Last Week in Event SPACE ...
(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)
Keppel Corp (KEP SP) (Mkt Cap: $6.4bn; Liquidity: $18mn)
After nearly 10 months of work across many jurisdictions, Temasek has decided (SGX link) that it would not proceed with the Partial Offer as the MAC Pre-Condition of no material adverse change (MAC) in the Group's financial performance occur over the 12 months to the latest financial statements as of the time when the deal might go forward (and because the long stop appears to be before the next quarter's earnings will be released, that means the Q2 earnings to 30 June 2020 were going to be the defining data set). The question was where should Keppel shares trade when uncontaminated by the possibility of being able to sell a portion at a higher price?
links to Travis' insight:
Temasek Walks Away from Keppel Deal
What Triggers a Temasek Decision on Keppel?
Sembcorp Industries (SCI SP) / Sembcorp Marine (SMM SP)
In early June, SCI and SMM announced what Travis called a "gloriously messy recap and de-merger", whereby SMM would conduct an enormously dilutive rights offering, which would be backstopped by current ~61% owner Sembcorp Industries (SCI) and SCI majority shareholder Temasek, and then Sembcorp Industries would distribute all its shares in SMM to its own shareholders, ~50.5% of which would go to Temasek, and 49+% to the other shareholders of SCI. SMM Rights went ex- on 13 August. That's when people may start questioning their priors - SCI shareholders are going to get a whole bunch of SMM shares.
links to:
Travis' insight: Sembcorp Industries - A Simple Story Which Looks Complicated
Travis' insight: Sembcorp Marine Rights Decided And "Virtual IPO" Set (Still Avoid)
my insight: StubWorld: Buy Sembcorp Industries. Don't Buy Swire)
ESR-REIT (EREIT SP) (Mkt Cap: $1bn; Liquidity: $4mn)
On the same day ESR-REIT announced that it does not intend to increase the Scheme Consideration and accordingly, the exchange ratio of 0.940x is final - except in a competitive situation - Quarz (along with Crane capital, together holding 10% of units out, or 5% each) issued an open letter to Sabana that they intend to reject the proposal at the current terms. The key issue - as singled out by Sumeet Singh in ESR-REIT/Sabana Merger - Buying Well Below Book - is the discount to book value under the share swap ratio. There are additional grievances. 10% is not an insignificant Against vote. Is this being done too cheap? Yes. By any yardstick, the merger terms are opportunistic, and it is great to see shareholders making a noise about this. Increasing - or appearing to increase the DPU is a good thing. But selling assets too cheaply is just that - selling assets too cheaply. Declaring terms final now appears a mistake.
(link to my insight: ESR/Sabana: Better Off Selling Assets)
Cathay Pacific Airways (293 HK) (Mkt Cap: $4.6bn; Liquidity: $6mn)
The owners of 85% of the shares promised to take up their rights, but banks underwrote the remaining portion in case the other shareholding public did not take them up. But not everyone else took up their rights, as announced the previous Friday night. If 2.5% of the rights were not taken up, that means that 12.5% out of the 15% were taken up - that is 83% of the float. What that means is that some portion of the rights were traded away and exercised, but a full 17% were simply allowed to lapse. It also means roughly 62.42mm shares are now owned by those who opportunistically bought shares at a significant "block discount" and will likely sell at some point. They bought at HK$4.68, and now they will try to sell. That is about 6.5 days of volume over the last few weeks, but 17 days of volume for the 6 months prior to the Wuhan shut down on 24 Jan.
(link to Travis' insight: Cathay Rights Results And Excess)
Village Roadshow (VRL AU) (Mkt Cap: $1.7bn; Liquidity: <$1mn)
After various extensions to that exclusivity arrangement, VRL has now entered into an Implementation Agreement such that VRL will receive, under Structure A, up to A$2.45/share comprising A$2.20/share (A$2.10/share under Structure B) plus an additional A$0.25/share upon the re-opening of theme parks and cinemas, and Queensland's border being open to any person from NSW and Victoria. The transaction is subject to limited conditions, including MACs. A Scheme meeting is expected to be held in November with implementation expected shortly thereafter. But Mittleman Brothers, which has been increasing its shareholding, is expected to be a key antagonist to the revised terms.
(link to my insight: Village Roadshow: BGH's Overly Caveated Offer)
Sawada Holdings (8699 JP) (Mkt Cap: $0.3bn; Liquidity: $9mn)
The Tender Offer by Upsilon Investment Limited Partnership to buy just over 50% was announced with the briefest of intros on 19 February 2020, launched on 20 February with the expected end date of 24 March, and as of yesterday had been extended 11 times, and was scheduled to close tomorrow 13 August after having been extended by 95 business days in the interim. Surprise surprise. Upsilon extended it a 12th time. This time until 26 August 2020.
(link to Travis' insight: Sawada Holdings (8699) Partial Tender. Delayed Again. 13th Time a Charm?)
After Qilu Expressway Co Ltd (1576 HK) was suspended "pursuant to the Code on Takeovers and Mergers", it appeared a shareholder restructuring was the likely rationale. This was confirmed after Qilu announced its largest shareholder Qilu Transportation shall be merged and absorbed by Shandong Hi-Speed Group (SHSG). The absorption simplifies the holding of Shandong SASAC, the ultimate parent of both Qilu Transportation and SHSG, into Qilu. The restructuring may trigger an obligation for SHSG to make a mandatory general offer for all shares not owned. SHSG and Qilu Transportation will jointly make an application to the SFC to waive this obligation. There is also the issue over the resulting free float - as the public float falls below the minimum prescribed percentage of 25% under the restructuring, before any MGO. But even if the SFC forces an MGO - and SHSG opts to proceed - expect a nil/derisory premium.
Links to my insights:
Qilu Expressway: MGO Waiver Sought
Qilu Expressway: C-REIT Pilot Or Restructuring?
In Mechanics and Details of the Uawithya Subsidiaries Divestment, Athaporn Arayasantiparb discusses Ua Withya PCL (UWC TB)'s shareholder approval to divest three of its renewable power subsidiaries at bargain-basement prices. The independent experts values the three businesses at Bt449m vs the sale price of Bt200mn. Athaporn reckons management should do a better job on pricing, and has rejected the deal in hopes that they would hold out for a better price from ACE.
Samsung Life Insurance (032830 KS) is on a tear after announcing the sale of its stake in Samsung Electronics (005930 KS) and the expectation of a substantially higher dividend. In Samsung Life: Samsung Electronics-Pumped Dividend Revision Estimation, Sanghyun Park estimates at a 20% payout ratio, the dividend rate is 12.28%. At a 30% payout ratio, it is 18.43%.
In Korea M&A Spotlight: SK Innovation to Sell SK Lubricants & Expand Rechargeable Battery Business, Douglas Kim discussed reports that SK Innovation (096770 KS) plans to sell its controlling stake in SK Lubricants, one of the largest lubricants companies in the world. Local media mention the value of SK Lubricants to be between ₩3tn to ₩5tn, against a current market cap of ₩15.4bn.
SKC Co Ltd (011790 KS) & Skc Solmics (057500 KS) announced a merger swap to take Solmics private. The merger ratio is at 0.0688707 for each Solmic share (₩82,938 for the acquirer and ₩5,712 for the acquired). It is a small-scale merger, so the acquirer doesn't grant its shareholders stock purchase rights unless more than 20% of the shareholders express dissent from August 27 to September 10. But given the tight spread, in SKC & SKC Solmics Merger Swap with Tender Offer: Terms & Status, Sanghyun reckons the acquirer might set a premium at a decent level.
In FamilyMart: Itochu's Offer May Not Be Enough to Persuade a Sale From Long Term Investors, Oshadhi Kumarasiri reckons Itochu Corp (8001 JP)’s offer price, which undermines FamilyMart Co Ltd (8028 JP)’s historical premium over the peers may not be enough to persuade long-term FamilyMart investors to sell their positions.
I estimate CCV is trading at a ~30% discount to NAV compared to a one-year average of ~17%. The implied stub has never been lower. Anhui Conch's As are currently around the highest premium to the Hs since CCV's listing in December 2013.
Source: CapIQ
The outperformance of Anhui Conch versus CCV, is reflected in the across the board performance for cement plays. The consensus target price for Anhui Conch was unwavering during the current virus. Yet the CCV/Anhui bifurcation is unjustified. The market is assigning an increasingly negative value for the stub ops - an all-time low value currently - at a time those stub ops are steadily generating more profit. The current bottom-line growth for the stub ops is estimated at 64% in FY20E, or HK$1.8bn - not an insignificant sum.
(link to my insight: StubWorld: Waste Not, Want Not. China Conch Venture's All-Time Low)
I estimate Swire Pac is trading at a 43% discount to NAV, around its 12-month low. Swire Pac recorded a net loss of HK$7.7bn in the 1H20, following Cathays' 1H20 net loss of S$9.9bn. Swire Prop saw no signs of recovery in HK's retail space, booking a profit of HK$2.75bn, down 80% yoy. According to Guy Bradley, Swire's CEO of Swire Prop, the second half is not going to be much better than the first half for HK retail.
(link to my insight: StubWorld: Buy Sembcorp Industries. Don't Buy Swire)
BHP Group (BHP AU) (Mkt Cap: $135bn; Liquidity: $171mn)
With Unilever NV (UNA NA) holding its EGM on 21 September 2020 to vote on its unification. Unilever PLC (ULVR LN)'s shareholder meetings will be held on 12 October 2020, it is worthwhile assessing whether this unification will renew focus on other DLC structures such as BHP. Back on the 10 April 2017, Elliott Advisors (HK) Limited issued a number of proposals via an open letter to the board of BHP, with the latter responding promptly (two days later), rebutting all such proposals. This was discussed in greater detail in Elliott's Proposals Test BHP's Metal.
(link to my insight: Unilever: When Two Heads Are Not Better Than One. What About BHP's DLC?)
link to Mio's insight:
Huya and Douyu – Implications for Valuation From the Gross Margin Trend
Huya – Nice Results and Why We Favour Huya Over Douyu
Liberty Global Plc A (LBTYA US) has launched an all-cash friendly voluntary takeover offer for Sunrise at a price of CHF 110 per share for the whole share capital, a 27.6% premium to last close. This follows the failed attempt by Sunrise to acquire Liberty’s Swiss business (UPC Switzerland) in 2019. The bid price represents 3.5x EV/Revenue, 9.7x EV/NTM EBITDA and 45.x Price/Forward EPS (Capital IQ consensus). Liberty is trading at 4.0x EV/2020e EBITDA. Which appears fair vs peers. Minimum acceptance condition is 2/3rds of the shares on a fully diluted basis, i.e. 30,176,964 shares. Trading tight (<1% gross), reflecting the high chances of this deal completing.
S&P Dow Jones Indices will announce changes to the S&P/ASX 200 (AS51 INDEX) as part of the September index review on 4 September. In ASX200 Index Rebalance Preview - Couple of High Probability Changes; Couple on the Cusp, Brian Freitas sees a high probability of Ramelius Resources (RMS AU) and Zip Co Ltd (Z1P AU) being included in the index and of Southern Cross Media (SXL AU) and oOh!Media Ltd (OML AU) being excluded from the index. Sitting right at the edge of the buffer zone, there is a lower probability of Austbrokers Holdings (AUB AU) and Westgold Resources (WGX AU) being included and Orocobre Ltd (ORE AU) and Western Areas (WSA AU) being excluded.
STOXX will announce the results of the September review of the DAX indices on 3 September post-market close. STOXX has clearly flagged Wirecard AG (WDI GR) as not eligible for index membership and the stock will be deleted. In DAX Index Rebalance Preview - Delivery Hero an Inclusion Shoo-In, Covestro Is at Risk, Brian sees Delivery Hero Ag (DHER GY) as a high probability addition replacing Wirecard. He also sees a high probability of Covestro AG (1COV GR) being deleted from the DAX, but it could still remain in the index if Thermo Fisher Scientific Inc (TMO US)'s tender offer for QIAGEN NV (QIA GY) is successful.
ICICI Bank Ltd (ICICIBC IN) is looking to raise INR 150 bn (~US$2bn) through a Qualified Institutional Placement (QIP). The floor price for the issue has been fixed at INR 351.36 per share, a discount of 3.35% to the last close. The Board of Directors will meet on 14 August to determine the final issue price. Indications are that the shares will be issued in the range of INR 355-358 per share. In ICICI Bank - Passive Flow Post QIP Should Support the Stock, Brian estimates passive funds tracking various indices will need to buy around 10% of the shares issued in the QIP over the next few weeks and the stock could trade stronger than its peers in the short term.
The KRX confirmed something that was widely expected: SK Biopharmaceuticals (326030 KS) meets the Fast Entry criteria for inclusion in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and will replace Kiswire Ltd (002240 KS) at the close of trading on 10 September, coinciding with the September futures expiry. This is discussed in Brian's insight SK Biopharmaceuticals - KOSPI200 Inclusion Confirmed, Large Impact Expected, and Sanghyun's Fast Entry of SK Biopharmaceuticals to KRX Indices, Incl. KOSPI 200.
Soho China Ltd (410 HK) has announced that "all previous discussions with various investors have now been terminated and have not at this time resulted in the terms for a Potential Transaction being agreed." So that's that - for now.
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, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Name | %chg | Into | Out of |
Digital Domain Holdings (547 HK) | 15.62% | St Chart | Outside CCASS |
Colour Life Services (1778 HK) | 13.60% | BNP | China Ind |
Prosper Future (1259 HK) | 11.05% | All Evergreen | Outside CCASS |
The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.
Name | % chg | Into | Out of |
Kangji Medical (9997 HK) | 18.48% | HSBC | Outside CCASS |
China East Education (667 HK) | 22.34% | BNP | Outside CCASS |
Hangzhou Tigermed Consulting (H) (3347 HK) | 10.70% | HSBC | ML |
Kwung's (1925 HK) | 13.37% | China Ind | Outside CCASS |
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