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

BREAKING! Dog Loses To Mangalore - Idemitsu Kosan Does Its Deal for Toa Oil (5008)

Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008)

Toa Oil (5008) - The Dog Has Caught the Car, But Beware Mangalores

Toa Oil (5008) Tender Offer Updated Update - STILL Looks Bumpity

Toa Oil (5008) Tender - Has the Dog Caught the Car?

Quiddity Advisors

Equity Bottom-Up

In mid-December 2020, <a href="https://www.smartkarma.com/entities/idemitsu-kosan-co-ltd" target="_blank" data-smartkarma-citation="entities:109:1" rel="noopener">Idemitsu Kosan (5019 JP)</a> launched a lowball Tender Offer for its 51% subsidiary <a href="https://www.smartkarma.com/entities/toa-oil-co-ltd" target="_blank" data-smartkarma-citation="entities:11021:1" rel="noopener">Toa Oil Co Ltd (5008 JP)</a>. It was not the right bid, and I discussed this before the stock started trading the next business day in <a href="https://www.smartkarma.com/insights/idemitsu-launches-lowball-tender-offer-for-subsidiary-toa-oil-5008" target="_blank" data-smartkarma-citation="insights:46384" rel="noopener">Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008)</a>. 
<div class="content-highlight">
There are MULTIPLE reasons why the bid as presented did not value Toa Oil correctly. The reasons range from Sum Of The Parts valuation, liquidation scenarios, and private market bidder value, to simply measuring replacement value.
</div>
There was already a large shareholder, Cornwall Capital. They had just started buying more, as a large shareholder filing amendment showed the same day as the Idemitsu announcement. After the Tender Offer started, they started buying more, then more. And did so above terms. 
The stock climbed above terms the first day it was able to trade there. Then it did not fall until the Tender Offer went ex-. Since it went free to trade, it has closed below terms once, post deal failure.
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Coverage of this deal was presented in the insights listed below.
<table class="table table-striped">
<tbody>
<tr>
<td colspan="2" style="width: 723.636px;">
<h2>List of insights on Toa Oil (5008) Tender Offer by Idemitsu (5019)</h2>
</td>
</tr>
<tr>
<td style="width: 130px;">Date Published</td>
<td style="width: 572.727px;">
Title / Explanation
</td>
</tr>
<tr>
<td style="width: 130px;">16 Dec 2020</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/idemitsu-launches-lowball-tender-offer-for-subsidiary-toa-oil-5008" target="_blank" data-smartkarma-citation="insights:46384" rel="noopener">Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008)</a> </td>
</tr>
<tr>
<td style="width: 130px;"></td>
<td style="width: 572.727px;">Discussion of the nature of the asset, why it is the wrong price. </td>
</tr>
<tr>
<td style="width: 130px;">13 Jan 2021</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/toa-oil-5008-tender-offer-update-looks-bumpity" target="_blank" data-smartkarma-citation="insights:46996" rel="noopener">Toa Oil (5008) Tender Offer Update - Looks Bumpity.</a> </td>
</tr>
<tr>
<td style="width: 130px;"></td>
<td style="width: 572.727px;">Article in Sentaku, breakdown of location of refinery assets in the Tokyo Bay Area, and why it makes sense to look at a potentially different outcome involving <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> </td>
</tr>
<tr>
<td style="width: 130px;">31 Jan 2021</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/toa-oil-5008-tender-offer-updated-update-still-looks-bumpity" target="_blank" data-smartkarma-citation="insights:47625" rel="noopener">Toa Oil (5008) Tender Offer Updated Update - STILL Looks Bumpity</a> </td>
</tr>
<tr>
<td style="width: 130px;"></td>
<td style="width: 572.727px;">Shares climbing, profits soaring. </td>
</tr>
<tr>
<td style="width: 130px;">12 Feb 2021</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/toa-oil-5008-tender-has-the-dog-caught-the-car" target="_blank" data-smartkarma-citation="insights:48018" rel="noopener">Toa Oil (5008) Tender - Has the Dog Caught the Car?</a> </td>
</tr>
<tr>
<td style="width: 130px;"></td>
<td style="width: 572.727px;">Profits, a Bump, Analysis of the Tank Farm value, and the value of investors making noise</td>
</tr>
<tr>
<td style="width: 130px;">17 Feb 2021</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/toa-oil-5008-the-dog-has-caught-the-car-but-beware-mangalores" target="_blank" data-smartkarma-citation="insights:48228" rel="noopener">Toa Oil (5008) - The Dog Has Caught the Car, But Beware Mangalores</a> </td>
</tr>
<tr>
<td style="width: 130px;"></td>
<td style="width: 572.727px;">The Tender Offer is blocked, but Idemitsu has historical form in diluting noisy minority shareholders to get its way. What to watch for going forward.  And a gif of Mangalores.</td>
</tr>
<tr>
<td colspan="2" style="width: 723.636px;"></td>
</tr>
<tr>
<td colspan="2" style="width: 723.636px;">
<h3>Background</h3>
</td>
</tr>
<tr>
<td style="width: 130px;">2 Jan 2016</td>
<td style="width: 572.727px;"><a href="https://www.smartkarma.com/insights/japan-refiner-mergers-antitrust-approvals-grouped-together" target="_blank" rel="noopener">Japan Refiner Mergers:  Antitrust Approvals Grouped Together</a></td>
</tr>
</tbody>
</table>
Eventually, the deal failed. And the company reinstated its dividend for March 2021 at the same level as it had originally forecast for the year back in July 2020 - ¥40/share (-20% yoy).
This was, to my knowledge, the first deal where a Japanese parent would buy out a Japanese subsidiary which ever failed. 
The problem is, that doesn't change Idemitsu's mind. It still wants to consolidate and integrate refinery operations based on demand for refined products dropping even more radically than expected. 
This week, there was a Nikkei article/op-ed out after the deal failed and it caused the stock to pop 13.3% the day it came out. The stock closed today 10.5% above the original Tender Offer terms. 
The <a href="https://www.nikkei.com/article/DGXZQOGD17D3H0X10C21A2000000/?unlock=1" target="_blank" rel="noopener">article/op-ed</a> was... kind of obvious. And not terribly insightful. It is worth a read, and then it is worth thinking about one's rebuttals.
More below.

In mid-December 2020, Idemitsu Kosan (5019 JP) launched a lowball Tender Offer for its 51% subsidiary Toa Oil Co Ltd (5008 JP). It was not the right bid, and I discussed this before the stock started trading the next business day in Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008). 

There are MULTIPLE reasons why the bid as presented did not value Toa Oil correctly. The reasons range from Sum Of The Parts valuation, liquidation scenarios, and private market bidder value, to simply measuring replacement value.

There was already a large shareholder, Cornwall Capital. They had just started buying more, as a large shareholder filing amendment showed the same day as the Idemitsu announcement. After the Tender Offer started, they started buying more, then more. And did so above terms. 
The stock climbed above terms the first day it was able to trade there. Then it did not fall until the Tender Offer went ex-. Since it went free to trade, it has closed below terms once, post deal failure.




Coverage of this deal was presented in the insights listed below.




List of insights on Toa Oil (5008) Tender Offer by Idemitsu (5019)



Date Published

Title / Explanation



16 Dec 2020
Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008) 



Discussion of the nature of the asset, why it is the wrong price. 


13 Jan 2021
Toa Oil (5008) Tender Offer Update - Looks Bumpity. 



Article in Sentaku, breakdown of location of refinery assets in the Tokyo Bay Area, and why it makes sense to look at a potentially different outcome involving ENEOS Holdings (5020 JP) 


31 Jan 2021
Toa Oil (5008) Tender Offer Updated Update - STILL Looks Bumpity 



Shares climbing, profits soaring. 


12 Feb 2021
Toa Oil (5008) Tender - Has the Dog Caught the Car? 



Profits, a Bump, Analysis of the Tank Farm value, and the value of investors making noise


17 Feb 2021
Toa Oil (5008) - The Dog Has Caught the Car, But Beware Mangalores 



The Tender Offer is blocked, but Idemitsu has historical form in diluting noisy minority shareholders to get its way. What to watch for going forward.  And a gif of Mangalores.






Background



2 Jan 2016
Japan Refiner Mergers:  Antitrust Approvals Grouped Together



Eventually, the deal failed. And the company reinstated its dividend for March 2021 at the same level as it had originally forecast for the year back in July 2020 - ¥40/share (-20% yoy).
This was, to my knowledge, the first deal where a Japanese parent would buy out a Japanese subsidiary which ever failed. 
The problem is, that doesn't change Idemitsu's mind. It still wants to consolidate and integrate refinery operations based on demand for refined products dropping even more radically than expected. 
This week, there was a Nikkei article/op-ed out after the deal failed and it caused the stock to pop 13.3% the day it came out. The stock closed today 10.5% above the original Tender Offer terms. 
The article/op-ed was... kind of obvious. And not terribly insightful. It is worth a read, and then it is worth thinking about one's rebuttals.
More below.

Toa Oil (5008) - Idemitsu Looking To The Next Attempt?