Last Week in Event SPACE: Yahoo Japan, Hyundai Motor, APA, Anta, Investa Office, Melco, LG Plus

Last Week in Event SPACE ...

• The chance that in the next few months Yahoo Japan (4689 JP) gets out of its longer-term Overhang-Driven Funk is non-negligible
• Elliott's Proposal #2 for Hyundai Motor Group potentially foreshadows the announcement of a revised restructuring plan
• FIRB is by no means assured after the ACCC takes no issue with CKI's offer for APA Group (APA AU)
• If Anta Sports Products (2020 HK) can get the funding, this looks like a deal which Amer Sports Oyj (AMEAS FH)'s shareholders should support
• The arb that keeps on giving as Oxford goes one-up on Blackstone - for now - on Investa Office Fund (IOF AU)
• Limited options for Melco Resorts and Entertainment (Philippines) (MRP PM)'s shareholders from Melco Resorts & Entertainment (MLCO US)'s delisting offer
• The market cap ratio between Cj Hello (037560 KS) and LG Uplus Corp (032640 KS) is a shade under the required 10% threshold ahead of a possible merger
• A competitive bidding situation may unfold in Capilano Honey (CZZ AU) as both Bega Cheese Ltd (BGA AU) and CZZ's major shareholder acquire shares through terms

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

Yahoo Japan (4689 JP) (Mkt Cap: $19.5bn; Liquidity: $80mn)

Altaba Inc (AABA US) announced a secondary offering of 750mm shares of Yahoo Japan at ¥353-360, a very slight discount to where they sold ~613mm shares to Softbank Corp (9434 JP). The possible upside was for the remaining 613mm shares owned by Altaba, and Travis Lundy expected there was a significant likelihood the whole 1.363bn shares gets sold. Sure enough, Altaba followed with an announcement it would sell all of its shares in Yahoo Japan. The deal was done at ¥354 and not everyone got their size.

• For a 20%+ shareholder to go to zero is worthy of a TSE Extraordinary Review. If it is not, they should review their rules. And if they do, hard-tracking TOPIX funds will need to buy close to 200mm shares.
• Travis would be bullish the counter as the overhang removal event is a big thing. As noted in previous insights, he sees a substantial portion of this placement needs to be purchased in the nearish term by short covers and index demand. There is likely no longer any good reason to short the shares because of Other People Selling.

(Link to Travis' insight: Altaba's Big Yahoo Japan Selldown)

Hyundai Glovis (086280 KS) (Mkt Cap: $4.2bn; Liquidity: $12mn)

Elliott's new proposal involves merging the after-service unit of Hyundai Mobis (012330 KS) with Hyundai Motor Co (005380 KS) and the remaining Mobis operations with Glovis. The proposal also includes higher dividends as well as improving its existing BoD members at Hyundai Motor and its affiliates.

• Elliott's Plan II also includes the founding Hyundai Motor Group Chung family buying shares in the newly created merged Mobis & Glovis entity as well as this new Mobis & Glovis entity buying shares of Hyundai Motor (which is to merge with after sales unit of Mobis) from Kia Motor and Hyundai's Chung family.
• Under Elliott's new proposal, the merged Mobis-Glovis entity would be the controlling entity of the Hyundai Motor Group, with a major ownership stake in Hyundai Motor. The key component of Elliott's revised plan that is different from its previous corporate reorganisation proposal a few months ago is that it provides a greater controlling influence on Glovis.
• Elliott owns $1.5bn of shares in three Hyundai group companies. This latest proposal may indicate HMG's revised restructuring plan will be announced pretty soon.

links to:
Douglas Kim's insight: Elliott Mgmt's Proposal #2 for the Hyundai Motor Group - Timing & Trying to Find the Middle Ground
Sanghyun Park's insight: Hyundai Motor Restructuring: Make a Proactive Move on Share Class Pair Trade

Kcc Corp (002380 KS) (Mkt Cap: $3bn; Liquidity: $6mn)

The KCC consortium, including KCC, SJL Partners private equity firm, and Wonik Qnc Corp (074600 KS), announced that they are purchasing Momentive (US), the world's number two player in the silicone industry, for US$3.1bn. SJL Partners will own 50% of Momentive, followed by KCC (45%), and Wonik (5%).

• Momentive's main strength is in the silicone products and this acquisition is an attempt by KCC to reduce its excessive reliance on the construction and building/home improvement sectors.
• With KCC currently trading at depressed valuations of 0.9x P/S, 8.6x P/E and 0.6x P/B, using the consensus 2018E earnings estimates, Douglas believes this is an opportunity for KCC shares to be re-rated higher, especially because it is buying a globally reputable company at an attractive valuation.

(link to Douglas' insight: Impact of the KCC Consortium Acquiring Momentive, the #2 Player in the Global Silicone Market)

APA Group (APA AU) (Mkt Cap: $8.2bn; Liquidity: $23mn)

The ACCC will not oppose CKI's acquisition of APA. This outcome was flagged given the argument a portion of APA's assets are regulated, CKI was open to greater regulation on APA's network, while CKI had proposed the divestment of some WA assets as part of its pitch.

• The key outstanding condition to the transaction is FIRB, which assesses the potential implications of proposed acquisitions for national security/public interests. Should CKI be successful, the majority of Australia's gas transmission assets - which are considered critical infrastructure - will be controlled by Chinese companies (CKI + State Grid, a Chinese SOE).
• The establishment of the Critical Infrastructure Centre, a pseudo-bolt-on to FIRB in 2017, and the passing of the Security of Critical Infrastructure Act this year, were enacted to help protect critical infrastructure from specifically targeted transactions, such as CKI's proposal. It is difficult to see how CKI's offer would not be captured under the national security test - especially one resulting in a foreign-controlled energy monopoly in potentially a tight domestic gas market.
• The counter-argument is that gas pipelines, unlike telco and electricity networks, shouldn't be regarded as "sensitive". But the question often raised: why allow a foreign company to take monopolistic control while it is not possible to do so in that foreign country? A FIRB decision is expected to be made shortly.

(link to my insight: APA/CKI: ACCC Maybe, But FIRB Unlikely)

ANTA Sports Products (2020 HK) (Mkt Cap: $12.2bn; Liquidity: $42mn)

Anta and Asian private equity firm FountainVest Partners confirmed mid-week a price indication of a bid at €40/share to take Amer Sports Oyj (AMEAS FH) [Wilson, Salomon, Atomic (skis), Mavic (bicycle rims), Precor (gym equipment), Arc'teryx (outdoor wear/accessories), Suunto (fitness sensors/watches)] private.

• This is a pretty full bid for Amer, especially given that brand management can be fickle if using stars. Serena Williams uses a Wilson racket, and there has long been suspicion that she continues to play to get to, and perhaps past, Margaret Court's Grand Slam record. The US Open would have allowed her to tie the record. One more to get past. This could shorten the potential future value of her sponsorship.
• This is a big deal for ANTA. ANTA runs some net cash and does not have a lot of debt. Amer runs some net debt (3x EBITDA). If ANTA were to do this deal itself, the combination of €300mm of net cash across both ANTA and Amer and a total of €1.0-1.05bn of EBITDA would mean a total ANTA net debt to EBITDA of 5x. It is not clear to Travis that ANTA can do this without raising a bit more equity, or a convertible bond.
• Because the parent company and founder control 60% of the shares of ANTA, it really comes down to management's decision and availability of funding. Being Cayman incorporated, there should not be too much pushback from China's State Council if it can get funding from Hong Kong. At this point, Travis would not short Amer or Anta.

(link to Travis' insight: ANTA (2020 HK) Lobs Possible €40/Share Bid for Amer)

Investa Office Fund (IOF AU) (Mkt Cap: $2.4bn; Liquidity: $16mn)

The arb that keeps on giving. IOF agreed to Blackstone's terms on its revised $5.52/unit offer. The unitholders meeting was to recommence on the 17 September (now adjourned), while the break fee was increased to $33mn.

• Oxford then bumped its indicative offer to $5.60/share. It now has OMERS board approval and the offer is still subject to DD and FIRB. Due diligence has been granted. Back in Blackstone's court ...
• Trading at $5.54 as of Friday. This deal arguably could go back & forth for a while between the two bidders. However, the upside is less assured with reference to the most recent NTA of $5.47. And if Oxford was to be the ultimate winner here, payment would not take place until December, possibly January. I'd recommend taking profit/selling in the market here.

LG Uplus Corp (032640 KS) (Mkt Cap: $6.7bn; Liquidity: $35mn)

LG Uplus appears to be on the verge of taking over CJ Hello (037560 KS). The acquisition price being reported is ₩20,000/share. This is a bit lower than what SK Telecom (017670 KS) wanted to pay back in 2015 (₩21,520).

• Under Korea's broadcasting network law, no paid TV company is allowed to own more than 30% of another, separate, paid TV company.
• From now to whenever this merger may be announced, both stock prices will likely be pegged at a market cap ratio of 10% (Hello/Uplus). Currently 9.9% and in order for LG Uplus to lower CJ Hello's stock purchase price from minority shareholders, Sanghyun believes this may fall to below 9.5-9.6% (or further).

(link to Sanghyun's insight: LG Uplus/CJ Hello Virtually Pegged At MC Ratio of Max 10% - Trade Approach on This)

Melco Resorts and Entertainment (Philippines) (MRP PM)(Mkt Cap: $730mn; Liquidity: $0.5mn)

MCO (Philippines) Investments Limited, an indirect wholly-owned subsidiary of Melco Resorts & Entertainment (MLCO US), announced a voluntary Tender Offer for up to 1,543,421,147 (27.23% - i.e. all remaining common shares held by the public) outstanding shares of MRP, at PHP7.25/share, a ~17% premium to the undisturbed price. The Tender Offer will be made in connection with a proposed voluntary delisting of MRP’s shares from the PSE.

• With MRP's board approval in the bag, this is effectively a done deal. There is no minimum tendering condition attached to the Tender Offer. The delisting offer is only subject to PSE approval.
• Expect this to trade relatively tight to terms. The actual timeframe will only be known once the Tender Offer is lodged with the SEC (tentatively 17 Sept). When the deal completes in early November (by my estimate), shareholders will hold unlisted scrip if they have not tendered.

(link to my insight: Melco to Conduct Delisting Offer for Melco Philippines)

HDC Holdings (012630 KS) (Mkt Cap: $678mn; Liquidity: $14mn)

Sanghyun recapped his discussion with HDC's IR department on the tender offer. Even if the tender is under-subscribed, this tender will go ahead.

• About 7.3mn of Dev shares owned by the owner will be tendered. Of the remaining 5.9mn, the company internally estimates that 2mn (15% of the target) at most will be tendered.
• If fully subscribed, Holdings' Dev stake will increase to 37.03% from 7.03%. This is more than enough to meet the 30% requirement, therefore the owners would prefer the offer to be under-subscribed.
• Sanghyun also updated on the arb yield. This past Friday was the last day to participate in the arb trade as Sep 18 will be the last day to tender.

links to Sanghyun's insight:
HDC Tender: Key Points from Conversation with Holdings IR This Morning
HDC Tender - Checking up on Current Trade Status
HDC Tender - Last Day for Arb Trade

Capilano Honey (CZZ AU) (Mkt Cap: $150mn; Liquidity: $0.5mn)

Bega Cheese Ltd (BGA AU) has recently built an 8.4% stake in CZZ - 7.2% since Bravo's announcement - with recent share purchases above Bravo's offer price of $20.06/share, potentially leading to a competitive bidding situation unfolding.

• Major shareholder Wroxby has also been increasing its stake since the announcement, also through terms (with the highest price paid of $21.603/share), taking its holding to 21.6% (up from 20.58%) as at 11 September.
• Both Bega and Wroxby believe CZZ is worth more than the offer price. The high watermark for CZZ is A$23.28/share (closing price) 3 years ago to the day, 16% above Bravo's offer price or an additional ~A$30mn to the deal size. That's not an insurmountable or unrealistic bump. I would recommend taking a position around these levels (~A$21).

(link to my insight: Capilano: What's the Bega Deal?)

Hanil Cement Co Ltd (300720 KS) (Mkt Cap: $598mn; Liquidity: $4mn)

Hanil Holdings (003300 KS) targets a total 1,800,000 shares of Hanil Cement (43.43% of the total shares) at ₩154,350. Here is the link on the regulatory filing about this tender.

• The owners hold a 44.26% stake in Cement, excluding 8.06% owned by Holdings, sufficient to meet the minimum under the tender offer. There is little incentive for the company to encourage Cement minority shareholders to tender. The swap ratio is at about 1.9 to 1 at the current price while Holdings' NAV suggests a ratio of 1.7 to 1. As the major shareholder wouldn't want a favourable swap ratio for Cement shareholders, there may be room for short-term upside at Holdings.
• The swap price determination period is 10-12 Oct, the tender period of 17 Oct-5 Nov, with settlement on 7 Nov.

(link to Sanghyun's insight: Hanil Holdings (003300): Tender Offer Event Summary)

Briefly ...

LightStream Research revisited Renesas Electronics (6723 JP) which is reacting positively to the news that it has agreed on terms with Integrated Device Tech (IDTI US) to acquire the company for US$49/share, an EV of US$7.2bn (22.9x EV/EBITDA). The companies expect the deal to close in 1H2019 pending approval by IDT shareholders and regulators. LightStream issued a follow-up report further delving into the IDT acquisition, which by no stretch is cheap but needs to be taken in context with its long-term strategic potential; and Renesas' inventory build-up, which is on its way to being corrected.

Links to LightStream's insight:
Renesas Electronics: Pays Up for IDT but We Like the Strategic Fit)
Renesas Electronics: Excessive Focus on IDT Deal Multiple Belies Long-Term Strategic Potential

One crazy game of chicken. Following the 30 July announcement that Hankuk Glass Ind (002000 KS) will be taken private, shares currently trade at ₩72,900, 34% above the tender offer price of ₩54,300. The tender offer period lasted from 31 July to 31 August. Saint-Gobain is the largest shareholder of Hankuk Glass and can now delist the company as it has more than 95% ownership. The remaining minority shareholders (less than 3%) are waiting for another tender later on. But they may not get it. Something doesn't add up.

(link to Douglas' insight: An Update on the Unusual Case of Hankuk Glass Going Private)

The Scheme doc is out for HAECO (44 HK). The Court Meeting is scheduled for the 8 Oct, an effective date of 29 Nov and cheques to be dispatched (on or before) 10 Dec 2018, assuming it is approved. That backs out a 4.4%/19.9% gross/annualised spread, which has been relatively static thus far this month. The IFA gave a "fair & reasonable" opinion.

Athaporn Arayasantiparb, CFA revisited Supalai Public Company (SPALI TB)'s acquisition of Mk Real Estate Devlp Pub Co (MK TB), in which he held a negative opinion on the financing method for the deal, as it weighed too heavily on the dilution of warrants, value-destroying the deal. He reiterated the deal structure remains an issue and expects Supalai's share price to fall closer to the Bt21/sh level (13% downside).

(link to Athaporn's insight: Reality Check XVI: Was the MK Property Deal A Good Idea for Supalai?)

My ongoing series flags large moves in CCASS holdings over the past week or so (~10%), 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, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.