Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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<p>Just plain horrible.</p>
<p>Following an indicative pre-market sell-off of 35%, <a href="https://www.smartkarma.com/entities/51-job-inc-adr" target="_blank" data-smartkarma-citation="entities:532:1" rel="noopener">51 Job Inc (JOBS US)</a> closed down 19.2%, and is now 20% adrift of the undisturbed price. </p>
<p>The news? As per 51job's <a href="https://ir.51job.com/ir/php/2021/PreRelease20211108.php?1108" target="_blank" rel="noopener">announcement</a>:</p>
<blockquote>
<p>that certain members of the buyer consortium that formed Garnet Faith Limited to acquire the Company ... have been in consultation with Chinese regulators on recent regulatory changes in China that may be applicable to the Company and the Proposed Transaction. The consultation process by these buyer consortium members is currently ongoing and a clear timeline to its completion cannot be provided at this time. </p>
</blockquote>
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<p>"<em>Recent regulatory changes</em>" emerged shortly after <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Global (DIDI US)</a>'s listing in early July, and a broad regulatory crackdown followed, casting a net over sectors from education to technology. As quoted by Ministry of Industry and Information Technology spokesperson Zhao Zhiguo back in September: "<em>we are guiding relevant companies to carry out self-examination and rectification</em>".</p>
<p>Late last month State Administration for Market Regulation (SAMR) proposed a list of responsibilities it wanted internet platforms to uphold. This latest edict primarily targeted large platforms (such as <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>, and <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>) and that they should (according to a Reuters <a href="https://www.reuters.com/world/china/china-proposes-guidelines-internet-platform-responsibilities-2021-10-29/" target="_blank" rel="noopener">article</a>) "<em>abide by the principles of fairness when offering services and should open their services up to other platform operators. They should not obtain data without users' consent and should be transparent when using big data to recommend products</em>."  The SAMR said these were draft guidelines that were open to public consultation until yesterday.</p>
<p>51job.com is the leading recruitment website/platform in China. Shares rolled over in July as the regulatory oversight on internet platforms ensnared more sectors/companies. </p>
<p>Yet this latest announcement from 51job provides little new news to what was already known. Timing, admittedly, was not ideal, arriving shortly on the heels of last week's <a href="https://www.sec.gov/Archives/edgar/data/0001295484/000110465921132333/tm2131363d1_sc13da.htm" target="_blank" rel="noopener">announcement</a> that funding for the Offer had progressed.  </p>
<p>The significant price correction yesterday - which could all but be construed as a dealbreak - can ostensibly be put down to short-term investors piling into 51job on the financing news, then turning tail, exiting en-masse after the perceived financing head-fake.  </p>
<p>Yesterday's price movement appears overdone.  The gross spread to terms is now out to 45.8%.</p>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/240/535/original/image_87521874221636431612863.png?1636431613" class="editor-image img-responsive" data-smartkarma-image-id="240535"></figure>
<p>More below the fold.</p>
</div>


Just plain horrible.
Following an indicative pre-market sell-off of 35%, 51 Job Inc (JOBS US) closed down 19.2%, and is now 20% adrift of the undisturbed price. 
The news? As per 51job's announcement:

that certain members of the buyer consortium that formed Garnet Faith Limited to acquire the Company ... have been in consultation with Chinese regulators on recent regulatory changes in China that may be applicable to the Company and the Proposed Transaction. The consultation process by these buyer consortium members is currently ongoing and a clear timeline to its completion cannot be provided at this time. 


"Recent regulatory changes" emerged shortly after DiDi Global (DIDI US)'s listing in early July, and a broad regulatory crackdown followed, casting a net over sectors from education to technology. As quoted by Ministry of Industry and Information Technology spokesperson Zhao Zhiguo back in September: "we are guiding relevant companies to carry out self-examination and rectification".
Late last month State Administration for Market Regulation (SAMR) proposed a list of responsibilities it wanted internet platforms to uphold. This latest edict primarily targeted large platforms (such as Alibaba Group (9988 HK), Tencent (700 HK), and Meituan (3690 HK)) and that they should (according to a Reuters article) "abide by the principles of fairness when offering services and should open their services up to other platform operators. They should not obtain data without users' consent and should be transparent when using big data to recommend products."  The SAMR said these were draft guidelines that were open to public consultation until yesterday.
51job.com is the leading recruitment website/platform in China. Shares rolled over in July as the regulatory oversight on internet platforms ensnared more sectors/companies. 
Yet this latest announcement from 51job provides little new news to what was already known. Timing, admittedly, was not ideal, arriving shortly on the heels of last week's announcement that funding for the Offer had progressed.  
The significant price correction yesterday - which could all but be construed as a dealbreak - can ostensibly be put down to short-term investors piling into 51job on the financing news, then turning tail, exiting en-masse after the perceived financing head-fake.  
Yesterday's price movement appears overdone.  The gross spread to terms is now out to 45.8%.


More below the fold.


AlphaSituations-Event/Catalyst Driven Research, AlphaSituations

Robert Sassoon

AlphaSituations-Event/Catalyst Driven Research

AlphaSituations

Since its establishment, AlphaSituations has delivered a track record of outperformance with a hit rate of winners of more than 70% of its portfolio of ideas generating annualized average returns of 20%. In January 2022, AlphaSituations was contracted by Water Tower Research, an investor engagement and stakeholder communication platform to provide coverage of Special Situations

<p>In complete contrast to the recent Schedule 13D filing (November 1, 2021) disclosing that  <a href="https://www.smartkarma.com/entities/51-job-inc-adr" target="_blank" data-smartkarma-citation="entities:532:1" rel="noopener">51 Job Inc Adr (JOBS US) </a> Founder/CEO Rick Yan and his affiliated entities, members of the Buying Group  had entered into financing agreements with China Merchants Bank and Shanghai Pudong Development Bank putting into place the financing for the Go-Private transaction as contemplated by their commitment letters (disclosed in the press release of June 21, 2021 announcing the agreed transaction), any hope for this Go-Private deal moving quickly to consummation, if at all, appears to have evaporated. In a flash, the spread has widened from 18% to  46%.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/240/463/original/image_75543846961636410149399.png?1636410151" class="editor-image img-responsive" data-smartkarma-image-id="240463"></figure><p>In this insight, we attempt to read between the lines of a somewhat terse statement concerning regulatory involvement with the deal. It may not be as bad as the market's first take.</p>

In complete contrast to the recent Schedule 13D filing (November 1, 2021) disclosing that  51 Job Inc Adr (JOBS US)  Founder/CEO Rick Yan and his affiliated entities, members of the Buying Group  had entered into financing agreements with China Merchants Bank and Shanghai Pudong Development Bank putting into place the financing for the Go-Private transaction as contemplated by their commitment letters (disclosed in the press release of June 21, 2021 announcing the agreed transaction), any hope for this Go-Private deal moving quickly to consummation, if at all, appears to have evaporated. In a flash, the spread has widened from 18% to  46%.In this insight, we attempt to read between the lines of a somewhat terse statement concerning regulatory involvement with the deal. It may not be as bad as the market's first take.

MergerTalk: Thoughts On Today's Disclosure-Why It Is Not The Deal Killer The Market May Think It Is

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<p>As a reminder, <a href="https://www.smartkarma.com/entities/51-job-inc-adr" target="_blank" data-smartkarma-citation="entities:532:1" rel="noopener">51 Job Inc Adr (JOBS US)</a> entered into a definitive agreement for a privatisation transaction at $79.05 in cash per ADS on 21 June. The consortium consists of DCP, Ocean Link Partners, <a href="https://www.smartkarma.com/entities/recruit-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15070:1" rel="noopener">Recruit Holdings (6098 JP)</a> and Mr Rick Yan, the CEO since 2000. </p><p>The merger was expected to close during the second half of 2021. The merger required shareholders representing two-thirds of shares present and voting to approve the deal. </p><p>However, since the announcement of the definitive agreement, the gross spread reached a high of 33% on 29 October largely due to the radio silence on the deal completion. In the current uncertain Chinese regulatory climate, 51job did little to soothe investors’ nerves by failing to even mention the privatisation deal in its 2Q21 results released on 24 September.</p><p>Encouragingly, the shares climbed 10% on 2 November due to the release of a Schedule 13D filing on 1 November which highlighted the consortium’s acquisition facilities agreement of $1.8 billion entered on 21 October and Mr Rick Yan’s facility agreement of $450 million entered on 28 October, both with China Merchants Bank. </p><p>We think that the signing of the acquisition facilities is a significant step towards deal completion. While the privatisation price is not a knockout bid and is a modest premium to historical VWAPs over a 3-years and 1-year time period, the offer is reasonable in the context of 51job’s forecasted growth (PEG basis). Nevertheless, for shareholders seeking to be paid the fair value of their shares, dissenter rights are available.  </p><div class="content-highlight"><p>The announcement on 21 June stated that Mr Rick, Recruit and certain other existing shareholders have agreed to vote their shares, which represent 54.9% of the voting rights, in favour of the privatisation deal. We continue to think that this level of support should be enough to get past the two-thirds shareholder approval threshold. The gross spread to the offer price is 17.3% at the last close price of $67.40 per ADS. </p></div>

As a reminder, 51 Job Inc Adr (JOBS US) entered into a definitive agreement for a privatisation transaction at $79.05 in cash per ADS on 21 June. The consortium consists of DCP, Ocean Link Partners, Recruit Holdings (6098 JP) and Mr Rick Yan, the CEO since 2000. The merger was expected to close during the second half of 2021. The merger required shareholders representing two-thirds of shares present and voting to approve the deal. However, since the announcement of the definitive agreement, the gross spread reached a high of 33% on 29 October largely due to the radio silence on the deal completion. In the current uncertain Chinese regulatory climate, 51job did little to soothe investors’ nerves by failing to even mention the privatisation deal in its 2Q21 results released on 24 September.Encouragingly, the shares climbed 10% on 2 November due to the release of a Schedule 13D filing on 1 November which highlighted the consortium’s acquisition facilities agreement of $1.8 billion entered on 21 October and Mr Rick Yan’s facility agreement of $450 million entered on 28 October, both with China Merchants Bank. We think that the signing of the acquisition facilities is a significant step towards deal completion. While the privatisation price is not a knockout bid and is a modest premium to historical VWAPs over a 3-years and 1-year time period, the offer is reasonable in the context of 51job’s forecasted growth (PEG basis). Nevertheless, for shareholders seeking to be paid the fair value of their shares, dissenter rights are available.  The announcement on 21 June stated that Mr Rick, Recruit and certain other existing shareholders have agreed to vote their shares, which represent 54.9% of the voting rights, in favour of the privatisation deal. We continue to think that this level of support should be enough to get past the two-thirds shareholder approval threshold. The gross spread to the offer price is 17.3% at the last close price of $67.40 per ADS. 

51job’s Privatisation Spread Risk/Reward

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

<p>PB Fintech (PBF), India’s largest online platform for insurance and lending products, aims to raise up to US$793m via selling a mix of primary and secondary shares in its India IPO. The company is backed by a strong set of investors including Info Edge, Tencent, Temasek, Tiger Global and Softbank.</p><p>The company operates two platforms: Policybazaar operates in India’s online insurance product and service industry; and Paisabazaar platform operates in India’s online credit industry. As per Frost &amp; Sullivan, the company is a leader in the online sphere in both segments. </p><p>Despite Paisabazaar having taken a hit due to COVID-19, the company has managed to grow its revenue by 80% over FY19-21. In addition, it has been able to rein in expenses as well leading to an improvement in margins. Although, it was still making losses in FY21. </p><p>On the flip side, its growth has come on the back of large ad spending and given the transactional nature of both of its platforms combined with the increase in competition, its ad spending will probably remain high. </p><p>We have covered most aspects of the deal in our previous notes,  <a href="https://www.smartkarma.com/insights/pb-fintech-policybazaar-pre-ipo-the-positives-fast-growth" target="_blank" rel="noopener">PB Fintech (Policybazaar) Pre-IPO - The Positives - Fast Growth</a> and <a href="https://www.smartkarma.com/insights/pb-fintech-policybazaar-pre-ipo-the-negatives-patchy-data-strategy-missteps" target="_blank" rel="noopener">PB Fintech (Policybazaar) Pre-IPO - The Negatives - Patchy Data, Strategy Missteps</a>.</p><p>In this note, we will talk about updates since our last note and valuations.</p>

PB Fintech (PBF), India’s largest online platform for insurance and lending products, aims to raise up to US$793m via selling a mix of primary and secondary shares in its India IPO. The company is backed by a strong set of investors including Info Edge, Tencent, Temasek, Tiger Global and Softbank.The company operates two platforms: Policybazaar operates in India’s online insurance product and service industry; and Paisabazaar platform operates in India’s online credit industry. As per Frost &amp; Sullivan, the company is a leader in the online sphere in both segments. Despite Paisabazaar having taken a hit due to COVID-19, the company has managed to grow its revenue by 80% over FY19-21. In addition, it has been able to rein in expenses as well leading to an improvement in margins. Although, it was still making losses in FY21. On the flip side, its growth has come on the back of large ad spending and given the transactional nature of both of its platforms combined with the increase in competition, its ad spending will probably remain high. We have covered most aspects of the deal in our previous notes,  PB Fintech (Policybazaar) Pre-IPO - The Positives - Fast Growth and PB Fintech (Policybazaar) Pre-IPO - The Negatives - Patchy Data, Strategy Missteps.In this note, we will talk about updates since our last note and valuations.

PB Fintech (Policybazaar) IPO - Increasing Competition Will Keep Ad Spending High

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<p>On the 21 June, nine months after IR solutions provider <a href="https://www.smartkarma.com/entities/51-job-inc-adr" target="_blank" data-smartkarma-citation="entities:532:1" rel="noopener">51 Job Inc Adr (JOBS US)</a> first announced it had received a preliminary non-binding <a href="https://sec.report/Document/0001104659-20-105912/" target="_blank" rel="noopener">Proposal</a> from DCP Capital Partners to acquire all of its shares for US$79.05/common share, 51job <a href="https://sec.report/Document/0001193125-21-195283/" target="_blank" rel="noopener">announced</a> it had entered into a definitive privatisation agreement, also at US$79.05/share. </p>
<p>What appeared to be the clincher for the deal was <a href="https://www.smartkarma.com/entities/recruit-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15070:1" rel="noopener">Recruit Holdings (6098 JP)</a> - 51job's largest shareholder with 34.8% - joining the consortium, which also comprised DCP plus Ocean Link and CEO Rick Yan, both of whom joined following the non-binding proposal <a href="https://ir.51job.com/ir/php/2021/PreRelease20210504.php?0504" target="_blank" rel="noopener">announced</a> on the 4 May. All in, the continuing shareholders and their affiliates hold 56.1% in 51job. </p>
<p>Despite a low-balled Offer - and the prospects of dissension apparent - the deal appeared done. It was just a question of timing.</p>
<p>Then China's internet sector campaign kicked into gear, with 51job ostensibly finding itself lumped (rightly or otherwise) with other internet-related stocks being scrutinised. Or at least, 51job was perceived to be in the cross-hairs. </p>
<p>It doesn't help there has been a complete lack of newsflow on the transaction since the definitive agreement. No mention whatsoever in the 2Q21 results. The current gross spread of 30.8% - well below the undisturbed price - is the widest since the transaction was first floated. </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/237/750/original/image_859790017111635317164110.png?1635317164" class="editor-image img-responsive" data-smartkarma-image-id="237750"></figure>
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<div>This looks like the right price to get involved. </div>
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<p>More below the fold</p>
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On the 21 June, nine months after IR solutions provider 51 Job Inc Adr (JOBS US) first announced it had received a preliminary non-binding Proposal from DCP Capital Partners to acquire all of its shares for US$79.05/common share, 51job announced it had entered into a definitive privatisation agreement, also at US$79.05/share. 
What appeared to be the clincher for the deal was Recruit Holdings (6098 JP) - 51job's largest shareholder with 34.8% - joining the consortium, which also comprised DCP plus Ocean Link and CEO Rick Yan, both of whom joined following the non-binding proposal announced on the 4 May. All in, the continuing shareholders and their affiliates hold 56.1% in 51job. 
Despite a low-balled Offer - and the prospects of dissension apparent - the deal appeared done. It was just a question of timing.
Then China's internet sector campaign kicked into gear, with 51job ostensibly finding itself lumped (rightly or otherwise) with other internet-related stocks being scrutinised. Or at least, 51job was perceived to be in the cross-hairs. 
It doesn't help there has been a complete lack of newsflow on the transaction since the definitive agreement. No mention whatsoever in the 2Q21 results. The current gross spread of 30.8% - well below the undisturbed price - is the widest since the transaction was first floated. 


This looks like the right price to get involved. 


More below the fold


Japan

Recruit Holdings Co. Ltd. operates information providing services in human resource, housing, bridal, travel, restaurants, beauty, automobiles, and education and more. The company also operate staffing services and advertising business.

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Recruit Holdings (6098 JP)

51job (JOB US): That Was An Overreaction

Trading at a gross spread of 45.8%. I expect this spread to stay wide given the opaqueness of the regulatory overlay, the (likely) vacuum of...

David Blennerhassett

MergerTalk: Thoughts On Today's Disclosure-Why It Is Not The Deal Killer The Market May Think It Is

The somewhat terse statement concerning regulatory involvement with the the JOBS Go-Private deal may not be as bad as the market's first take

Robert Sassoon

51job’s Privatisation Spread Risk/Reward

We think that the signing of the acquisition facilities is a significant step towards deal completion. The gross spread to the offer price is 17.3%...

Arun George

PB Fintech (Policybazaar) IPO - Increasing Competition Will Keep Ad Spending High

PB Fintech, India’s largest online platform for insurance and lending products, aims to raise up to US$793m in its India IPO. The company is backed...

Sumeet Singh

51job (JOB US): Searching For Answers

Trading at a gross/annualised spread of 30.8%/88.3%, assuming completion 1Q22-end. Despite China's ongoing scrutiny of the internet industry, I've...

David Blennerhassett

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