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)
Hitachi Metals (5486 JP) (Mkt Cap: $8.3bn; Liquidity: $29mn)
Hitachi took in bids earlier this spring after running an auction process and three weeks ago an article in the FT hit the tape saying "Bain nears $8bn deal to buy Hitachi Metals." That was around current market price give or take net debt so people were thinking there might not be a premium. Now we have a deal announcement. Indeed, Bain is paying near US$8bn, but it is structured in such a way that Bain pays ¥1675/share to Hitachi and ¥2181/share to minorities, which produces a combined price just over ¥1900/share. This approximates a decent result for everyone involved.
Links to:
Travis' insight: Bain Bids Up BIG For Hitachi Metals (5486) - Now We Wait
Mio Kato's insight: Hitachi Metals – Is Net Debt Improvement Really a Positive?
Bingo Industries (BIN AU) (Mkt Cap: $1.7bn; Liquidity: $11mn)
Bingo announced it has entered into Scheme with MIRA in a A$2.3bn (US$1.7bn) deal. Shareholders have the option to receive either A$3.45/share in cash for each share held, or a mix of cash and unlisted stock. Bingo also intends to declare a fully franked special dividend of up to A$0.117/share, to be paid on or before the implementation of the Scheme. The consideration under the Scheme will be net of this dividend. This looks done and trading tight to terms.
(link to my insight: Bingo Industries (BIN AU): Macquarie Cleans Up)
Japan Asia (3751 JP) (Mkt Cap: $0.2bn; Liquidity: $3mn)
On the 26 April, Japan Asia announced it was cancelling its planned rights issue. Shares traded too ¥946 which was ~4% through the bid Murakami-san had planned. This was then followed by City Index Eleventh announcing that it would launch its planned Tender Offer at ¥910/share (accompanying document link here). So here we are again. Japan Asia Group, for its part, announced it would "consider the Tender Offer and respond with its Opinion Statement in a timely manner."
(link to Travis' insight: City Index Eleventh OFFICIALLY Launches Next Japan Asia Group (3751) Hostile Tender Offer)
Jardine Matheson Holdings (JM SP) (Mkt Cap: $24bn; Liquidity: $23mn)
Any form of shareholder on any class of shares are entitled to take advantage, upon dissenting, of the appraisal rights. Without exception. As such, I'm inclined to ignore Matheson's veiled dig on "professional dissenting shareholders" or "sophisticated investment funds".
(link to my insight: Jardine Matheson: Lessons in Dissent)
Mainstream Group Holdings Ltd (MAI AU) (Mkt Cap: $0.2bn; Liquidity: $1mn)
On 9th March 2021, Australia-based third-party fund administration services provider MAI announced they had signed a Scheme Implementation Deed to be acquired by Hong Kong-headquartered Vistra in an all-cash deal that valued the company at a market cap of ~A$170mn. The Offer Price was A$1.20/share. In Mainstream Group (MAI AU): Go-Shop Provision Makes It Interesting. Janaghan Jeyakumar said he "would get LONG at or below A$1.23 during the go-shop period".
Link to Janaghan's insight:
Mainstream (MAI AU): More Competition Forces SS&C to Bump
Mainstream (MAI AU): Three-In-A-Row! Bullseye!
Fuji Kosan Company (5009 JP) (Mkt Cap: $0.1bn; Liquidity: $1mn)
Singapore-based fund Aslead Capital Pte announced that it would launch a Tender Offer on fuji Kosan to take at least a 40% stake and possibly full control after ownership and approaches did not lead to "satisfactory" measures to improve corporate value. The shareholder had been acquiring shares since last year. It first went above 5% in August 2020 and until yesterday had most recently reported a 14.83% stake on 4 February. The stock has an interesting set of investors, and was for many years in the early to mid-2010s a poster child for tiny cap deep value investment targets. As of the announcement, Aslead states that it owns 16.8% which means to get to 40.0%, it needs only 23.2% of shares out - of the 83.2% it does not own.
(link to Travis' insight: Aslead Capital Hostile Offer for Fuji Kosan (5009))
HKC Holdings (190 HK)'s Scheme Document was despatched on the 31 March. The IFA said "fair & reasonable". At the Scheme Meeting on the 23 April, disinterested shareholders overwhelmingly approved (99.36%) the Scheme. Done & dusted, it would seem. But HKC said in an HKEx announcement that it failed the quorum test. Search the Scheme Doc and there is no mention of a quorum. Nor in HKC's Memorandum of Association. So where is this directive coming from as it is not a statutory requirement, but one apparently imposed by the judge? Did the FA make an executive decision to simply ignore the direction for the sake of the Scheme Doc? Was the SFC aware of the directions order? My own view in HKC Holdings (190 HK): Quorum Quibbles is the FA is culpable here for the lack of transparency. Let's hope it doesn't come down to pointing fingers, and the judge simply waives the quorum.
Mphasis Ltd (MPHL IN) (Mkt Cap: $4.5bn; Liquidity: $1mn)
In 2016, a Blackstone fund purchased 60.5% of India-based IT Solutions Provider Mphasis from Hewlett Packard at Rs 430/share, then conducted an Open Offer to buy more shares at Rs 457 and change. Last year Blackstone was weighing the possibility of selling its 56.16% stake, possibly Carlyle. But Blackstone is selling to Blackstone.
(link to Travis' insight: Blackstone Sells Mphasis Stake To.... Blackstone and Investors Get a CHEAP Option)
Beijing Digital Telecom (6188 HK)'s Composite Document has now been despatched and the Offer is open for acceptances. The IFA says fair and reasonable. The MGO has a 50% tendering condition - attached to ALL voting rights of Beijing Capital. Will this get up? In Beijing Digital (6188 HK): Offer Now Open. IFA Says Fair, I believe so. The disinterested domestic shareholders hold 8.12% of total shares out. My guess is they will all tender. This will give Zhuhai Huafa 46.11%. Of the remaining 53.89% of shares out - all of which are H shares - Digital China (000034 CH) holds 21.62%, JD.com (HK) (9618 HK) 8.98%, and Dawn Galaxy 5.73%. All are in the money. Even stripping out Digital China, JD, and Dawn Galaxy, the remaining 18% of shares out have seen a significant increase in the share price, not just YTD, but off the COVID low. Plus shares were on a steady downward trajectory heading into the pandemic.
The approval from the Mongolian Central Bank conveyed via Khan Bank to Sawada Holdings (8699 JP) on the 19th of April and announced on 20 April allowed for one or more Qualifying Shareholder(s) to sell via market routes, and gave permission to that/those one or more Qualifying Shareholder(s) to sell. The selldown may be over. Or it may not. In Sawada Selldown May Be Done - Now On To Earnings, Travis remains bullish on the value of an exit and monetisation vs current price. It may be that Sawada finds buyers for 40% of Khan Bank. Whichever happens, Travis expects a large influx of cash to shareholders or to Sawada which will then be available to shareholders.
Japara Healthcare (JHC AU) announced it had received an unsolicited, indicative, conditional, and non-binding Offer from Little Company of Mary Health Care - otherwise known as Calvary - by way of a Scheme, at A$1.04/share. My initial reaction in Japara Healthcare (JHC AU): Here Comes The Calvary is that this is an opportunistic bid. This is the third Offer in this beaten-up space in the last year. Metlifecare Ltd (MET NZ) was eventually taken private. Regis Healthcare (REG AU) fielded an Offer from its co-founder and Washington H. Soul Pattinson And Co. (SOL AU) in September last year, which was subsequently withdrawn, despite a bump in terms. Regis has outperformed the market since. Indicative bids can prove to be a tricky investment in Australia. But for what is likely an industry in recovery mode, one in which the Royal Commission overhang is largely removed, and a comprehensive reform package to be implemented, I think Japara will reject this initial approach.
Swire Pacific (A) (19 HK) / Swire Properties (1972 HK)
Swire Pac's discount to NAV of ~34% compares to the one-year average of ~49%. The average NAV discount pre-2019 protests, pre-COVID, is around 20-25%, but it's questionable how much reliance can be placed on historical data. Going long Swire Pac at the end of October, either outright, or in a set-up stub trade, paid off handsomely. Swire Pac's P/B of 0.35x compares to 0.2x back in October. Yet, Swire Pac continues to face significant challenges in 2021.
(link to my insight: StubWorld: Swire Pac's Outperformance)
Hanwha Corporation (000880 KS)'s 37% stake in Hanwha Solutions (009830 KS) represents 60% of Corp's NAV. In Our NAV Analysis of Hanwha Corp and A Pair Trade with Hanwha Solution, Douglas recommends going long Corp, short Solutions after the short-selling ban is lifted on Monday.
Softbank Corp (9434 JP) (Mkt Cap: $bn; Liquidity: $144mn)
Traditionally, telecom companies in mature markets are "easy." Infrastructure is basically built, but there is always maintenance and capex to upgrade throughput. Churn is low. Customers occasionally add on new services. They are generally cash machines. Comparing telcos is often reasonably easy. Mostly it comes down to how aggressively the company prices to customers, how it seeks non-standard revenue off its infrastructure and sales base, or how it returns capital to shareholders.
(link to Travis' insight: Softbank Corp - Accounting for The Accounting Is Complicated)
Korean Short Selling
Normal service resumes for short selling in Korea from Monday, 3 May - but will be limited to constituent stocks of the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and KOSDAQ 150 Index (KOSDQ150 INDEX). Links to Brian's insight: Korea Short Selling: Service Resumes Monday.
Shinsei Bank (8303 JP) was Travis' "High Conviction" idea for 2021 as presented 22 December 2020 in 2021 High Conviction - Shinsei Bank. The stock rose ~50% in just under 3 months, outperforming other banks by 20+%. I warned of a pause on the squeeze in March in 2021 High Conviction Update - Shinsei Bank Float Squeeze to Mitigate Near-Term, and since then the shares are down more than 13% (and ~20% from intraday highs in March) as huge buying flow from the buyback programme ended. The stock has underperformed a basket of 9 bank peers by 13% from the top. Shinsei is still a buy. It is cheap at sub 0.4x book and ~7x. Real World Float is low/limited. Shinsei is likely to launch a buyback in May. It may be as large as last year, but Real World Float is 40% smaller than last year. In Shinsei Bank (8303 JP) Update - The Pause That Refreshed May End Soon, Travis recommends to get Long. Be Long
In TOPIX Index Upweights: The Big April Basket 2021, Janaghan discussed how the Tokyo Stock Exchange reviews this Liquidity Factor every April and highlighted 50 names (the "Big April Basket 2021") that could potentially have their liquidity factors removed in this April's review. As discussed in TOPIX Upweights: Big April Basket 2021 Pre-Event Is a WIN! Now the Event-Leg!, 48 out of these 50 names were correct translating to a hit ratio of 96% and an equally-weighted basket of these 50 names outperformed TOPIX by +3.8% in 8 trading days from 30th March to 8th April 2021 (the day after the official results were announced).
In TOPIX Upweights: Big April Basket 2021 Event-Leg Is Also a WIN. Finish Line Is Here!, Janaghan looked at how the basket has performed since then and what that could mean for the remainder of the trade that was originally planned to end on 28th April 2021.
And in TOPIX Inclusion Trade Summary: April 2021, Janaghan TOPIX Inclusion Trade Summary: April 2021. Read more: https://skr.ma/kSWix.
(link to my insight: (Mostly) Asia M&A: April 2021 Roundup)
On 20 April, Credit Agricole Sa (ACA FP) boosted its offer for Credito Valtellinese SpA (CVAL IM) to €12.50/share from €12.20, regardless of any threshold met, 0.8% above Jesus' target price in CreVal - Crédit Agricole: Grounds for an Improved Offer. Crédit Agricole holds now 91.17% of CreVal. As per the offer document, conditions for the purchase obligation are met. Link to Jesus' insight: Credit Agricole/CreVal: Purchase Obligation.
On 27 April, Orange SA (ORA FP) published the results of its offer for Orange Belgium SA (MOBB EU). It now holds a 74.68% stake. Orange has decided to re-open the tender for five trading days (28 April to 4 May inclusive, offer price unchanged) with the aim of gaining more acceptances. Link to Jesus' insight: Orange/Orange Belgium: Offer Re-Opening.
The resolution to approve the scheme for the recommended cash acquisition of Aggreko PLC (AGK LN) was passed at the Court Meeting and the special resolution to implement it was passed at the EGM. Still awaiting antitrust clearance and foreign investment clearance. The gross spread is 2%, c. 8% annualised assuming a 3-month completion (although it is expected to become effective at the beginning of Q3). Link to Jesus' insight: Aggreko: Shareholders' Meeting, Spread Turned Positive.
PSEi Index Rebalance Preview. For the August rebalance, Brian sees a possibility of AC Energy Corp (ACEN PM) being included in the index, which would see DMCI Holdings (DMC PM) being excluded. Link to Brian's insight: PSEi Index Rebalance Preview: Follow-On Offering Could See ACEN Added, DMC Deleted.
MSCI Singapore Index. MSCI is scheduled to announce the results of the May 2021 Semi-Annual Index Review (SAIR) on 11 May with the changes implemented after the close of trading on 28 May. For Singapore, we see a high probability of Sea Ltd (SE US) being included in the index and Suntec REIT (SUN SP) being excluded. This will keep the number of index constituents at 19. Link to Brian's insight: MSCI Singapore Index - Upcoming Changes.
JPX-Nikkei 400 Rebalance 2021. Potential Removals: This is a list of SHORTs. As of last review, there were 37 names in this list. From that list, Dentsu Inc (4324 JP) and JFE Holdings (5411 JP) will be deleted (have to unwind (i.e. buyback)). JSR Corp (4185 JP) will be added to this list (new SHORT). Potentials Inclusions: This is a list of LONGs. As of last review, there were 39 names in this list. From that list, Sawai Pharmaceutical (4555 JP), Shinoken Group (8909 JP), Erex Co Ltd (9517 JP), Fujitsu General (6755 JP), FUJIFILM Holdings (4901 JP), and Japan Post Insurance (7181 JP) will be deleted (have to unwind from last month). Jafco Co Ltd (8595 JP), Maruwa Unyu Kikan (9090 JP), Mitsui Soko Holdings (9302 JP), Adeka Corp (4401 JP), and Aeon Delight (9787 JP) will be added to this list (new LONGs). Link to Janaghan's insight: Sensex June21 Index Rebalance Preview: Index Committee Has a Decision to Make.
Sensex June 21 Index Rebalance Preview. Brian sees Oil & Natural Gas Corp (ONGC IN) as a high probability deletion, while Wipro Ltd (WPRO IN) holds the edge over Tata Steel Ltd (TATA IN) as an index inclusion. Link to Brian's insight: Sensex June21 Index Rebalance Preview: Index Committee Has a Decision to Make.
KOSDAQ150 Index Rebalance Preview. In KOSDAQ150 Index Rebalance Preview: 15 Potential Changes; Big Impact on Deletions, Brian sees see 15 inclusions and 15 exclusions from the index.
MSCI announced that it would delete Cgn Power Co Ltd H (1816 HK), China National Chemical A (601117 CH), China Shipbuilding Industry (601989 CH) and Inspur International (596 HK) from the MSCI China and MSCI ACWI since there was no further guidance from OFAC with effect from the close of trading on 20 May. A further announcement will be made on 17 May to confirm the changes. Links to Brian's insight: MSCI to Delete Stocks Affected by Executive Order - Having Another Go & Travis' MSCI Sets Up Deletion of Trump EO 13959 "Closely Match" Names Given Reprieve in Late January.
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 |
Steering (1826 HK) | 49.00% | Galaxy | CMBC |
Dragon Rise (6829 HK) | 23.17% | Cheer | CNI |
Jiayuan International (2768 HK) | 17.87% | Haitong | Morton |
Ruicheng (1640 HK) | 49.64% | Roofer | Forwin |
Graphex (6128 HK) | 16.11% | Cheong Lee | China Merchant |
Prosperous (1259 HK) | 13.42% | Get Nice | HSBC |
JHBP (Genor) (6998 HK) | 11.76% | GS | St Chart |
Linekong Interactive Group (8267 HK) | 18.09% | CMB | UBS |
Source: HKEx |
The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.
Name | % chg | Into | Out of |
Central China New Life (9983 HK) | 22.03% | BNP | CMB |
Channel Micron (2115 HK) | 16.24% | ML | Outside of CCASS |
Source: HKEx |
Join 55,000+ investors, including top global asset managers overseeing $13+ trillion.
Upgrade later to our paid plans for full-access.