JP) (Mkt Cap: $15.7bn; Liquidity: $47mn)

Travis Lundy addressed a broker report suggesting that NTT (Nippon Telegraph & Telephone) (9432 JP) might buy in the minorities of NTT Data "At an early stage" after the new Medium-Term Management Strategy is announced, which according to the NTT Results Call on the 11th of May, will happen in conjunction with the announcement of Q2 results.

• It is not clear that NTT needs to own the rest of NTT Data in order to convince its existing NTT Data clients (most of which were 'acquired' from the companies which NTT Data has acquired) that NTT supports them.
• NTT is still cheap. And as the recent earnings call showed, the company is still looking to lower more costs and produce shareholder returns; while it appears NTT is looking to enhance its overseas offering rather than go on another spending spree.
• Because of the above, Travis would tend to want to be long NTT vs NTT Data on any significant move away from the average.

(link to Travis' insight: Will NTT Buy In The Rest of NTT Data?)

Very briefly ...

Lotte Holdings (004990 KS)'s tender offer price was finalised earlier this week at ₩58,273. Shorting Holdings using Friday's closing price and buying Lotte Confectionery Co Ltd (280360 KS) will realize an okay 2.89% arb yield, or ~1.8-2.1% after transaction costs. However, Holding has been on the receiving end of considerable short selling late last week and earlier this week, possibly resulting in near-term short-covering activity.

(link to Sanghyun's insight: Lotte Holdings Tender Offer Event - Arb Yield Calculations & Predictions)

The share prices of CJ O Shopping Co Ltd (035760 KS) and CJ E&M Corp (130960 KS)have fallen by 12.3% and 7.8%, respectively since the announcement of their merger on 17 January 2018. As of Friday's close, CJ O Shopping and CJ E&M are both trading below their appraisal right exercise prices of ₩227,298 and ₩93,153, respectively. The merger was not in response to the government regulations; business synergy was the stated basis for the merger. In this insight, Sustinvest investigated the merger synergy rationale and found it be unconvincing and inconsistent.

(link to Sustinvest's insight: CJ O Shopping & CJ E&M Merger: Why They Have Failed to Convince Investors)

Investa Office Fund (IOF AU) (Mkt Cap: $2.3bn; Liquidity: $9.8mn)

Investa announced the receipt of an unsolicited, indicative and non-binding proposal via a trust scheme at A$5.25/share from entities managed by Blackstone. This is not the first proposal IOF has received. A December 2015 proposal from Dexus Property Group (DXS AU) failed after Cromwell Property Group (CMW AU) acquired a stake and voted against the transaction, and a December 2016 non-binding proposal from Cromwell (@$4.45/share) did not find favour with IOF's directors

• The stance of the Directors differs from the Cromwell approach, where due diligence was not granted. According to Morningstar, a superior offer could emerge, but this seems unlikely after the Board negotiated an A$0.30 increase on Blackstone's original offer price of A$4.95 per unit.
• This offer is not a knockout, and on a P/NTA basis, Cromwell's approach seemed to have been at a marginal premium to Blackstone's. There is as yet no clarity on whether 20%-shareholder Investa Wholesale Funds Management can or cannot vote. Pranav Rao would look to get involved around A$5.07/5.08.

links to:
Pranav's insight: Investa Office Fund - Third Time Lucky
Morningstar's insight: Investa Expected to Be Sold Following Board Supported Takeover Offer. FVE Increased to AUD 5.15

Pacific Textiles Holdings (1382 HK) (Mkt Cap: $1.2bn; Liquidity: $1.1mn)

At the end of June of last year, Toray Industries Inc (3402 JP) announced that it would purchase a 28.03% stake in Pacific Textiles for $10/share. At the time a Nikkei article speculated that Toray would take its stake up to 50% within a year. Travis Lundy covered that announcement in Toray Buys Pacific Textiles Stake from Founder - Possible Lead-In to Partial Offer Next Year? We are now almost at the one year anniversary of that speculation and also about 1 month away from Pacific Textiles announcing FY03/18 earnings (22 June).

• Pacific Textile is trading 30.8% below the post-announcement price and 24% below the undisturbed price from last June thanks to increasing regulatory stringency in China pertaining to dyeing operations and a generally underwhelming earnings trend as the company has not grown earnings since FY14's peak.
• Buying Pacific Textiles gives an 8+% dividend in the next 6 months and exposure to a potential partial tender from Toray that would be 52% above the current price if the purchase was made at the same price as its last buy.

(link to Mio Kato, CFA's insight: Pacific Textiles: When Will Toray Take Its Stake Up to 50%?)

Sino Gas & Energy Holdings Limited (SEH AU; "SEH") (Mkt Cap: $384mn; Liquidity: $1mn)

SEH announced that it has entered into a Scheme Implementation Agreement with Lone Star whereby Lone Star will acquire all SEH shares for A$0.25/share.

• The conference call made for entertaining listening, with many shareholders and analysts surprised that the offer was recommended by the Board - which it needed to be given the transaction is structured as a scheme - in regards to the validity on pricing.
• Along with the AAG Energy Holdings Ltd (2686 HK) transaction, it appears there is a growing interest in acquiring unconventional gas to cater to China's demand.
• The EV/1P multiple suggests that Lone Star (or another party) have some leeway to make shareholders happy. Pranav would look to get involved ~A$0.235 for a potential bump from Lone Star or an expression of interest from other parties.

(link to Pranav's insight: Sino Gas & Energy Holdings: Unconventional Gas Comes to the Fore)

eSun Holdings Ltd (571 HK) (Mkt Cap: $264mn; Liquidity: $0.2mn)

Lai Sun Development (488 HK)'s dual takeunders for eSun and (potentially) Lai Fung Holdings Ltd (1125 HK) doesn't offer up any immediate trading opportunities. If shareholders wish to sell shares in either eSun or Lai Fung, they can simply do so, at a superior price to the offers, in the market. However, how the chain principle offer price (a 58% discount to last close) for Lai Fung is derived is interesting and without precedent.

(link to my insight: Lai Sun Group's Double Takeunders)

Very briefly ...

Dorian Lpg Ltd (LPG US). BW LPG Ltd (BWLPG NO) (Norwegian-listed, but controlled by the Singapore-based Sohmen-Pao family) has made an offer via an all-stock transaction for Dorian, at 2.05 BW shares for each Dorian share, equal to $7.86/share. BW is already the largest VLGC player, but Charles De Trenck believes there are good reasons for BW to move on Dorian. And there may be additional drivers coming into play. (link to Charles' insight: Shipping Consolidation: BW LPG Bids for Dorian LPG in $1.1bn EV Valuation)

Sirtex Medical Ltd (SRX AU). Allan Gray ceased to be a significant shareholder which may have accounted for some recent weakness in the share price. MUFG announced it had become a substantial shareholder on the 25 May (but became aware on the 29th May).

Tegel Group Holdings Ltd (TGH NZ). Bounty has announced that the offer is now open, with the first close announced for 25 Aug 18. As previously known, Bounty has already reached the minimum acceptance condition. The most important determinant of this deal is still the OIO decision.

AAG Energy Holdings Ltd (2686 HK). The approval by the shareholders of Xinjiang Xintai Natural Ga-A (603393 CH) - one of the pre-conditions to the Offer - has been fulfilled.

China Conch Venture Holdings Ltd (586 HK) / Anhui Conch Cement Co Ltd A (600585 CH)

CCV touched a 52-week high on Friday while its NAV discount narrowed to its lowest level in the past 12 months. A simple CCV/Anhui Conch ratio is around 4Q16 levels. I estimate CCV's stub ops are trading at a little over 11x PER FY18E, marginally above a basket of peers. That looks fully priced.

• There has been a noticeable pick up in CCV's volume - an average of ~13mn/day changed hands over the past seven trading days compared to ~3mn/day on average over the past 12 months. Of interest, Southbound flow from Shenzhen Connect accounted for 20% of volume (40% on the 24th May) over the past 8 trading sessions, compared to 2% on average for the past year; while combined with Shanghai flow, it is 27% of volume vs 15% for the past 12-months.
• If recent volume continues to be dominated by Southbound flow, that may suggest there is something going on. Or at least flow is premised on rumours of a new development. However, if Southbound flow is largely absent in subsequent CCASS filings, I would look to short CCV around these levels.

(link to my insight: StubWorld: China Conch, ESun/Lai Fung and the Chain Principle)

Very briefly ...

Jardine Matheson Hldgs Ltd (JM SP) / Jardine Strategic Hldgs Ltd (JS SP). After bouncing off a 17-year low ratio level of 1.41s (JM/JS) last September, Matheson continues to outperform Strategic, touching 1.78x (JM/JS) on the 28th May and closed Friday at 1.74. In my note Jardine Maths on Jardine Stratospheric, I discussed the long-term average was 1.7x, so the current ratio is by no means a stretch.

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 such as in China Conch above.

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.