Last Week in Event SPACE: SOHO China, Toshiba, Boral Ltd, Yageo/Chilisin, Microstrategy

• Unquestionably the downside to a deal break is hairy. And there remains a big question mark on SAMR, both the timing and the nature of the application.
• However, I like SOHO at these levels.

Toshiba announced results in mid-May along with a somewhat surprising plan to "return ¥150bn to shareholders", with method to be specified later - in early June. On 7 June in the morning, Toshiba announced how it would allocate that ¥150 billion. It would pay a ¥50bn dividend (¥110/share) to shareholders of record on 30 June 2021. Toshiba fell ¥125/share today (29 June) closing at ¥4765 as that dividend went ex-. Toshiba would buy back up to 27mm shares spending up to ¥100 billion in a buyback using ToSTNeT-3 and open-market buybacks, with the program lasting until the end of calendar 2021. On the 29 June after the close, Toshiba announced a buyback of up to ¥100bn to be executed via ToSTNeT-3 the following day for up to 20,986,300 shares.

• Travis Lundy does not believe that the large named activists have any interest in selling here. They are activists and it is their job to be activists. Not their job to win a short-term concession and bail. If they do, that "proves the point" that Mr. Amari is making. Then it becomes appropriate to ignore activists even under good governance strategy because OBVIOUSLY such shareholders are not thinking in terms of the medium to long-term growth of corporate value, therefore one should not listen to them.
• If the buyback completed, that would be ¥100bn of less-committed ownership selling. It would concentrate ownership in the more committed area. It should reduce Real World Float. Less committed shareholders turn over more quickly. More committed turn over less quickly. This, theoretically, would reduce holdings by those who turn over more quickly. If completed, it would mean 5% accretion (on a realtime basis, not weighted basis).

• The ToSTNeT-3 buyback eventually bought back 2.521mm shares for ¥12.01bn. That means the other ¥88bn will be spent buying shares in the market. The program is open through end-December. So far no word on share cancellation.

Taiwanese electronic component manufacturer Yageo Corporation (2327 TT) announced on 30th June 2021 they will acquire all of the outstanding shares of Inductor manufacturer Chilisin in a stock-swap transaction which will see Chilisin get delisted and become a wholly-owned subsidiary of Yageo. The conversion ratio is 0.2002 Yageo shares per Chilisin share. However, according to the Deal announcement, the final share conversion ratio will be adjusted according to the share conversion contract of both parties. The Deal is expected to close at the end of 2021 and is subject to the receipt of required regulatory approvals and approval from shareholders of both companies.

• The transaction has been unanimously approved by the Boards of Directors of both companies. The two parties are expected to hold an extraordinary general meeting on 7th September 2021 to approve the proposal.
• The spread is attractive on a risk-adjusted basis. Janaghan Jeyakumar expects the spread to compress once the regulatory and/or shareholder approvals are satisfied.

Ricoh Company Ltd (7752 JP) (Mkt Cap: $8bn; Liquidity: $40mn)

The previous Friday, Effissimo Capital Management "surprised" the market by filing a Large Shareholder amendment saying they had sold 3.87% of Ricoh at Friday's closing price. Ricoh took a hit this past Monday on the news. after news of its largest shareholder selling a near-4% stake last Friday.

• Effissimo likely did this trade with a broker, retaining the risk, and the broker will sell the position down over time and Effissimo's exit would likely be the VWAP over time. Travis expects at 10% of ADV this would take until mid-October, just before earnings would be released.
• It would coincide with Ricoh buying back shares, and would mean, because of the Ricoh plan to cancel all shares bought back plus an additional 2.6% of shares out (20mm shares), that Effissimo would continue to have a substantial stake in Ricoh and would continue to exercise its "may offer advice and comment to management" (Ricoh is not on the FEFTA list to my knowledge).
• Effissimo is not getting out in Travis' opinion. It is tailoring its future exposure given the future number of shares out. This sale effectively establishes some overhang on Ricoh which was not known to be there yesterday.
• The upside to Ricoh here is them performing better this year than current forecasts suggest. Travis does not know IF that is likely, but at 5x March 2022 EBITDA and 4x the average of Mar2023-Mar2024, this is not an expensive stock, and the company remains cheap to peers.

(link to Travis' insight: Ricoh Buyback Runs Into Activist Selling)

The last month has been tough on Kasikornbank PCL (KBANK TB) from a passive flow perspective. First, Kasikornbank PCL (KBANK/F TB) was deleted from the MSCI Standard index at the May SAIR after failing the liquidity test. Soon after that, the Thai NVDR Company announced that the NVDR issuance limit was close to the 25% issuance limit and further purchases of Kasikornbank PCL (KBANK-R TB) were being halted. This resulted in FTSE reducing the investability weight of the NVDR line and MSCI deleting the NVDR line from the Standard index.

• That trend looks set to continue with a likely deletion of the foreign line KBANK/F TB from the FTSE All-World Index at the September SAIR due to failing liquidity requirements. Brian now also sees Bangkok Bank PCL (BBL/F TB) as a potential deletion from the MSCI Standard index at the August QIR and from the FTSE All-World index at the September SAIR due to failing the liquidity test. There is also a possibility of Bangkok Bank Public (BBL TB) NVDRs being deleted from the FTSE All-World Index if the headroom drops below 10%.
• Passive outflows across both stocks and indices will be around US$400m and for a change the impact will be larger on BBL than on KBANK.

(link to Brian's insight: BBL / KBANK: Large Passive Outflows Could Lead to Underperformance)