Last Week in Event SPACE: Sanyo Special, Toshiba, Hyundai Motor, Westfield, Shire

Last Week in Event SPACE ...

• The misunderestimation of the Sanyo Special Steel Co Ltd (5481 JP)trade situation
• A protracted timeline for a potential IPO of Toshiba Corp (6502 JP)'s memory ops gives pause
• Hyundai Motor Co (005380 KS) blinks and cancels US$890mn in shares
• Takeda Pharmaceutical Co Ltd (4502 JP)'s fifth tilt for Shire PLC (SHP LN)would probably be looked upon more favourably with a greater cash component
• On balance, Westfield Corp (WFD AU)'s shareholders should vote in favour of theUnibail-Rodamco SE (UL FP) proposal
• And will recent tax incentives encourage TMB Bank PCL (TMB TB) and Krung Thai Bank Pub Co Ltd (KTB TB) to merge?

Sanyo Special Steel Co Ltd (5481 JP) (Mkt Cap: $853mn; Liquidity: $4.7mn)

We do not have a deal structure yet, and a deal is not expected to be announced for another 3.5 months. But that doesn't mean investors shouldn't start to get involved.

• SSS is cheaper vs its 1-year history than it should be given the situation. Travis Lundy sees no particular reason why 6.5x EBITDA or ¥3,344/share (near the 12-month high) on an unadjusted basis (i.e. assuming cross-holdings are worth zero) should be considered a wrong target for a Tender Offer Price.
• At a possible 70% pro-ration, as a starting point, and a back-end estimate of ¥2,500/share, the IRR comes in better than 15%. And 6.5x is a trifle low as the cross-holdings should not be attributed zero value.
• For these reasons, Travis is bullish and believes investors are misunderestimating the tender offer.

(link to Travis' insight: Sanyo Special Steel - A MISUNDERESTIMATED Tender Opportunity)

Toshiba Corp (6502 JP) (Mkt Cap: $17.5bn; Liquidity: $69.6mn)

Not unsurprisingly, news emerged earlier this week that Toshiba was considering stepping away from selling its memory business to Bain if Chinese antitrust approval is not approved by May 28th.

• Mio Kato, CFA has previously speculated Toshiba may eventually opt to IPO its memory ops and this recent news strengthens that view. However, a speculated 2019 listing dampens his enthusiasm. NAND pricing and margins are likely to cyclically decline, so fast-tacking a Toshiba memory IPO some time in 2H18 to capture the supply-demand dynamics would be more optimal.

(link to Mio's insight: Toshiba: Tilting Towards IPO, Farallon Pops Up, but Will NAND Supply Demand Have the Last Laugh?)

Hyundai Motor Co (005380 KS) (Mkt Cap: $32.5bn; Liquidity: $79mn)

On April 23rd, Elliott Advisors proposed a comprehensive list of corporate governance measures for the Hyundai Motor Group, including the cancellation of treasury shares and the conversion of the merged Hyundai Motor and Hyundai Mobis into a holding company and an operating company.

• HMC caved, somewhat, and said it will cancel ₩560bn of existing treasury shares by 27 July; and will buy back and cancel another ₩400bn worth of stock.
• Is it enough? A key difference between Elliot's' demands and HMC's new restructuring plan is what to do with Hyundai Glovis Co Ltd (086280 KS). Glovis plays an important role in the HMC plan but is largely absent in Elliot's. HMC argues breaking up Hyundai Mobis Co Ltd (012330 KS) and shifting the more profitable units to Glovis creates synergies; however many institutions, according to Douglas Kim, question this rationale.
• Still, HMC's plan has been supported by the Korean government, including the head of the FTC. HMC's willingness to pay nearly ₩1tn in taxes as a result of the restructuring buys a lot of support.
• The focus is now on Mobis' EGM, which takes place on May 29. Mobis needs 1/3 of the total shares out to support the deal, which should not be an issue; but the "2/3 of the voting rights of the shareholders present" condition could be tight according to Sanghyun Park.

links to:
Douglas' insight: Elliott Advisors Proposes More Concrete Corporate Governance Measures for the Hyundai Motor Group
Sanghyun's insight: Elliott Factor on Hyundai Mobis - Status Update
Sanghyun's insight: Hyundai Motor Share Buyback/Cancellation Summary

Very, very briefly ...

Monex Group Inc (8698 JP) (Mkt Cap: $1.5bn; Liquidity: $230mn)

Monex’s shares are flying after completing the ¥3.6bn acquisition of Coincheck earlier this month. The purchase equated to roughly ¥13 per Monex share while the share price has increased ~¥300.

• Monex was trading at 14x pre-the-Coincheck announcement. 14x Supun Walpola's pro-forma earnings backs out a fair value of ¥815/share vs Friday's close of ¥624. And 14x is not expensive compared to Fisco Ltd (3807 JP) and Remixpoint Co Ltd (3825 JP), which are trading at P/E multiples of ~21x and ~82x respectively.

(link to Supun's insight: Monex Hits the “Daily Price Limit” for the Third Time in a Month)

Hyosung Corporation (004800 KS) (Mkt Cap: $4.1bn; Liquidity: $17.1mn)

On Friday, Hyosung's shareholders approved its restructuring plan to split itself into a holding company (Hyosung Corp) and four separate operating companies. Sustinvest is not sold on the restructuring. While some value-destroying activities will cease under the Holdco structure, which is positive for minority shareholders, the restructuring may not lead to greater alignment between controlling family interests and those of minority shareholders because some family-owned companies within and outside the Holdco structure remain.

(link to Sustinvest's insight: Hyosung's Restructuring - Not Enough to Address Deep-Rooted Governance Risks)

Shire PLC (SHP LN) (Mkt Cap: $48.4bn; Liquidity: $185mn)

Shire announced the receipt of a revised (& fifth) proposal from Takeda Pharmaceutical Co Ltd (4502 JP) comprising 0.839 new Takeda shares and US$30.33 in cash for each Shire ordinary share. This proposal is equivalent to GBP49.00/share. The deal would give Shire shareholders 50% ownership of the enlarged Takeda and the new Takeda shares will be listed in Japan and in the US through an ADR program.

• Shire's board has indicated it would be willing to recommend the proposal to its shareholders subject to satisfactory resolution of the proposal's terms, including completion of reciprocal due diligence by Shire on Takeda.
• As this is such a large issuance of shares without a reference price, presumably Takeda's shareholders would need to vote on the deal. And presumably, they would get the necessary votes. However, that is not to say that Shire shareholders would vote it through.
• As at Friday's close, the spread is wide - >20%. With 56% of the proposal made up of new Takeda shares, Shire's existing shareholders may opt to hold out for a better result, such as a greater cash component, at a later date. Morningstar briefly touched on this latest proposal in its insight: Maintaining Our FVE for Shire and Takeda During Extended Offer Period.

Westfield Corp (WFD AU) (Mkt Cap: $14.2bn; Liquidity: $48.5mn)

The shareholder vote on the merger with Unibail-Rodamco SE (UL FP) is scheduled for May 24. Apart from pricing, there are various factors to consider with respect to Westfield being a stapled entity, not least being CGT rollover relief only applies to the WCL shares, not the WFDT and WAT units.

• No competing offer has emerged since the offer was announced four months ago, which suggests a low probability Unibail's proposal will be trumped. The merger has the full support of the Westfield and the Unibail boards, and an independent expert concluded the proposal is in the best interest of Westfield security holders, in the absence of a superior proposal.

(link to Morningstar's insight: Corporate Action: Westfield Security Holders to Vote Yes to Merger with Unibail-Rodamco)

MasterLink Securities Corp (2856 TT) (Mkt Cap: $600mn; Liquidity: $2.5mn)

Masterlink has announced it has entered into a share swap agreement with its largest shareholder Shin Kong Financial Holding (2888 TT) whereby Shin Kong will issue 0.96 shares for every share it does not own of MasterLink.

• The deal looks good for MasterLink shareholders but less so much for SKFH's. MasterLink shareholders are getting a premium to peers and now have a chance to become shareholders in a larger financial institution that trades at a higher multiple.
• Pranav Rao believes this transaction will get the go-ahead from both sets of shareholders. Regulatory approvals shouldn't be an issue as SKFH is merely taking full ownership of an entity it already controls. Trading at a gross spread was at ~5.25% which is fair for this transaction.

(link to Pranav's insight: MasterLink/SKFH: Filling a Gap)

Very, very briefly ...

Healthscope Ltd (HSO AU)(Mkt Cap: $3.1bn; Liquidity: $15.6mn)

Morningstar discussed the unsolicited offer by way of a scheme from a consortium (including BGH + five others) of A$2.36/share, representing a premium of 16% to the undisturbed price of A$2.03/share. Pranav recently discussed the likelihood of an offer in his insight Healthscope: Acquire. Re-List. Repeat? The offer is subject to, inter alia, due diligence, debt financing and necessary regulatory approvals. Morningstar's fair value is A$0.97.

(link to Morningstar's insight: Healthscope Receives Takeover Bid Validating Our FVE)

TMB Bank PCL (TMB TB) (Mkt Cap: $3.3bn; Liquidity: $18.5mn)

Thailand's Cabinet recently approved a plan to offer tax incentives to encourage commercial bank mergers, and Athaporn Arayasantiparb, CFA discussed the possibility of TMB and Krung Thai Bank Pub Co Ltd (KTB TB) joining forces. There's ample pushback on such a union. KTB may be lining up to acquire Islam Bank, which was recently bailed out by the government. And there's talk ING, TMB's 25% shareholder, is in two minds whether to increase or decrease its stake. Plus there are cultural difference between both banks - not that that was any roadblock to the last six bank mergers in Thailand.

(link to Athaporn's insight: Sathorn Series D: KTB + TMB = Thailand's New Banking Godzilla Yo!)

Englewood Lab (950140 KS) (Mkt Cap: $114mn; Liquidity: $1mn)

Douglas Kim discussed cosmetics ODM player Cosmecca Korea (241710 KS)'s acquisition of 6.89mn shares (or 34.71%) in Englewood for ₩57.8bn or ₩8,366/share. Douglas believes the acquisition is positive and also discussed other M&A deals in the Korean cosmetics industry in the past year.

(link to Douglas' insight: Korea M&A Highlight: Cosmecca Korea Acquires Englewood Lab)

Television Broadcasts Ltd (511 HK) (Mkt Cap: $1.4bn; Liquidity: $1.8mn)

Takeaways from my recent meeting with management: some subtle changes in the broadcasting ordinance are under discussion, potentially suggesting a relaxation of how foreign shareholders are assessed. That may help with the Communications Authority's final decision on TVB's shareholding structure. For now, TVB is more a fundamental story and there are signs earnings in its key broadcasting segments are stablising. A bigger story is whether TVB will reload the buyout (possibly). In the meantime, do not expect any special dividend over and above the prevailing EPS.

Jardine Cycle & Carriage Ltd (JCNC SP) (Mkt Cap: $10.3bn; Liquidity: $8.7mn)

Nicolas Van Broekhoven attended JCNC's AGM. Questions primarily focused on the Vietnam Dairy Products Jsc (VNM VN) investment and the disappointing earnings at Siam City Cement Pub Co Ltd (SCCC TB). My current discount to NAV is 17% vs. the 12-month average of 15%.

(link to Nicolas' insight: AGM Jardine Cycle & Carriage (JCNC SP): Lots of Questions on Vinamilk; 10% Stake Likely to Grow)

United Co Rusal Plc (486 HK) (Mkt Cap: $3.8bn; Liquidity: $20mn)

My CCASS analysis indicates 20.45% of Rusal has moved into Citibank from UBS. Only Oleg Deripaska (48.13%) and Viktor Vekselberg (26.5%) have positions this large. Interestingly, before Vekselberg acquired a 6% stake in Rusal from Mikhail Prokhorov in February this year, his stake was ~20.5%. Vekselberg is on the designated sanctions list from the US Treasury. I have a current discount to NAV of ~73% vs. a 12-month average of 34%.

Melco International Development Ltd (200 HK) (Mkt Cap: $5.7bn; Liquidity: $13.6mn)

My CCASS analysis indicates 15.03% of Melco has moved into UBS from VC Brokerage ( a Ho-affiliated broker). Presumably this is a portion of Lawrence Ho's 53.19% holding. I have a current discount to NAV of ~19% vs. a 12-month average of 25%.

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 bolded, I could not find an obvious reason for the CCASS move. Food Wise Holdings Ltd (1632 HK) is suspended after a takeover-code-related announcement last week. King Force Security Holdings Ltd (8315 HK) is also suspended.