Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Today after the close, <a href="https://www.smartkarma.com/entities/19373" target="_blank" data-smartkarma-citation="entities:19373:1">Nippon Shokubai (4114 JP)</a> and <a href="https://www.smartkarma.com/entities/16624" target="_blank" data-smartkarma-citation="entities:16624:1">Sanyo Chemical Industries (4471 JP)</a> together <a href="https://www.shokubai.co.jp/en/news/file.cgi?file=file1_0199.pdf" target="_blank">announced</a> that the two companies had reached a Basic Agreement to move ahead with the consideration toward the integration of their businesses (the “Business Integration”) based on an equal footing.That means they have a basic agreement to talk about the possibility of merging, but it also means they have not decided whether to merge, how to merge, and at what exchange ratio or valuation to merge.  This is the Japanese equivalent of two companies signing a non-binding scheme proposal with each other, and it is a peculiarly Japanese way of doing things. The timeline is that there will be negotiations between the two companies' management teams between now and December, with the goal being to announce a "Final Agreement" by end-December 2019 which will cover all basic issues regarding integration, including the design of business teams and delegation of executives into a holding company structure, with the holding company absorbing the two companies 1 October 2020 after a shareholder vote in June 2020. Upon the business integration, the Companies’ corporate planning, finance and accounting, legal, general affairs, HR, IR/PR, internal audit, corporate research, RC (responsible care) and other back-office sections will be integrated into the Integrated Holding Company, and it is likely that the two companies under the Holdco umbrella would merge within the following year.These two companies specialise in slightly different areas (with a sub-specialization in super-absorbent polymers which is a growing market), with Nippon Shokubai being a specialized producer of basic and functional chemicals, and Sanyo Chemical having a business of manufacturing and marketing an extremely broad range of performance chemicals. The base business is low-enough tech that emerging market players are starting to become more competitive, therefore cost cuts, scale, and combining R&amp;D efforts have merit. This idea of a business integration was spurred, if one believes the document, when...<blockquote>in the course of discussing the respective management challenges between the Companies, which had a business relationship of trading chemical raw materials from the past, Nippon Shokubai, which holds a group mission, “TechnoAmenity - Providing affluence and comfort to people and society, with our unique technology,” and Sanyo Chemical, which holds a company motto, “Let us contribute to building a better society through our corporate activities,” came to recognize not only the affinity level of their group mission and management motto, which is to contribute to society through corporate activities, is high, but the strengths and business challenges of the respective Companies are in a mutual complementary relationship.</blockquote>The rest of the MOU document is full of platitudes regarding negotiation in a "fair and equitable" manner "based on the spirit of mutual trust and equality" to get to a fair and equitable result.The fundamentals here are not terribly lopsided. Similar GPMs and OPMs over time and not too dissimilar Net Income growth over the past ten years. A difference in volatility and 2020 forecast growth may tip the scales (compared to current ratio) towards Sanyo Chemical. Analysis and discussion ensue.<hr>For other insights on Japanese M&amp;A please check the list of Japan-related Event-Driven insights <a href="https://www.smartkarma.com/insights?collection=all-insights&amp;filters=countries%3AJapan%7Cverticals%3A29" target="_blank">here</a>. As a reference to Japan M&amp;A rules and practices, please see the <a href="https://www.smartkarma.com/insights/quiddity-japan-m-a-guide-2019" target="_blank" data-smartkarma-citation="insights:28911">Quiddity Japan M&amp;A Guide 2019</a>.

Today after the close, Nippon Shokubai (4114 JP) and Sanyo Chemical Industries (4471 JP) together announced that the two companies had reached a Basic Agreement to move ahead with the consideration toward the integration of their businesses (the “Business Integration”) based on an equal footing.That means they have a basic agreement to talk about the possibility of merging, but it also means they have not decided whether to merge, how to merge, and at what exchange ratio or valuation to merge.  This is the Japanese equivalent of two companies signing a non-binding scheme proposal with each other, and it is a peculiarly Japanese way of doing things. The timeline is that there will be negotiations between the two companies' management teams between now and December, with the goal being to announce a "Final Agreement" by end-December 2019 which will cover all basic issues regarding integration, including the design of business teams and delegation of executives into a holding company structure, with the holding company absorbing the two companies 1 October 2020 after a shareholder vote in June 2020. Upon the business integration, the Companies’ corporate planning, finance and accounting, legal, general affairs, HR, IR/PR, internal audit, corporate research, RC (responsible care) and other back-office sections will be integrated into the Integrated Holding Company, and it is likely that the two companies under the Holdco umbrella would merge within the following year.These two companies specialise in slightly different areas (with a sub-specialization in super-absorbent polymers which is a growing market), with Nippon Shokubai being a specialized producer of basic and functional chemicals, and Sanyo Chemical having a business of manufacturing and marketing an extremely broad range of performance chemicals. The base business is low-enough tech that emerging market players are starting to become more competitive, therefore cost cuts, scale, and combining R&amp;D efforts have merit. This idea of a business integration was spurred, if one believes the document, when...in the course of discussing the respective management challenges between the Companies, which had a business relationship of trading chemical raw materials from the past, Nippon Shokubai, which holds a group mission, “TechnoAmenity - Providing affluence and comfort to people and society, with our unique technology,” and Sanyo Chemical, which holds a company motto, “Let us contribute to building a better society through our corporate activities,” came to recognize not only the affinity level of their group mission and management motto, which is to contribute to society through corporate activities, is high, but the strengths and business challenges of the respective Companies are in a mutual complementary relationship.The rest of the MOU document is full of platitudes regarding negotiation in a "fair and equitable" manner "based on the spirit of mutual trust and equality" to get to a fair and equitable result.The fundamentals here are not terribly lopsided. Similar GPMs and OPMs over time and not too dissimilar Net Income growth over the past ten years. A difference in volatility and 2020 forecast growth may tip the scales (compared to current ratio) towards Sanyo Chemical. Analysis and discussion ensue.For other insights on Japanese M&amp;A please check the list of Japan-related Event-Driven insights here. As a reference to Japan M&amp;A rules and practices, please see the Quiddity Japan M&amp;A Guide 2019. 

Sanyo Chemical - Nippon Shokubai Merger - Another "Guess the Ratio" Trade

Doing bespoke work since 2002....., Custom Products Group

Patrick Hansen

Doing bespoke work since 2002.....

Custom Products Group

Custom Products was started 14 years ago at Lehman Brothers by current co-founder Patrick Hansen, CFA. After 3 years at Lehman, Patrick moved the team to Macquarie Securities where Simon Rigney (co-founder) joined. 3 years ago we took Custom Products independent. 

Our core strength can be summed up three words. 1- Customization - we have very little off the shelf products and most work is done on a one on one bespoke basis. 2- Speed - We pride ourselves in our ability to get requests back to the client very quickly. 3- Confidentiality - We do not redistribute. There is no grace period where we wait a week and then mass blast. Any request stops with that client.

Thematic (Sector/Industry)

<h2>Some News</h2><a href="https://www.smartkarma.com/entities/20528" target="_blank" data-smartkarma-citation="entities:20528:1">Mazda Motor Corp (7261 JP)</a> was up 3.4% on 2.5 standard deviations of volume on the back of a Nikkei report. <a href="https://www.smartkarma.com/entities/16624" target="_blank" data-smartkarma-citation="entities:16624:1">Sanyo Chemical Industries (4471 JP)</a> announced an increase in its dividend and was rewarded with a 3% price increase on strong volume. <a href="https://www.smartkarma.com/entities/8416" target="_blank" data-smartkarma-citation="entities:8416:1">Komatsu Ltd (6301 JP)</a> continued to run up another 3.4% on good <a href="https://www.smartkarma.com/entities/697" target="_blank" data-smartkarma-citation="entities:697:1">Caterpillar Inc (CAT US)</a> news.<h2>No News</h2><a href="https://www.smartkarma.com/entities/13104" target="_blank" data-smartkarma-citation="entities:13104:1">Chudenko Corp (1941 JP)</a>, <a href="https://www.smartkarma.com/entities/15900" target="_blank" data-smartkarma-citation="entities:15900:1">Sanyo Special Steel Co Ltd (5481 JP)</a> and <a href="https://www.smartkarma.com/entities/749" target="_blank" data-smartkarma-citation="entities:749:1">Heiwa Real Estate Co Ltd (8803 JP)</a> all moved on strong volume yesterday without any…

Some NewsMazda Motor Corp (7261 JP) was up 3.4% on 2.5 standard deviations of volume on the back of a Nikkei report. Sanyo Chemical Industries (4471 JP) announced an increase in its dividend and was rewarded with a 3% price increase on strong volume. Komatsu Ltd (6301 JP) continued to run up another 3.4% on good Caterpillar Inc (CAT US) news.No NewsChudenko Corp (1941 JP), Sanyo Special Steel Co Ltd (5481 JP) and Heiwa Real Estate Co Ltd (8803 JP) all moved on strong volume yesterday without any…

Leakage Report 4/​27/​17- Names that Moved on Volume Yesterday, Days Before They Announce Earnings..

Japan

SANYO CHEMICAL INDUSTRIES, LTD. produces various kind of fine intermediate chemical products including surfactants, polyurethane resins, and other superabsorbent resins.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Sanyo Chemical Industries (4471 JP)

Sanyo Chemical - Nippon Shokubai Merger - Another "Guess the Ratio" Trade

Today after the close, Nippon Shokubai (4114 JP) and Sanyo Chemical Industries (4471 JP) together announced that the two companies had reached...

Travis Lundy

Leakage Report 4/27/17- Names that Moved on Volume Yesterday, Days Before They Announce Earnings..

Some NewsMazda Motor Corp (7261 JP) was up 3.4% on 2.5 standard deviations of volume on the back of a Nikkei report. Sanyo Chemical Industries...

Custom Products Group

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Sanyo Chemical - Nippon Shokubai Merger - Another "Guess the Ratio" Trade

Today after the close, Nippon Shokubai (4114 JP) and Sanyo Chemical Industries (4471 JP) together announced that the two companies had reached...

Travis Lundy

Leakage Report 4/​27/​17- Names that Moved on Volume Yesterday, Days Before They Announce Earnings..

Some NewsMazda Motor Corp (7261 JP) was up 3.4% on 2.5 standard deviations of volume on the back of a Nikkei report. Sanyo Chemical Industries...

Custom Products Group

Leakage Report 4/27/17- Names that Moved on Volume Yesterday, Days Before They Announce Earnings..