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

Another Semi-BIGLY Buyback at TOC: STILL an MBO Candidate

Quiddity Advisors

Event-Driven

In early December, I wrote about <a href="https://www.smartkarma.com/entities/12698" target="_blank" data-smartkarma-citation="entities:12698:1">Toc Co Ltd (8841 JP)</a>'s Bigly Buyback. On December 5th the company announced a ToSTNeT-3 buyback of up to 20 million shares, which was 16.38% of the shares outstanding. The stated reasons for the buybacks were:<blockquote>"The buyback is being conducted in order to improve capital efficiency given the opportunity provided by changing business environment" (or words to that effect). We have received notifications from shareholders Effissimo Capital Management Pte Ltd, Mizuho Bank, Mitsubishi-Tokyo UFJ Bank, and Mitsui-Sumitomo Bank stating their intentions to sell the shares they hold in our company. </blockquote>The next day, when TOC <a href="http://toc.co.jp/toc/news/pages/jikokabushiki_20171206.pdf" target="_blank">announced</a> the results of the buyback (18,716,900 shares purchased), they said Effissimo had sold down 17,916,900 shares out of its 22,917,000 shares (officially <a href="http://toc.co.jp/toc/news/pages/syuyoukabunushi_20171214.pdf" target="_blank">announced</a> a week later), leaving it with 5,000,100 shares (a 4.1% stake). That meant someone else sold exactly 800,000 shares. In fact, the announcement says that Mizuho Bank, BoT-MUFJ Bank, and Mitsui-Sumitomo Bank all sold shares. This past week, the company said it would cancel 33,000,000 treasury shares at the end of March. <table class="table table-striped"><tbody><tr><td colspan="7"><h2>Shareholder Breakdown BEFORE and AFTER the Buyback</h2></td></tr><tr><td></td><td colspan="3" style="text-align: center;">BEFORE BUYBACK</td><td colspan="3" style="text-align: center;">AFTER BUYBACK</td></tr><tr><td></td><td style="text-align: center;">Shares Held</td><td style="text-align: center;">% shs out</td><td style="text-align: center;">% voting rights</td><td style="text-align: center;">Shares Held</td><td style="text-align: center;">% shs out</td><td style="text-align: center;">% voting rights</td></tr><tr><td>Treasury Shares</td><td style="text-align: right;">14,794,800</td><td style="text-align: right;">10.81%</td><td style="text-align: right;"></td><td style="text-align: right;"> 33,511,700</td><td style="text-align: right;">24.48%</td><td style="text-align: right;"></td></tr><tr><td colspan="7"></td></tr><tr><td>Effissimo Capital Management</td><td style="text-align: right;">22,917,000</td><td style="text-align: right;">16.74%</td><td style="text-align: right;">18.77%</td><td style="text-align: right;"> 4,979,864</td><td style="text-align: right;">3.64%</td><td style="text-align: right;">4.82%</td></tr><tr><td>New Otani Company</td><td style="text-align: right;">21,251,000</td><td style="text-align: right;">15.53%</td><td style="text-align: right;">17.41%</td><td style="text-align: right;"> 21,251,000</td><td style="text-align: right;">15.53%</td><td style="text-align: right;">20.56%</td></tr><tr><td>Ohtani Kosan YK</td><td style="text-align: right;">13,165,000</td><td style="text-align: right;">9.62%</td><td style="text-align: right;">10.78%</td><td style="text-align: right;"> 13,165,000</td><td style="text-align: right;">9.62%</td><td style="text-align: right;">12.74%</td></tr><tr><td>Otani Fund</td><td style="text-align: right;">6,427,000</td><td style="text-align: right;">4.70%</td><td style="text-align: right;">5.26%</td><td style="text-align: right;"> 6,427,000</td><td style="text-align: right;">4.70%</td><td style="text-align: right;">6.22%</td></tr><tr><td>Ohtani Kosan To</td><td style="text-align: right;">5,734,000</td><td style="text-align: right;">4.19%</td><td style="text-align: right;">4.70%</td><td style="text-align: right;"> 5,734,000</td><td style="text-align: right;">4.19%</td><td style="text-align: right;">5.55%</td></tr><tr><td>Shinryo Corp</td><td style="text-align: right;">4,966,000</td><td style="text-align: right;">3.63%</td><td style="text-align: right;">4.07%</td><td style="text-align: right;"> 4,966,000</td><td style="text-align: right;">3.63%</td><td style="text-align: right;">4.80%</td></tr><tr><td>Taisei Corp</td><td style="text-align: right;">4,800,000</td><td style="text-align: right;">3.51%</td><td style="text-align: right;">3.93%</td><td style="text-align: right;"> 4,800,000</td><td style="text-align: right;">3.51%</td><td style="text-align: right;">4.64%</td></tr><tr><td>Nippon Life</td><td style="text-align: right;">2,912,000</td><td style="text-align: right;">2.13%</td><td style="text-align: right;">2.39%</td><td style="text-align: right;"> 2,912,000</td><td style="text-align: right;">2.13%</td><td style="text-align: right;">2.82%</td></tr><tr><td>Ohtani Kazuhiko</td><td style="text-align: right;">1,606,000</td><td style="text-align: right;">1.17%</td><td style="text-align: right;">1.32%</td><td style="text-align: right;"> 1,606,000</td><td style="text-align: right;">1.17%</td><td style="text-align: right;">1.55%</td></tr><tr><td>Toei Co</td><td style="text-align: right;">1,520,000</td><td style="text-align: right;">1.11%</td><td style="text-align: right;">1.25%</td><td style="text-align: right;"> 1,520,000</td><td style="text-align: right;">1.11%</td><td style="text-align: right;">1.47%</td></tr><tr><td>Sanrio Co</td><td style="text-align: right;">1,296,000</td><td style="text-align: right;">0.95%</td><td style="text-align: right;">1.06%</td><td style="text-align: right;"> 1,296,000</td><td style="text-align: right;">0.95%</td><td style="text-align: right;">1.25%</td></tr><tr><td>OTHER CORPS</td><td style="text-align: right;">14,645,300</td><td style="text-align: right;">10.70%</td><td style="text-align: right;">12.00%</td><td style="text-align: right;"> 14,645,300</td><td style="text-align: right;">10.70%</td><td style="text-align: right;">14.17%</td></tr><tr><td colspan="7" style="text-align: right;"></td></tr><tr><td>Mizuho Bank*</td><td style="text-align: right;">2,630,000</td><td style="text-align: right;">1.92%</td><td style="text-align: right;">2.15%</td><td style="text-align: right;"> 2,230,000</td><td style="text-align: right;">1.63%</td><td style="text-align: right;">2.16%</td></tr><tr><td>BOT MUFJ Bank*</td><td style="text-align: right;">200,000</td><td style="text-align: right;">0.15%</td><td style="text-align: right;">0.16%</td><td style="text-align: right;"> -  </td><td style="text-align: right;">0.00%</td><td style="text-align: right;">0.00%</td></tr><tr><td>Mitsui Sumitomo Bank*</td><td style="text-align: right;">200,000</td><td style="text-align: right;">0.15%</td><td style="text-align: right;">0.16%</td><td style="text-align: right;"> -  </td><td style="text-align: right;">0.00%</td><td style="text-align: right;">0.00%</td></tr><tr><td colspan="7" style="text-align: right;"></td></tr><tr><td>Individuals not Otani Family</td><td style="text-align: right;">3,710,694</td><td style="text-align: right;">2.71%</td><td style="text-align: right;">3.04%</td><td style="text-align: right;"> 3,710,694</td><td style="text-align: right;">2.71%</td><td style="text-align: right;">3.59%</td></tr><tr><td></td><td style="text-align: right;"></td><td style="text-align: right;"></td><td style="text-align: right;"></td><td style="text-align: right;"></td><td style="text-align: right;"></td><td style="text-align: right;"></td></tr><tr><td>TOPIX Passive Investors</td><td style="text-align: right;"> 7,000,000</td><td style="text-align: right;">5.11%</td><td style="text-align: right;">5.73%</td><td style="text-align: right;"> 7,000,000</td><td style="text-align: right;">5.11%</td><td style="text-align: right;">6.77%</td></tr><tr><td>Other Passive</td><td style="text-align: right;"> 2,000,000</td><td style="text-align: right;">1.46%</td><td style="text-align: right;">1.64%</td><td style="text-align: right;"> 2,000,000</td><td style="text-align: right;">1.46%</td><td style="text-align: right;">1.93%</td></tr><tr><td colspan="7" style="text-align: right;"></td></tr><tr><td>Others Not Accounted For</td><td style="text-align: right;">5,104,558</td><td style="text-align: right;">3.73%</td><td style="text-align: right;">4.18%</td><td style="text-align: right;"> 5,504,538</td><td style="text-align: right;">4.02%</td><td style="text-align: right;">5.33%</td></tr><tr><td colspan="7" style="text-align: right;"></td></tr><tr><td>Shares Out</td><td style="text-align: right;"> 136,879,352</td><td style="text-align: right;"></td><td style="text-align: right;"></td><td style="text-align: right;"> 136,879,352</td><td style="text-align: right;"></td><td style="text-align: right;"></td></tr><tr><td>Voting Rights</td><td style="text-align: right;"> 122,084,552</td><td style="text-align: right;"></td><td style="text-align: right;"></td><td style="text-align: right;"> 103,367,652</td><td style="text-align: right;"></td><td style="text-align: right;"></td></tr><tr><td colspan="7" style="text-align: right;"></td></tr><tr><td colspan="3" style="text-align: right;">Voting Rights of the Otani Family/Cos</td><td style="text-align: right;">39.47%</td><td style="text-align: right;"></td><td style="text-align: right;"></td><td style="text-align: right;">46.61%</td></tr><tr><td colspan="3" style="text-align: right;">Voting Rights of Crossholders</td><td style="text-align: right;">27.17%</td><td style="text-align: right;"></td><td style="text-align: right;"></td><td style="text-align: right;">31.31%</td></tr><tr><td colspan="3" style="text-align: right;">COMBINED TOTAL</td><td style="text-align: right;">66.64%</td><td style="text-align: right;"></td><td style="text-align: right;"></td><td style="text-align: right;">77.93%</td></tr></tbody></table><div class="content-remarks">Data from the pre-buyback shareholder register (Bloomberg, H1 yuho, etc) *Note on bank holdings: The Mizuho number was confirmable, the other two were not. Based on that I have made an assumption. The net effect does not change except that IF there are any discrepancies, it would INCREASE the percentage held by crossholders and decrease the percentage held by minorities.</div><h2>What Does This Mean?</h2>The one bulge bracket broker analyst covering the stock has had a "Neutral" since a year ago, with a Target Price at JPY 1200 against what was a closing price of JPY 1087/share at the time. The buyback took place at JPY 920/share. The price is now JPY 856/share (the chart is two days old).<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/048/090/original/8841%20Chart.png?1521876295" class="editor-image img-responsive" data-smartkarma-image-id="48090"></figure><div style="text-align: left;" class="content-caption">source: Bloomberg</div>Importantly, this "lowest price in a year" also coincides with the lowest market cap in 3yrs+ and lowest marketcap vs TOPIX Real Estate Sector Index in a similar timeframe. I have used market cap rather than price because the company has bought back so many shares in that time frame, including 15% last December.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/048/091/original/8841%20Ratio.png?1521876326" class="editor-image img-responsive" data-smartkarma-image-id="48091"></figure><div style="text-align: left;" class="content-caption">source: Bloomberg</div>And in addition to that cheapness, the company is in a strong net cash position, and its main building is approaching 50 years of age.<h2>What Next?</h2>Nine and a half years ago, the company announced that it planned to redevelop the site of the main TOC Building in West Gotanda - the so-called Tokyo Wholesale Center - in cooperation with the Tokyo metropolitan government and Shinagawa Ward, and that development might start in 2011 and be finalized within ten years. That hasn't happened. But...

In early December, I wrote about Toc Co Ltd (8841 JP)'s Bigly Buyback. On December 5th the company announced a ToSTNeT-3 buyback of up to 20 million shares, which was 16.38% of the shares outstanding. The stated reasons for the buybacks were:"The buyback is being conducted in order to improve capital efficiency given the opportunity provided by changing business environment" (or words to that effect). We have received notifications from shareholders Effissimo Capital Management Pte Ltd, Mizuho Bank, Mitsubishi-Tokyo UFJ Bank, and Mitsui-Sumitomo Bank stating their intentions to sell the shares they hold in our company. The next day, when TOC announced the results of the buyback (18,716,900 shares purchased), they said Effissimo had sold down 17,916,900 shares out of its 22,917,000 shares (officially announced a week later), leaving it with 5,000,100 shares (a 4.1% stake). That meant someone else sold exactly 800,000 shares. In fact, the announcement says that Mizuho Bank, BoT-MUFJ Bank, and Mitsui-Sumitomo Bank all sold shares. This past week, the company said it would cancel 33,000,000 treasury shares at the end of March. Shareholder Breakdown BEFORE and AFTER the BuybackBEFORE BUYBACKAFTER BUYBACKShares Held% shs out% voting rightsShares Held% shs out% voting rightsTreasury Shares14,794,80010.81% 33,511,70024.48%Effissimo Capital Management22,917,00016.74%18.77% 4,979,8643.64%4.82%New Otani Company21,251,00015.53%17.41% 21,251,00015.53%20.56%Ohtani Kosan YK13,165,0009.62%10.78% 13,165,0009.62%12.74%Otani Fund6,427,0004.70%5.26% 6,427,0004.70%6.22%Ohtani Kosan To5,734,0004.19%4.70% 5,734,0004.19%5.55%Shinryo Corp4,966,0003.63%4.07% 4,966,0003.63%4.80%Taisei Corp4,800,0003.51%3.93% 4,800,0003.51%4.64%Nippon Life2,912,0002.13%2.39% 2,912,0002.13%2.82%Ohtani Kazuhiko1,606,0001.17%1.32% 1,606,0001.17%1.55%Toei Co1,520,0001.11%1.25% 1,520,0001.11%1.47%Sanrio Co1,296,0000.95%1.06% 1,296,0000.95%1.25%OTHER CORPS14,645,30010.70%12.00% 14,645,30010.70%14.17%Mizuho Bank*2,630,0001.92%2.15% 2,230,0001.63%2.16%BOT MUFJ Bank*200,0000.15%0.16% -  0.00%0.00%Mitsui Sumitomo Bank*200,0000.15%0.16% -  0.00%0.00%Individuals not Otani Family3,710,6942.71%3.04% 3,710,6942.71%3.59%TOPIX Passive Investors 7,000,0005.11%5.73% 7,000,0005.11%6.77%Other Passive 2,000,0001.46%1.64% 2,000,0001.46%1.93%Others Not Accounted For5,104,5583.73%4.18% 5,504,5384.02%5.33%Shares Out 136,879,352 136,879,352Voting Rights 122,084,552 103,367,652Voting Rights of the Otani Family/Cos39.47%46.61%Voting Rights of Crossholders27.17%31.31%COMBINED TOTAL66.64%77.93%Data from the pre-buyback shareholder register (Bloomberg, H1 yuho, etc) *Note on bank holdings: The Mizuho number was confirmable, the other two were not. Based on that I have made an assumption. The net effect does not change except that IF there are any discrepancies, it would INCREASE the percentage held by crossholders and decrease the percentage held by minorities.What Does This Mean?The one bulge bracket broker analyst covering the stock has had a "Neutral" since a year ago, with a Target Price at JPY 1200 against what was a closing price of JPY 1087/share at the time. The buyback took place at JPY 920/share. The price is now JPY 856/share (the chart is two days old).source: BloombergImportantly, this "lowest price in a year" also coincides with the lowest market cap in 3yrs+ and lowest marketcap vs TOPIX Real Estate Sector Index in a similar timeframe. I have used market cap rather than price because the company has bought back so many shares in that time frame, including 15% last December.source: BloombergAnd in addition to that cheapness, the company is in a strong net cash position, and its main building is approaching 50 years of age.What Next?Nine and a half years ago, the company announced that it planned to redevelop the site of the main TOC Building in West Gotanda - the so-called Tokyo Wholesale Center - in cooperation with the Tokyo metropolitan government and Shinagawa Ward, and that development might start in 2011 and be finalized within ten years. That hasn't happened. But...

TOC's BIGLY Buyback Makes It a Takeout Target