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

Sakai Ovex Tender Offer Fails But The Stock Gains an Activist

Sakai Ovex MBO Reloaded - Up 27% from Last Weak Bump But Still Cheap

The Amended FamilyMart Document Is A MUST READ For Investor-Stewards

FamilyMart Tender Offer - Winnie and HunnyPot Redux

Quiddity Advisors

Event-Driven

Today during trading hours, smallcap textile manufacturer <a href="https://www.smartkarma.com/entities/sakai-ovex-co-ltd" target="_blank" data-smartkarma-citation="entities:20002:1" rel="noopener">Sakai Ovex (3408 JP)</a> announced its Q3 earnings and also announced an MBO by its president, Matsuki-san. 
The stock was briefly suspended then went limit up, closing at ¥2683.
The Tender Offer to take the company private is at ¥2,850/share, an all-time high.
The Number 3 Shareholder Nippon Active Value Fund PLC ("NAVF") has agreed to tender their 389,900 shares counting for 6.30%. In return for this, the NAVF will be allocated "B Shares" (non-voting preference shares, where terms are not yet decided) in the acquirer. The NAVF is a small (£112mm) LSE-listed closed end fund which was launched in February 2020. It is managed by investment adviser Rising Sun Management. 
This is not a fund named "Nippon Active Value Fund" getting out. This is a listed closed end fund agreeing to own a private "B Share" of an unlisted company at an all-time high price. 
If you know who is behind Rising Sun Management, you should take a closer look. 
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While ¥2850/share is an all-time high share price, it is still well short of Book Value Per Share (now just above ¥3,700/share). 
And Book Value is probably well short of Real Value as it includes some investments in affiliates which are earning VERY well - far above the average ROE of the average suffering affiliate. And because they are investments in affiliates, they are not marked to market. And conveniently, they don't seem to show up in the "free cash flow" valuation by the 3rd party valuation agent on this deal. 
That book value also includes fixed assets which have been depreciated down 90%. 
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This company, which management would tell you desperately needs to be restructured, and so needs to be taken private to spare shareholders of the indignity of negative and volatile earnings over the next couple of years, is supposed to earn a net return on EV (less listed securities) of something like 15-20% over the next few years, all while supporting short-term net assets equivalent to half of EV.
The issue here is that the headline figures do not tell you the valuation of the company, and once again, the "financial advisors" to the acquirer never seem to do the right thing in valuing companies which get taken over. Sakai Ovex directors seem happy to recommend a takeover at an all-time high and a 31.7% premium to last, but once again, the issue is that headline figures do not tell you the real value of the company, and once again, the "financial advisors" never seem to get it quite right. 
Why is it that MBOs always seem to be done at below book value?
Oh... those securities worth 3x EBITDA?   Don't mind those...
The fixed assets earning an OPCF Less Capex return of 20+%?   Hmmm.... 
Key for investors in these situations is to understand that IF a bank is going to lend the entire purchase price to the MBO buyers who themselves are well-known value/activist shareholders, the MBO is probably going to be done at the wrong price. 
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There is, as always, lots more below the fold.

Today during trading hours, smallcap textile manufacturer Sakai Ovex (3408 JP) announced its Q3 earnings and also announced an MBO by its president, Matsuki-san. 
The stock was briefly suspended then went limit up, closing at ¥2683.
The Tender Offer to take the company private is at ¥2,850/share, an all-time high.
The Number 3 Shareholder Nippon Active Value Fund PLC ("NAVF") has agreed to tender their 389,900 shares counting for 6.30%. In return for this, the NAVF will be allocated "B Shares" (non-voting preference shares, where terms are not yet decided) in the acquirer. The NAVF is a small (£112mm) LSE-listed closed end fund which was launched in February 2020. It is managed by investment adviser Rising Sun Management. 
This is not a fund named "Nippon Active Value Fund" getting out. This is a listed closed end fund agreeing to own a private "B Share" of an unlisted company at an all-time high price. 
If you know who is behind Rising Sun Management, you should take a closer look. 




While ¥2850/share is an all-time high share price, it is still well short of Book Value Per Share (now just above ¥3,700/share). 
And Book Value is probably well short of Real Value as it includes some investments in affiliates which are earning VERY well - far above the average ROE of the average suffering affiliate. And because they are investments in affiliates, they are not marked to market. And conveniently, they don't seem to show up in the "free cash flow" valuation by the 3rd party valuation agent on this deal. 
That book value also includes fixed assets which have been depreciated down 90%. 

This company, which management would tell you desperately needs to be restructured, and so needs to be taken private to spare shareholders of the indignity of negative and volatile earnings over the next couple of years, is supposed to earn a net return on EV (less listed securities) of something like 15-20% over the next few years, all while supporting short-term net assets equivalent to half of EV.
The issue here is that the headline figures do not tell you the valuation of the company, and once again, the "financial advisors" to the acquirer never seem to do the right thing in valuing companies which get taken over. Sakai Ovex directors seem happy to recommend a takeover at an all-time high and a 31.7% premium to last, but once again, the issue is that headline figures do not tell you the real value of the company, and once again, the "financial advisors" never seem to get it quite right. 
Why is it that MBOs always seem to be done at below book value?
Oh... those securities worth 3x EBITDA?   Don't mind those...
The fixed assets earning an OPCF Less Capex return of 20+%?   Hmmm.... 
Key for investors in these situations is to understand that IF a bank is going to lend the entire purchase price to the MBO buyers who themselves are well-known value/activist shareholders, the MBO is probably going to be done at the wrong price. 

There is, as always, lots more below the fold. 

Sakai Ovex MBO - Wrong Price (And the Bidder Knows It)