Last Week in Event SPACE: Unizo, Ruralco, Pac Pacific/Donki, Asiana, Greene King, Wheelock, Intouch

Last Week in Event SPACE ...

• If you had a long position in Unizo Holdings (3258 JP) from well before, or even just this past week, you would look to get out at ¥4300/share. The reward/risk is different at ¥4300 than it is at ¥4100 unless you think there is someone out there willing to pay ¥5000-5500+.
• Despite media reports of ACCC pushback, the Ruralco Holdings (RHL AU) / Nutrien Ltd (NTR CN) merger is cleared. The Scheme is now a formality.
• Most of Pan Pacific International (7532 JP) that gets sold to Familymart UNY Holdings (8028 JP) over the next two years will come from foreign active managers. If they decide not to sell because they want to continue holding this growth stock, this could get squeezy again.
• An Aekyung/GS tilt for Asiana Airlines (020560 KS) is a real possibility. Either SK or Hanwha cannot be ruled out ahead of the close of bidding on the 3 September.
• Cheers for beers as Greene King PLC (GNK LN) becomes the second large-scale pub landlord/operator in as many months to be tabled an Offer.
• A near-on US$2bn improvement in Wheelock (20 HK) implied stub since the beginning of the year strains logic, but there are no signs of Hong Kong demonstrations abating.
• Intouch Holdings (INTUCH TB)'s NAV discount widened as Temasek block sold 8.02% of shares out, but Temasek has a history of exiting its direct stake.
• Plus, other events, CCASS movements and Mood Spins.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events - or SPACE - in the past week)

Unizo Holdings (3258 JP) (Mkt Cap: $1.4bn; Liquidity: $21mn)

Unizo had a bid from a White Knight. It got four of them - another of which was also at ¥4000/share, but Unizo chose Fortress Group Fund. As Travis Lundy wrote a few days ago in Fortress Group Fund Bids for UNIZO (3258): An Interesting TOB, it was a buy at terms because of the possibility someone could come in over the top. The New News is that Ichigo Asset Management (the Japan-based asset management company related to Ichigo Trust Pte (Singapore) which owns 48.67% of the shares and votes of Ichigo Inc (2337 JP)) filed a Large Shareholder Report on behalf of both itself and Ichigo Trust Pte for having purchased 5.56% of shares out of UNIZO.

• Given the two best bids were ¥4000/share, the other two were lower, and 12 other people did not present formal bids, Travis thought it would be unlikely that someone else would come in 25% over the top of the "market check" best bid. Unless you thought there was a high probability of a new offer coming in at ¥4600-5000+/share, ¥4300, at the time of his latest report, was not a great place to own on a reward/risk basis.
• If you were buying at ¥4300/share, that is normally thought of as an implied bet there is a 50% likelihood of someone coming over the top at ¥4600/share. That may not be the case because if someone does not come in over the top but the market stays trading at ¥4300/share, the ¥4000 bid may not reach its 67% threshold to clear.
• Elliott bought 10% and Ichigo bought 5.56%. The Real World Float (assuming crossholders did not sell to them) was just under 50%, which means these two investors bought 31% of the float. That is a lot. These two investors plus the cross-holders+HIS basically deliver 65% of the shares out. If there is a recommended deal, passive is another 15%, of which Travis expect two-thirds would tender. As long as Unizo supports a deal, it should get done.
  • UPDATE: H I S Co Ltd (9603 JP) will withdraw from the competition for a stake in Unizo, the Nikkei Business reports.

(link to Travis' insight: UNIZO: At ¥4300+, RiskArb Odds Are NOT Ever In Your Favor)

Ruralco Holdings (RHL AU) (Mkt Cap: $311mn; Liquidity: $1mn)

Phew! On the 13 June, the ACCC announced its Statement of Issues (SOI), raising preliminary competition concerns for the Ruralco/ Nutrien Ltd (NTR CN). The ACCC's concerns were not definitive nor strongly worded, but on balance, my read was that there was sufficient weight surrounding merchandising issues such that the divestment of some stores was likely required for this deal to get up. The ACCC has now cleared the merger. The clearance is subject to Nutrien divesting merchandise stores located in Broome, Alice Springs and Hughenden. Oddly, one reputable media source reported (paywalled) the day before the clearance that ACCC would reject the Nutrien/Ruralco merger.

• FIRB approval remains an outstanding condition to the deal but is expected to be obtained shortly now that ACCC has cleared the deal.
• The Directors of Ruralco intend to pay a fully franked Special Dividend of up to A$0.90 if the Scheme is implemented. This dividend may be entitled to franking credits, for investors who can take advantage, with a tax offset up to A$0.39/share. The Scheme Consideration will be reduced by the amount of any such Special Dividend.
• Trading at terms. Previously there was speculation Elders could still come over the top, but Elders Ltd (ELD AU) has opted to pursue AIRR. At 10.0+x LTM EV/EBITDA, pricing looks full. If you are remotely bullish the market, it is time to get out.

(link to my insight: ACCC Green Lights Ruralco/Nutrien Merger)

Pan Pacific International (7532 JP) (Mkt Cap: $9.8bn; Liquidity: $36mn)

Back in October last year, Familymart Uny Holdings (8028 JP) announced a Tender Offer for 20% for PPIH (then known as Don Quijote), which promptly failed. Travis wrote at the time that Itochu Corp (8001 JP) and Familymart have not given up. But they recognise they need to not promise to buy 40% of the float by ripping the market higher when the rest of the market is suffering mightily. He expected it means Familymart will try to figure out how to buy shares in the market, and expects they will be willing to buy quite a bit in the ¥6000-7000 area.

• FamilyMart has now announced a "Policy" such that FamilyMart will attempt to purchase 5.12-10.12% (8.099mm to 16.0108mm shares) over the next two years, to add to its 4.9% current holding. The announcement is designed to "cleanse" PPIH and FamilyMart executives and broker intermediaries from the "insider knowledge" of FamilyMart's intentions to go over 5% and to continue buying.
• Travis expects FamilyMart to increase its position to 15% (not 10%) and to do so more quickly than the 2-year timeframe allotted - say 12-18 months. That is 25-28% of Real World Float. If the shares remain weak - due to the earnings disappointment - as foreign investors sell on growth slowdown, Travis expects FamilyMart to pick up the pace. Retail shareholders hold VERY little (2.5mm shares), and foreign active long-only shareholders hold 80% of what remains.
• One can/should be willing to sell puts on the name at ¥5000-5500 or so and if one sees through the valley of FY2020, Travis expects growth returns in FY2021, by which time there will be less float because FamilyMart will have purchased 15-25% of the current float over the next year. Travis would be extremely reluctant to short this despite what appears to be a flexion point in profitability.

links to:
Travis' insight: FamilyMart Bought Some PPIH. Will Buy More PPIH
Oshadhi Kumarasiri's insight: FamilyMart Offers to Increase Its Stake in Donki: Success or Failure Will Depend on the Premium

Erm Power Ltd (EPW AU) (Mkt Cap: $405mn; Liquidity: $1mn)

Australian energy company ERM Power has entered into a Scheme Implementation Deed with Shell Energy Australia under which Shell proposes to acquire 100% of ERM at $2.465/share, a 43% premium to last close, in a US$400mn deal. The cash price will be reduced by the FY19 ordinary dividend of $0.045/share per share (ex-date is the 13 September); and any special dividend up to $0.085/share. Trevor St Baker, ERM's major shareholder and founder with ~27.39% of shares out, has confirmed he also intends to vote in favour of the Scheme.

• Bolting on ERM facilitates Shell's ambition towards an integrated power operator. Alongside its large-scale gas production, ERM provides Shell with almost 25% of the commercial and industrial market share in Australia - and ~12.5% of total electricity consumption in the country - together with 497MW of gas-fired power assets.
• Shell has conducted due diligence on ERM and a deal "has been in the works for a little while" according to ERM CEO Stretch. The transaction already has approval from FIRB and the ACCC, the competition regulator. The major shareholder and founder backs the Offer, which is pitched at a three and half year high, a solid premium to last close and ~20% above the fair value consensus.
• Shares closed at $2.45/share - down from an intra-day high of $2.50 - on the day of the announcement, indicating the market is not anticipating a competing Offer to come over the top. This looks like a done deal, however, this is not a very liquid situation and will likely trade close to terms.

(link to my insight: Shell's ERM Power Play)

Techno Associe (8249 JP) (Mkt Cap: $222mn; Liquidity: $0.3mn)

On 10 May this year, Sumitomo Electric Industries (5802 JP) announced that it would launch a tender offer to increase its stake in Techno from 36.25% to 51%. Sumitomo Elec has now announced that the Tender Offer for Techno would start today 22 August and go for 20 business days. The closing date is 19 September and settlement starts on the 27th of September. The price remains the same at ¥1380/share.

• Sumi Elec will buy 2,734,100 shares or 14.66% of shares out which is ¥3.77bn in total. So not a big event for event players. What usually happens in situations like this is that an Acquirer will go from non-consolidated to a 51% stake, then a couple of years later the 51% owners will take over the rest of the company.
• The price was ¥1267 at the time of the insight. Buying at ¥1267 and tendering with a 60% pro-ration gets you a "breakeven" price of ~¥1100, which is 8.5x 2020e EPS, and 0.44x book. Or 0.4x 2020e BVPS. ~¥1100 is still completely the wrong price.
• If Sumi Elec takes this out at 0.6x book in three years, that would be a bit better than ¥1600 assuming zero growth in income, etc. In the meantime, you would have collected 2.5%/year in dividends. If you got 0.7x book in five years you'd have a 5-year annual return of 14.5% including dividends. There is plenty of value for an "engaged" shareholder to sink their teeth into. And while liquidity is low, this is the kind of stock/company where if you asked them to buy back your shares or find someone who would, it would not be out of their norm.

(link to Travis' insight: Sumi Elec (5802) Tender for Techno Associe Starts)

Asiana Airlines (020560 KS) (Mkt Cap: $1bn; Liquidity: $18mn)

Reportedly the Aekyung Group has proposed to the GS Group to jointly acquire Asiana Airlines. Although neither group has revealed the full details such a partnership, one of the scenarios include the GS Group acquiring Asiana Airlines and the Aekyung Group acquiring LCCs Air Busan Co Ltd (298690 KS) and Air Seoul.

• KDB remains firm on no de-packaging. Asiana and all of its subsidiaries will be sold in one package to a single buyer or buyer consortium. The potential acquirer may need to pay as much as ₩2tn for Asiana Airlines but the various Aekyung related companies only have about ₩400bn in cash and short-term investments. The bid deadline is Sep 3.
• There have been continued concerns about the lack of deep financial pockets of Aekyung Group. Because of the significant amounts of additional capital required for the Asiana Airlines deal, the Aekyung Group has been considering a partnership with various large scale private equity firms.
• In the past few days, a local hedge fund called KCGI (Korea Corporate Government Improvement) has publicly announced that it is interested in acquiring Asiana Airlines. KCGI is currently the second-largest shareholder of Hanjin Kal Corp (180640 KS) and the major shareholder in Korean Air. There are concerns about a potential anti-trust issue of combining Korean Air and Asiana Airlines.

links to:
Douglas Kim's insight: Korea M&A Spotlight: Aekyung Group to Partner with GS Group to Acquire Asiana Airlines & Air Busan?
Sanghyun Park's insight: More Factual View on Aekyung/GS Partnership for Asiana)

Briefly ...

Lotte Chemical (011170 KS)is said to have submitted an initial bid to buy Hitachi Chemical (4217 JP), the chemical unit of Japan's Hitachi Ltd (6501 JP). No terms are (yet) available. Here is Sanghyun's brief, initial take: Lotte Chemical Makes a Preliminary Bid for Hitachi Chemical.

Greene King PLC (GNK LN) (Mkt Cap: $3.2bn; Liquidity: $10mn)

CK Asset Holdings (1113 HK) has announced it will pay $3.28bn for brewery company GNK by way of a Scheme, and take on additional debt of $2.31bn. Greene King shareholders will receive 850 pence in cash per share, a 51% premium to last close and a three-year high price. This is the second large pub acquisition in consecutive months after TDR-owned UK pub company Stonegate and UK's pub company EI Group (EIG LN) announced that they had reached an agreement for Stonegate to acquire EIG discussed in EIG Purchasing the Publican: EI Group as Target. London Pride owner Fullers also sold its beer operations to Asahi Co Ltd (3333 JP) in January for £250m.

• CK Assets and its affiliates have a recent history of favouring western assets (often regulated) in the UK and Australia with good cashflow over Chinese and HK assets. Though not regulated, pubs provide relatively stable, long-term cash flow backed by real estate. As George Magnus, chairman of the Bidco states, "the UK pub and brewing sector shares these characteristics and we believe this sector will continue to be an important part of British culture".
• This deal is being done at a decent 51% premium to last close and double-digit EV/EBITDA, in line with EIG's multiple. GNK's net income declined 34% yoy in FY19, despite the World Cup and good weather. During this period, the number of pubs trading under GNK declined by 2.5%.
• Trading at terms. That's tight. Should the market and economy defy expectations and improve, it might be worth looking at the possibility of an overbid. I would not take that bet. If you are remotely bullish the market, it is time to get out - if you are not bullish the market, this is a stockholding which would not necessarily fall much even if Brexit were to cause market troubles.

(link to my insight: Purchasing the Publican 2: Greene King as Target)

Nifty50 Rebalance Preview

The Nifty 50 is the flagship index of the National Stock Exchange of India (NSE). A recent change in the eligibility criteria has created some confusion with a few brokerages expecting Nestle India (NEST IN) to be included in the Nifty 50. Brian Freitas does not believe this is likely given the methodology for the Nifty 50 index but would not rule it out entirely.

• On August 20, NSE Indices put out a press release "Revision in eligibility criteria for inclusion of stocks in NIFTY indices" in which the eligibility criteria was changed to include stocks that were traded or permitted to trade on the NSE (from the earlier criteria where stocks needed to be listed on the NSE). This is a rule change for the family of Nifty indices (and not specifically for the Nifty 50 index).
• A few brokerages published reports where they expected NEST to be included in the Nifty 50 index, following which the stock rallied 5% on much higher than average volume. Possible deletions included Zee Entertainment Enterprises (Z IN) and Indiabulls Housing Finance (IHFL IN).
• The Nifty 50 methodology document clearly says that Eligible Securities need to be constituents of the Nifty 100 index and are available for trading in NSE's Futures & Options segment. Given the methodology, Brian did not see any stocks that can make it into the Nifty 50 in this review. However, index providers do not always follow their own methodology. In case NSE decides to add NEST, Brain sees Indiabulls Housing Finance (IHFL IN) as a deletion candidate.

(link to Brian's insight: Nifty50 Rebalance Preview - Rule Change Causes Confusion)

Wheelock & (20 HK) /Wharf Holdings (4 HK)/Wharf Real Estate Investment (1997 HK)

With both WREIC and Wharf underperforming in the face of Hong Kong's prevailing political atmosphere, Wheelock's implied negative stub is now at its lowest negative level (i.e. its best level) since WREIC's 2017 listing. To put that in context, the implied negative stub has narrowed from (~$39bn) at the beginning of the year to ($23.9bn), an improvement of $15bn. This compares to an uplift in the value of the stub assets of $1.5bn during the same time frame.

• So how does Wheelock's performance compare to a basket of Hong Kong property plays? Further analysis highlights those companies who have at least 50% of their revenue sourced from development property AND more than 50% of revenue derived in Hong Kong, as does Wheelock - have generally outperformed investment property plays, or a mixture thereon, throughout the past year. The momentum and sentiment are currently against retail/hotel plays such as WREIC; and Chinese DP and high-end Hong Kong property stocks such as Wharf.
• With protests entering their twelfth week, and no obvious sign of abating near-term, it is a difficult ask to unwind the stub here. Nevertheless, a near-on US$2bn improvement in the implied stub since the beginning of the year, far in excess of the book value improvement, is excessive. However, the NAV discount has been narrower than current levels, and with no end in sight of the ongoing demonstrations, this NAV discount low (i.e. its best level) may be tested near-term.

(link to my insight: StubWorld: Wheelock Stub Gains on Ructions in Retail)

Intouch Holdings (INTUCH TB) / Advanced Info Service (ADVANC TB)

The previous Wednesday, Temasek - via its units Aspen Holding and Anderton Investments - block sold 257.1mn shares or 8.02% of Intouch at Bt60.75, towards the low end of the indicative range. The news sent Intouch's shares down 5% the following day, and where shares currently trade. That places the discount to NAV at ~26%, versus an average of 24%. The implied stub is nearing its widest inside a year.

• Temasek has gradually reduced its exposure in Intouch since 2011. In January 2006, a Temasek-led group comprising Cedar Holdings and Aspen, bought 49.6% in Shin Corp (as Intouch was then known) from the family of Thaksin Shinawatra, and later increased to 96% in March 2006 following a tender offer for the remaining shares it did not own. Temasek now owns 10% direct (via Anderton) and 21% indirect via Singtel (ST SP).
• AIS accounts for 99% of NAV/GAV and the implied stub is closing in on a multi-year low. The InVent portfolio at the parent level are less than 1% of NAV (if included), but is the one bright spot against Thaicom's poor results (13% decline in EBITDA in 1H19) and AIS' ambiguous diversification plans into insurance and digital advertising.
• The one-year NAV average is distorted following the pop in January on rumours of a government takeout of Thaicom Pcl (THCOM TB). The 52-week average was 27% just prior to the Thaicom rumour, and 28% the day before. I like Intouch around these levels, however, I can see the NAV trending lower as investors seek clarification and understanding on AIS' diversification.

(link to my insight: StubWorld: Intouch Sell-Off As Investors Follow Temasek's Lead)

• The Scheme for Asia Satellite Telecom Holdings Ltd (1135 HK) was overwhelmingly approved. The stock will be suspended from trading at the close on the 4 September. The consideration will be paid on or before the 12 September. The interim dividend of HK$0.18/share - the ex-date is the 28 August, so this will be added to the Scheme consideration of $10.22. Previously there was some ambiguity as to the timing of the dividend.
• The Tender Offer for Travellers International Hot (RWM PM) has commenced and will end on the 23 Sept. Settlement is expected on the 30 September. The Tender Offer Price does not include selling charges, which amount to 0.621%. The independent opinion from PWC arrived at a fair value range of PHP5.0 to PHP5.70 - using DCF (which you would consider unreliable for a relatively new business with various swing factors) and market approach.
• Approval has been received from the Competition Authority of Botswana for the Mod Resources (MOD AU) Scheme. The Scheme Booklet to be issued shortly. The Scheme Meeting will be held on the 1 October. Implementation is the 23 October. This looks a done deal.
• Villa World Ltd (VLW AU)'s Scheme Booklet is expected to be dispatched next month and the Scheme Meeting to be held mid-October. Implementation is expected later October/early November.
• Robinson Public Company (ROBINS TB)'s IFA recommends shareholders should approve the delisting. The conditional exchange Offer of Bt66.50 compares to the IFA's fair value range of Bt45.60-Bt61.99/share.
  

• OSRAM Licht AG (OSR GR) announced it had agreed to waive the Standstill Agreement with AMS. This clears the way for a public takeover to be launched by ams AG (AMS SW).

• Wesfarmers Ltd (WES AU) has issued a press release after the Australian close today saying that they are no longer pursuing their Proposal to Lynas Corp Ltd (LYC AU).

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.

The following movement(s) concern recently listed companies, and therefore are (likely) lock-up related.