Japan Specialist

Mark Chadwick

Equity Bottom-Up

<ul>
<li>Sanken benefits from the structural growth in EVs, which should underpin revenue growth and margin accretion. </li>
<li>DCF valuation suggests the stock is slightly undervalued. However, better-than-expected revenue trends could easily drive significant upside. </li>
<li>Almost 30% of shares are held by activist investors - there is an attractive 57% upside to a SOTP valuation that could be realised over time.</li>
</ul>


Sanken benefits from the structural growth in EVs, which should underpin revenue growth and margin accretion. 
DCF valuation suggests the stock is slightly undervalued. However, better-than-expected revenue trends could easily drive significant upside. 
Almost 30% of shares are held by activist investors - there is an attractive 57% upside to a SOTP valuation that could be realised over time.


Sanken (6707)| Attractive for Activists and Growth Investors

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

A month ago, known active (and occasional activist and concentrated investor) Effissimo Capital Management announced an unsolicited partial Tender Offer to purchase 4,834,343 shares of <a href="https://www.smartkarma.com/entities/sanken-electric-co-ltd" target="_blank" data-smartkarma-citation="entities:6073:1" rel="noopener">Sanken Electric (6707 JP)</a> to take it from 9.97% to 30.00% at ¥5210/share. The announcement was deliberately couched in terms to make it seem friendly. Effissimo is not going for negative control, or seeking to interfere with management in any way. They say they just want more stock. The shares, which had recently traded from the area of the Tender Offer Price down to sub-¥4500/share, immediately bounced, trading 10% through terms on the first full day of trading after going limit up on Day 1.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/192/998/original/Screenshot+2021-03-09+at+3.51.32+PM.png?1615276314" class="editor-image img-responsive" data-smartkarma-image-id="192998"></figure></section>Since then, <a href="https://www.smartkarma.com/entities/allegro-microsystems" target="_blank" data-smartkarma-citation="entities:29707:1" rel="noopener">Allegro MicroSystems (ALGM US)</a> shares - Sanken's 52% subsidiary which it listed in November (and the key value driver for Sanken Electric), have fallen nearly 20% from just under US$31/share on 8 Feb the day after the announcement to US$25.14 yesterday.And Sanken itself has fallen back down to ¥5300/share, ~1.7% above the Tender Offer Price.In my first insight on the deal, I did not address "the stub trade" (Sanken's holding in Allegro, which was originally Sanken North America) and where I thought it should trade - as such - in the insight because frankly, it's difficult. The future is tough to predict. Below is a brief look at the parameters and the modalities.

A month ago, known active (and occasional activist and concentrated investor) Effissimo Capital Management announced an unsolicited partial Tender Offer to purchase 4,834,343 shares of Sanken Electric (6707 JP) to take it from 9.97% to 30.00% at ¥5210/share. The announcement was deliberately couched in terms to make it seem friendly. Effissimo is not going for negative control, or seeking to interfere with management in any way. They say they just want more stock. The shares, which had recently traded from the area of the Tender Offer Price down to sub-¥4500/share, immediately bounced, trading 10% through terms on the first full day of trading after going limit up on Day 1.Since then, Allegro MicroSystems (ALGM US) shares - Sanken's 52% subsidiary which it listed in November (and the key value driver for Sanken Electric), have fallen nearly 20% from just under US$31/share on 8 Feb the day after the announcement to US$25.14 yesterday.And Sanken itself has fallen back down to ¥5300/share, ~1.7% above the Tender Offer Price.In my first insight on the deal, I did not address "the stub trade" (Sanken's holding in Allegro, which was originally Sanken North America) and where I thought it should trade - as such - in the insight because frankly, it's difficult. The future is tough to predict. Below is a brief look at the parameters and the modalities.

Effissimo, Sanken, and Allegro - Thinking About the Future

Japan

Allegro Microsystems, Inc. develops advanced semiconductor devices. The Company provides power and sensing solutions for motion control. Allegro Microsystems serves customers worldwide.

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Allegro MicroSystems (ALGM US)

Sanken (6707)| Attractive for Activists and Growth Investors

Sanken is an attractive investment for activists and growth investors alike. There is an attractive 57% upside to a SOTP valuation that could be...

Mark Chadwick

Effissimo, Sanken, and Allegro - Thinking About the Future

Effissimo launched a partial tender for Sanken (6707) and it went through terms as people noted the "stub trade" for Allegro Microsystems. It's...

Travis Lundy

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