Last Week in Event SPACE: WorleyParsons, UNIZO, Adani Gas, ERM, Dah Chong, Toshiba, China Everbright

On the 14 November 2016, Dar Group made an indicative proposal to acquire all of the shares in WOR at A$11.80/share. WOR viewed the "highly conditional" Offer as materially undervaluing the company and that it was not in the best interests of shareholders. On 1 March 2017, Dar Group acquired 13.45% in WOR with a right to increase its overall economic exposure to 19.9% in the near term, which it achieved on the 27 November. Taking advantage of the "creep" exception, Dar Group reached 22.89% on the 31 July 2018. WOR announced the acquisition of Jacobs Engineering Group (JEC US) in Oct 2018 to be funded via an A$2.9bn non-renounceable entitlement offer and A$985mm of stock issued to Jacobs. Dar continues to creep and WOR has now taken its case to FIRB to contain further share acquisitions.

• WOR is jumping the gun on FIRB. Dar has not made a full-blown takeover offer; yet WOR is pre-empting such a scenario by effectively asking whether FIRB would approve of Dar ultimately taking control in WOR - or at least, having a management role in the direction of the company.

• I would buy here. WOR is not overly cheap relative to domestic peers but is not overly expensive relative to global peers. You have a large active buyer - one that has made an indicative offer previously - in a company whose management does not want to relinquish control or enter into corporate agreements.
• FIRB may well restrict Dar from a full-takeover - the concept of information, such as intellectual property, as opposed to assets, is still something FIRB will go after - but FIRB is unlikely to block Dar buying on market on account of national security concerns.

Total Sa (FP FP) and Adani Gas made an announcement (Total, Adani Gas) that they had expanded their partnership to create India's premier gas utility/distribution company. As part of that increased partnership agreement, Total announced a Sale and Purchase Agreement with the intent to acquire 411,331,740 (37.4%) shares of Adani Gas in total at Rs. 149.63/share. Given Total's intent to acquire and exercise control (with the Existing Promoter Group) of Adani Gas pursuant to the SPA and the Shareholder Agreement, and that Total's stake will increase by more than 25% of the Voting Share Capital, this creates an obligation to conduct a Mandatory Open Offer.

• Total therefore also announced an Open Offer to buy up to 277,146,602 shares (25.2%) of Adani Gas at the same price. To the extent that the public does not sell its shares into the Open Offer, Adani Gas promoters will sell shares to get Total to a 37.4% stake in aggregate - a similar % to the Promoters - after the transactions are completed. The Offer is not likely to start for a couple of months, but given the entire float is 25.2% and the Open Offer size is 25.2%, there is functionally a put option at Rs. 149.63 for the next couple of months.
• As Brian Freitas writes, this is not a deal designed to see Total bump the price. It is specifically designed to transfer 37.4% from the Adanis to Total.
• Those "institutional" holders will either tender, or will not. Either way, it will not affect you much if you tender what you have. However, IF you are long because you want to own the back end, and they tender, you could find yourself facing the prospect of a very large offering which has to be done to keep the stock listed. If all of the float tenders, what happens then? Either the new owners of 100% - the Adani Promoters and Total - decide to have the Adanis sell down 25% in an Offer for Sale sometime in the next year, OR, they decide to take it private.
• In spirit, this deal vaguely reminds Travis of what happened with the Lee family and Cheil Industries several years ago. The stock was listed/spun out, pushed up, merged with something a lot cheaper (i.e. sold expensively) and then the shares fell for a long time, but the promoters got what they wanted out of it. And those who were not promoters did not.
• As an arb, Travis would look to buy the shares at a discount to terms on any weakness (below about INR 147) and to tender in. As a long-only investor, if you own shares, you own something illiquid and structurally way more expensive than its peers or potential peers. If you were long, he would sell here unless you wanted to own the option of a squeeze higher for people looking at the back end. There IS a possibility of a squeeze higher because there is a put option here.

On the 22 August, ERM entered into a Scheme Implementation Deed (SID) with Shell Energy Australia under which Shell proposed to acquire 100% of ERM at A$2.465/share (including a full-year A$0.045 dividend). ERM directors unanimously recommended that shareholders vote in favour of the Scheme. ERM's major shareholder (~27.39%) has confirmed he also intends to vote in favour of the Scheme. Since the SID, Perpetual has increased its stake to 8.89%, up from 6.63%, with the highest price paid of A$2.43/share - on an ex-dividend basis. 8.89% is not enough to block the Scheme, but it does raise the bar on this deal getting up and will give Shell some pause.

• Perpetual's average in-price prior to the SID was A$1.43/share, and its overall in-price after recent buying is A$1.67. The Scheme consideration, including the full-year dividend was 72% and 48% above both these figures. One would have thought that was a pretty sound investment with a view to exit.
• Turnouts for recent Aussie scheme meetings have been lackluster - 65% voted at the Ruralco Holdings (RHL AU) Scheme and 53% at Kidman Resources (KDR AU)'s. Turnouts for ERM's AGM have similarly been apathetic at ~55% and 67% in 2017 and 2018 respectively. Netting off Perpetual's stake at the 2018 AGM - assuming it voted - would indicate if all shareholders present at that time voted for the Scheme, and Perpetual voted against, you would get to ~87% approval.
• What would sway Perpetual, already sitting on a ~50% gain? A 10% bump would cost Shell Australia~US$40mn. A chunk of change but manageable for a company backed by Royal Dutch Shell (RDSA LN), and is still a cheap takeout multiple relative to peers and precedent transactions. I wouldn't rule out a kiss here for Shell to get a lock on the Scheme vote.

(link to my insight Perpetual Angles For A Bump In ERM Power)

Netmarble Corporation (251270 KS) (Mkt Cap: $6.4bn; Liquidity: $15mn)

(link to Douglas' insight: Korea M&A Spotlight: Netmarble to Acquire Woongjin Coway? The Long-Short Trade)

Dah Chong Hong (1828 HK) (Mkt Cap: $650mn; Liquidity: $1mn)

After mysteriously gaining 16% in the past month on higher than average daily volume (US$1mn/day against US$0.5mn/day for the preceding 12 months), PRC BMW-distributor DCH is now suspended "pending the issue of an announcement of inside information relating to a possible privatization proposal".

• Auto dealerships are facing long term challenges including evolving customer preferences, increasingly sophisticated competition, and potentially disruptive technologies. As the industry focused on price cuts to clear up the inventory of vehicles to meet the China V Emission Standard, the inventory index dropped to 50.4% in June, the lowest level in recent years. Luxury automobiles achieved a double-digit growth in the first half of the year, yet competition within this segment remains fierce, notably for BMW brands.
• Back in December 2015, China Grand Automotive Services (600297 CH) made a partial Offer for (75%) for Grand Baoxin Auto (1293 HK) at $5.99/share, or a PER (LTM) of 22.7x. CGA was trading at 29.7x. The only other major transaction for premier motor dealerships in China in recent years was Jardine Strategic Hldgs (JS SP) acquiring a 20% stake in Zhongsheng Group (881 HK) for US$731mn at an estimated 30x trailing PER.
• Should CITIC table an Offer, this will likely be in the form of a Scheme. DCH is incorporated in Hong Kong, therefore, there is no headcount test. FY18 earnings were the recent high watermark, with shares trading above $4, up to a high of $4.49. Forecast earnings are not expected to match or exceed those earnings until FY21E. Recent Offers by SOE - assuming CITIC make an Offer - have been pitched at ~40-50% premium to last close, or a potential Offer Price of $3.77-$4.04. This premium may be tempered by the recent price increase.

(link to my insight: BMW-Distributor Dah Chong To Be Privatised?)

Samantha Thavasa Japan (7829 JP) (Mkt Cap: $80mn; Liquidity: $2mn)

(link to Michael Causton 's insight: Suits and Handbags: Konaka and Samantha Thavasa Tie the Knot)

Dalian Port (Pda) Co Ltd H (2880 HK) (Mkt Cap: $2.9bn; Liquidity: $1mn)

The Composite Document for China Merchants Group Limited's (CMG) Offer for Dalian Port has now been dispatched. The Closing Date of the Offer is the 28 October. This is a forced Offer via a restructuring. It is not the intention of CMG to delist Dalian Port.

• It is possible the 25% free float is breached; however, CMG has made it clear it will "take appropriate steps to ensure that sufficient public float exists in the H Shares following the close of the H Share Offer". In addition, CMG "does not intend to exercise any right or power which may be available to it to compulsorily acquire any H Shares outstanding and not acquired under the H Share Offer after the close of the H Share Offer". Tendering since the Offer was open for acceptances - upon the issuance of the Circular - is estimated at 1.09%.
• Dalian Port is trading in line with listed Hong Kong ports on a P/B metric, but is more expensive on trailing PER and EV/EBITDA multiples. You have a hard floor at $1.0127 for the next week or so. There are expectations of further group restructuring as the three ports are integrated. Dalian Ports also reported solid 2019 interim results; therefore, shares may not decline significantly (if at all) once the Offer closes. Regardless, the sentiment remains downbeat as the ongoing trade dispute exacts a less receptive business environment on port operators.

(link to my insight Dalian Ports' Unconditional MGO)

Robinson Public Company (ROBINS TB) / Central Retail (192323Z TB)

China Everbright (165 HK) / Everbright Securities Co (A) (601788 CH)

CEL has reversed its one-year underperformance relative to the HSI and major investment Everbright Sec, gaining 21% in the past month on 3x the average volume in the preceding 12-months. I see the discount at 55% compared to a one-year average of ~50%.

• Interim results came out on the 29 August, wherein profit declined to HK$1.28bn from HK$1.9bn, primarily due to higher unrealised gains on financial assets in the 1H18. Operating income for the period was up 18% yoy to HK$1.35bn.
• The reason for the recent outperformance? There is nothing obvious. A recent Reuters article discussed the potential listing of China Everbright Group next year (in Hong Kong), in a move to restructure its business interests. SOE China Everbright is CEL's largest (& controlling) shareholder with 49%. A potential IPO of the mothership may help refocus investors on various holdings of the group, such as CEL.
• I think CEL has more to run here as it closes in on its one-year average. CEL guides an internal fair value per share of HK$35 - 35% higher than my book NAV - which mainly factors in the value of the fund management fees.

The TOPIX 2019 Free Float Weight Rebalance announcement was made on the 7th of October and the moves in the basket so far are limited. It is still a near-$20bn trade for month-end so investors should be aware of what is moving. There may be portfolio rebalance opportunities for your stocks trading on a LOC basis on the event day.

On October 8th, 2019, Acciona SA (ANA SM) communicated to the market that it will subscribe to 9.7mn new shares in Nordex at EUR10.21/share or EUR99mn in total. This would lift its holdings to 38.6mn shares, or 36.27%, up from 29.9%, triggering an unconditional Offer for all remaining shares at the three-month VWAP or EUR10.32/share.

• The offer represents a 1.7% premium to last close and 3% premium to the three months average closing price. The average closing share price of the five days period since the bid announcement has been EUR 11.04 per share. The market reaction seems to anticipate a sweetened offer by Acciona to Nordex shareholders.
• Placing Nordex on the average 2020E EV/EBITDA in line with European industry peers backs out a possible fair value of EUR14.26/share, or ~28% upside at the time of Jesus Rodriguez Aguilar's insight. Nordex shares traded at that level last Spring. Jesus' recommendation is to be long Nordex.

Bangkok Bank Public (BBL TB) / Kasikornbank PCL (KBANK TB)

BBL was trading at the highest price ratio relative to KBANK over the last two years. Brian Freitas looked at the fundamentals, price charts, passive flows, and flows into NVDRs to figure out whether this is the start of a breakout for BBL relative to KBANK, or if a reversal is on hand. He recommended going short BBL and long KBANK with a 6% absolute return target. Which is what transpired, wherein Brian recommended taking profits on half the position and waiting for an overshoot on the lower side to cover the remaining position and then reversing the trade.

links to Brian's insight:
Battle of the Banks - BBL Vs. KBANK.
Battle of the Banks Round 2 - BBL Vs. KBANK