Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

HK Type 4 license through Ballingal Investment Advisors Ltd. ("BIA" or "BIAL")

BACKGROUND
I have 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money. 

4 years in fixed income macro, 8 years running internal hedge fund and 4yrs investment banking at Citi in Japan, 3 years running an Asia multi-strat portfolio at a hedge fund, 4+yrs as an independent special situations analyst.

Pan-Asia Catalysts/Events

NIPPO (1881 JP) - Belated Cowbell, Worth Getting Involved.

NIPPO (1881) Tender Offer to Launch - May Not Be A Done Deal

NIPPO (1881 JP) Gets Some Cowbell - It Probably Needs More

ENEOS To Steamroll Nippo (1881 JP) Minorities

Quiddity Advisors

Event-Driven

When the bid was announced, in <a href="https://www.smartkarma.com/insights/eneos-to-steamroll-nippo-1881-jp-minorities" target="_blank" data-smartkarma-citation="insights:57299" rel="noopener">ENEOS To Steamroll Nippo (1881 JP) Minorities</a> I wrote about how in parent <a href="https://www.smartkarma.com/entities/eneos-holdings-inc" target="_blank" data-smartkarma-citation="entities:638:1" rel="noopener">ENEOS Holdings (5020 JP)</a> bid to buy out the minority holders of <a href="https://www.smartkarma.com/entities/nippo-corp" target="_blank" data-smartkarma-citation="entities:2583:1" rel="noopener">Nippo Corp (1881 JP)</a> despite being an all-time high price, the bid was still egregiously low. NIPPO's independent panel and board, of course, agreed with its parent company that the convoluted construct where ENEOS would participate in a 3rd party buyout, then sell its ownership back to the company (taking the cash out) while still controlling the company (then eventually try to re-list the company after taking the money out) was all good for shareholders and the company itself. Investors should not be under any illusion that NIPPO's Board will, when presented with numbers which suggest they are selling the company too cheaply for the benefit of ENEOS will suddenly say "aha, you are right, we didn't count the securities and real estate correctly."If NIPPO's Board officially reviews the numbers and comes to the conclusion that they made a mistake, that upsets the entire ecosystem - the acquiror, the lawyers on both sides, the accountants and fair value assessors, and all the advisors who told them that this was fair and appropriate. Every single member of the ecosystem would be wrong.And that can't happen, so it won't. The only one who changes the outcome here is the buyer - who can raise the price - or the investor base - who can raise the price on the buyer, challenging them to pay more. A short while ago, the CEO of Monex Oki Matsumoto in his role as CIO of the small activist-ish Monex Activist Mother Fund said that the ¥4,000/share TOB price was too cheap, and NIPPO should consider a special dividend to shareholders. This was discussed in <a href="https://www.smartkarma.com/insights/nippo-1881-jp-gets-some-cowbell-it-probably-needs-more" target="_blank" data-smartkarma-citation="insights:58103" rel="noopener">NIPPO (1881 JP) Gets Some Cowbell - It Probably Needs More</a> a bit over a week ago.  Three days later (27 Sep), Silchester International Investors - which says it is not an activist and generally does not make public comment - apparently said that generally agreed with what Matsumoto-san had to say. What investors may not have realised if they did not read the fine print of the original announcement is that the Board of NIPPO has already agreed to support a huge distribution of the company's cash to shareholders. It is at the bottom of <a href="https://www.nippo-c.co.jp/english/images/aboutnippo/irinfo/2021_0910_5.pdf" target="_blank" rel="noopener">p5</a> and it says that NIPPO will distribute 194.098bn yen of the company's cash to shareholders.Actually, it will only give that cash to one shareholder - ENEOS - but the principle is the same. This cash is not needed for its operations. Therefore, in the process of "raising corporate value through the transaction" it will give that cash to shareholders. Investors have it in front of them. This morning Asia time, activist investor Oasis Management Company issued a <a href="https://www.businesswire.com/news/home/20211004005747/en/Oasis-Statement-on-NIPPO-Corporation" target="_blank" rel="noopener">press release</a> calling on NIPPO to conduct an active market check to achieve a higher price, and says it believes NIPPO shares are worth "over JPY5,600" apiece. I do not disagree. In my first insight, I said the ¥4,000/share TOB price was ¥1,500-2,000/share light. For investors...<ol>
<li>The <a href="https://www.businesswire.com/news/home/20211004005747/en/Oasis-Statement-on-NIPPO-Corporation" target="_blank" rel="noopener">press release</a> is definitely worth reading. </li>
<li>The <a href="https://www.nippo-c.co.jp/english/images/aboutnippo/irinfo/2021_0910_5.pdf" target="_blank" rel="noopener">original announcement</a> is definitely worth re-reading</li>
<li>It is worth digging through the structure and process to figure out how ENEOS (and NIPPO and GS?) are taking advantage of minorities. The statements and the actions do not necessarily agree with each other and the fiduciary duties of ENEOS and NIPPO.</li>
<li>And as is usually the case in these situations, it is worth getting out your <a href="https://www.smartkarma.com/insights/japan-needs-more-cowbell" target="_blank" rel="noopener">cowbell</a>.</li>
</ol><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/233/564/original/will-ferrell-cowbell.gif?1633414041" class="editor-image img-responsive" data-smartkarma-image-id="233564"></figure></section>So below, I try to do #3.<hr>Separately, investors should have questions about the Sentaku article which came out discussing the coincidence that GS has just perhaps agreed to sell an asset to ENEOS at a price below other bidders, and is now being accorded the opportunity to participate in a separate transaction with ENEOS where they bring neither value nor net capital.

When the bid was announced, in ENEOS To Steamroll Nippo (1881 JP) Minorities I wrote about how in parent ENEOS Holdings (5020 JP) bid to buy out the minority holders of Nippo Corp (1881 JP) despite being an all-time high price, the bid was still egregiously low. NIPPO's independent panel and board, of course, agreed with its parent company that the convoluted construct where ENEOS would participate in a 3rd party buyout, then sell its ownership back to the company (taking the cash out) while still controlling the company (then eventually try to re-list the company after taking the money out) was all good for shareholders and the company itself. Investors should not be under any illusion that NIPPO's Board will, when presented with numbers which suggest they are selling the company too cheaply for the benefit of ENEOS will suddenly say "aha, you are right, we didn't count the securities and real estate correctly."If NIPPO's Board officially reviews the numbers and comes to the conclusion that they made a mistake, that upsets the entire ecosystem - the acquiror, the lawyers on both sides, the accountants and fair value assessors, and all the advisors who told them that this was fair and appropriate. Every single member of the ecosystem would be wrong.And that can't happen, so it won't. The only one who changes the outcome here is the buyer - who can raise the price - or the investor base - who can raise the price on the buyer, challenging them to pay more. A short while ago, the CEO of Monex Oki Matsumoto in his role as CIO of the small activist-ish Monex Activist Mother Fund said that the ¥4,000/share TOB price was too cheap, and NIPPO should consider a special dividend to shareholders. This was discussed in NIPPO (1881 JP) Gets Some Cowbell - It Probably Needs More a bit over a week ago.  Three days later (27 Sep), Silchester International Investors - which says it is not an activist and generally does not make public comment - apparently said that generally agreed with what Matsumoto-san had to say. What investors may not have realised if they did not read the fine print of the original announcement is that the Board of NIPPO has already agreed to support a huge distribution of the company's cash to shareholders. It is at the bottom of p5 and it says that NIPPO will distribute 194.098bn yen of the company's cash to shareholders.Actually, it will only give that cash to one shareholder - ENEOS - but the principle is the same. This cash is not needed for its operations. Therefore, in the process of "raising corporate value through the transaction" it will give that cash to shareholders. Investors have it in front of them. This morning Asia time, activist investor Oasis Management Company issued a press release calling on NIPPO to conduct an active market check to achieve a higher price, and says it believes NIPPO shares are worth "over JPY5,600" apiece. I do not disagree. In my first insight, I said the ¥4,000/share TOB price was ¥1,500-2,000/share light. For investors...
The press release is definitely worth reading. 
The original announcement is definitely worth re-reading
It is worth digging through the structure and process to figure out how ENEOS (and NIPPO and GS?) are taking advantage of minorities. The statements and the actions do not necessarily agree with each other and the fiduciary duties of ENEOS and NIPPO.
And as is usually the case in these situations, it is worth getting out your cowbell.
So below, I try to do #3.Separately, investors should have questions about the Sentaku article which came out discussing the coincidence that GS has just perhaps agreed to sell an asset to ENEOS at a price below other bidders, and is now being accorded the opportunity to participate in a separate transaction with ENEOS where they bring neither value nor net capital. 

NIPPO (1881 JP) Gets MORE Cowbell as Oasis Objects