Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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Briefly: on the 20 April, <a href="https://www.smartkarma.com/entities/allied-group-ltd" target="_blank" data-smartkarma-citation="entities:4387:1" rel="noopener">Allied Group Limited (373 HK)</a> (AGL) made an <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0420/2020042001582.pdf" target="_blank" rel="noopener">Offer</a> for 75%-held <a href="https://www.smartkarma.com/entities/allied-properties-hk-ltd" target="_blank" data-smartkarma-citation="entities:19953:1" rel="noopener">Allied Properties Hk (56 HK)</a> (APH), by way of a Scheme, at $1.92/share (cash), a 34.2% premium to last close.  The Scheme Doc was despatched on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0618/2020061800579.pdf" target="_blank" rel="noopener">19 June</a>. The IFA opined the Offer was fair &amp; reasonable. Shareholders approved the Scheme on the 15 July. Then followed a bizarre delay wherein the judge <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1005/2020100502577.pdf" target="_blank" rel="noopener">refused to sanction</a> the Scheme, culminating in the Court of Appeals <a href="https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=132143&amp;currpage=T" target="_blank" rel="noopener">settling the matter</a>, and the Scheme became <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1124/2020112400688.pdf" target="_blank" rel="noopener">effective</a> on the 25 November. 
This deal was extensively discussed on Smartkarma, beginning with <a href="https://skr.ma/p9urr" target="_blank" rel="noopener">Allied Prop (56 HK): Cash Offer From Parent</a>.
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<h3>The New News</h3>
AGL has now made an <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1218/2020121801069.pdf" target="_blank" rel="noopener">Offer</a> for 75%-held <a href="https://www.smartkarma.com/entities/shk-hong-kong-industries-ltd" target="_blank" data-smartkarma-citation="entities:2399:1" rel="noopener">Shk Hong Kong Industries (666 HK)</a>, by way of a Scheme, at $0.21/share (cash), a 50.00% premium to last close.  The Offer price is final. SHK is HK-incorporated, therefore there is no headcount test.
Should the Scheme complete - and I see no specific hurdle why it will not - AGL would have privatised its two key holdings, and at 0.4x P/B, may well be the next take-private target. 
More below the fold.
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Briefly: on the 20 April, Allied Group Limited (373 HK) (AGL) made an Offer for 75%-held Allied Properties Hk (56 HK) (APH), by way of a Scheme, at $1.92/share (cash), a 34.2% premium to last close.  The Scheme Doc was despatched on the 19 June. The IFA opined the Offer was fair &amp; reasonable. Shareholders approved the Scheme on the 15 July. Then followed a bizarre delay wherein the judge refused to sanction the Scheme, culminating in the Court of Appeals settling the matter, and the Scheme became effective on the 25 November. 
This deal was extensively discussed on Smartkarma, beginning with Allied Prop (56 HK): Cash Offer From Parent.


The New News
AGL has now made an Offer for 75%-held Shk Hong Kong Industries (666 HK), by way of a Scheme, at $0.21/share (cash), a 50.00% premium to last close.  The Offer price is final. SHK is HK-incorporated, therefore there is no headcount test.
Should the Scheme complete - and I see no specific hurdle why it will not - AGL would have privatised its two key holdings, and at 0.4x P/B, may well be the next take-private target. 
More below the fold.


SHK (666 HK): Allied Group Further Cleans House With Scheme Offer

In Hong Kong's Court of Appeal this morning, the Court upheld the appeal concerning <a href="https://www.smartkarma.com/entities/allied-properties-h-k-limited" target="_blank" data-smartkarma-citation="entities:19953:1" rel="noopener">Allied Properties (H.K.) (56 HK)</a>'s Scheme, and concluded it would sanction the Scheme and confirm the reduction in capital. 
The decision was reached in less than ten minutes, which provides some indication of the flawed decision on the <a href="https://www.smartkarma.com/compose/insight/45601/The%20reasons%20for%20their%20judgment%20%22will%20be%20handed%20down%20in%20due%20course%22." target="_blank" rel="noopener">9 October</a>.
The reasons for the court's judgment "will be handed down in due course". As the appeal submissions and the transaction of the three previous hearings had been studied by the judges prior to today's hearing, and given the celerity with which a decision was reached, it is possible the judgment may be issued within a day or so. 
If today, then it is possible cheques under the proposal could be despatched by the 8 December.

In Hong Kong's Court of Appeal this morning, the Court upheld the appeal concerning Allied Properties (H.K.) (56 HK)'s Scheme, and concluded it would sanction the Scheme and confirm the reduction in capital. 
The decision was reached in less than ten minutes, which provides some indication of the flawed decision on the 9 October.
The reasons for the court's judgment "will be handed down in due course". As the appeal submissions and the transaction of the three previous hearings had been studied by the judges prior to today's hearing, and given the celerity with which a decision was reached, it is possible the judgment may be issued within a day or so. 
If today, then it is possible cheques under the proposal could be despatched by the 8 December.

Allied Prop (56 HK): In High Court Today ...

This is shaping up to be the week when the sanctioning of Schemes by the Courts goes awry.
Last Friday, Hong Kong's High Court <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1005/2020100502577.pdf" target="_blank" rel="noopener">declined to sanction</a> <a href="https://www.smartkarma.com/entities/allied-properties-h-k-limited" target="_blank" data-smartkarma-citation="entities:19953:1" rel="noopener">Allied Properties (H.K.) (56 HK)</a>'s Scheme. (<a href="https://skr.ma/Utws3" target="_blank" rel="noopener">Allied Properties (56 HK): Amateur Hour</a>). I would expect the Offeror, <a href="https://www.smartkarma.com/entities/allied-group-ltd" target="_blank" data-smartkarma-citation="entities:4387:1" rel="noopener">Allied (373 HK)</a>, to appeal the decision,  especially noting the irrelevancy of the headcount test discussed at length in the judgment, which likely influenced the judge's final opinion.
Tomorrow there is a high likelihood that New Zealand's High Court postpones the final hearing on the <a href="https://www.smartkarma.com/entities/metlifecare-ltd" target="_blank" data-smartkarma-citation="entities:19219:1" rel="noopener">Metlifecare Ltd (MET NZ)</a>'s Scheme.
At MET's Scheme Meeting on the <a href="https://www.metlifecare.co.nz/wp-content/uploads/2020/10/NZX-Release-and-Results-Announcement.pdf" target="_blank" rel="noopener">2 October</a>, 90.7% of the votes case voted for the Scheme. 9.14% (or 14.96mn shares) voted against. 
Of those naysayers, 1,000 shares are held by ResIL Investments Limited, who has, in a detailed letter (attached at the end of this insight) flagged what it perceives as breaches in the Takeovers Code, with reference to the valuation methodology in the Scheme Booklet
Those perceived breaches have been submitted to the Takeovers Panel.
Ahead of tomorrow's hearing, the Panel will need to consider ResIL's objections and whether the standard of disclosure is consistent with that required under the Code. If no objection, the Panel will issue a no-objection statement to approve the Scheme.
Yet merely obtaining a no-objection statement from the Takeovers Panel does not necessarily mean that the Court will approve a scheme.
There are no dissent or buy-out rights for shareholders who do not support Schemes in New Zealand. In effect, this is a statutory vacuum. It would be a dangerous precedent if this Scheme is not sanctioned after a disgruntled shareholder contends the contents of the Scheme Booklet are flawed - after the shareholder lost the vote.

This is shaping up to be the week when the sanctioning of Schemes by the Courts goes awry.
Last Friday, Hong Kong's High Court declined to sanction Allied Properties (H.K.) (56 HK)'s Scheme. (Allied Properties (56 HK): Amateur Hour). I would expect the Offeror, Allied (373 HK), to appeal the decision,  especially noting the irrelevancy of the headcount test discussed at length in the judgment, which likely influenced the judge's final opinion.
Tomorrow there is a high likelihood that New Zealand's High Court postpones the final hearing on the Metlifecare Ltd (MET NZ)'s Scheme.
At MET's Scheme Meeting on the 2 October, 90.7% of the votes case voted for the Scheme. 9.14% (or 14.96mn shares) voted against. 
Of those naysayers, 1,000 shares are held by ResIL Investments Limited, who has, in a detailed letter (attached at the end of this insight) flagged what it perceives as breaches in the Takeovers Code, with reference to the valuation methodology in the Scheme Booklet
Those perceived breaches have been submitted to the Takeovers Panel.
Ahead of tomorrow's hearing, the Panel will need to consider ResIL's objections and whether the standard of disclosure is consistent with that required under the Code. If no objection, the Panel will issue a no-objection statement to approve the Scheme.
Yet merely obtaining a no-objection statement from the Takeovers Panel does not necessarily mean that the Court will approve a scheme.
There are no dissent or buy-out rights for shareholders who do not support Schemes in New Zealand. In effect, this is a statutory vacuum. It would be a dangerous precedent if this Scheme is not sanctioned after a disgruntled shareholder contends the contents of the Scheme Booklet are flawed - after the shareholder lost the vote.

After the sanctioning of <a href="https://www.smartkarma.com/entities/allied-properties-h-k-limited" target="_blank" data-smartkarma-citation="entities:19953:1" rel="noopener">Allied Properties (H.K.) (56 HK)</a>'s (<a href="https://skr.ma/vN7NF" target="_blank" rel="noopener">APH) Scheme (Allied Prop (56 HK): Scheme Done. AGL Next?</a>) was thrice delayed by the High Court and further updates from the company shed no light on the issues faced, what was inconceivably feared became apparent last Friday night when the Court <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1005/2020100502577.pdf" target="_blank" rel="noopener">declined to sanction</a> the Scheme.
This afternoon, the High Court<a href="https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=131280&amp;currpage=T" target="_blank" rel="noopener"> judgment</a> appeared on the Hong Kong Judiciary website. 
It is ultimately a frustrating read, one in which some of the Offeror's (<a href="https://www.smartkarma.com/entities/allied-group-ltd" target="_blank" data-smartkarma-citation="entities:4387:1" rel="noopener">Allied (373 HK)</a>) preparatory work was sloppy or poorly prepared.
But the great double-take in this ruling is a large portion of the judgment devoted to the headcount test at the Scheme vote.
APH is incorporated in Hong Kong. S674(c) of the <a href="https://www.hklii.hk/eng/hk/legis/ord/622/s674.html" target="_blank" rel="noopener">Hong Kong Ordinance</a> says “subject to subsection 2(a)…”.  Subsection 2(a) replaced the headcount rule with the 10%-of-float veto. The headcount test was abolished in 2012 after a decision was reached on a <a href="https://www.legco.gov.hk/yr10-11/english/bc/bc03/papers/bc030530cb1-2019-2-e.pdf" target="_blank" rel="noopener">Companies Bill</a>.
It is not clear why Allied's counsel did not raise this abolishment; but instead, butchered an attempt to show a majority in number had occurred, and as a result of this off-piste analysis, negatively influenced the court on sanctioning the Scheme.
I expect Allied to appeal. I do not expect shares to resume trading during an appeal. 
Unfortunately for shareholders who approved the Scheme, payment under the offer appears some way off.

After the sanctioning of Allied Properties (H.K.) (56 HK)'s (APH) Scheme (Allied Prop (56 HK): Scheme Done. AGL Next?) was thrice delayed by the High Court and further updates from the company shed no light on the issues faced, what was inconceivably feared became apparent last Friday night when the Court declined to sanction the Scheme.
This afternoon, the High Court judgment appeared on the Hong Kong Judiciary website. 
It is ultimately a frustrating read, one in which some of the Offeror's (Allied (373 HK)) preparatory work was sloppy or poorly prepared.
But the great double-take in this ruling is a large portion of the judgment devoted to the headcount test at the Scheme vote.
APH is incorporated in Hong Kong. S674(c) of the Hong Kong Ordinance says “subject to subsection 2(a)…”.  Subsection 2(a) replaced the headcount rule with the 10%-of-float veto. The headcount test was abolished in 2012 after a decision was reached on a Companies Bill.
It is not clear why Allied's counsel did not raise this abolishment; but instead, butchered an attempt to show a majority in number had occurred, and as a result of this off-piste analysis, negatively influenced the court on sanctioning the Scheme.
I expect Allied to appeal. I do not expect shares to resume trading during an appeal. 
Unfortunately for shareholders who approved the Scheme, payment under the offer appears some way off.

Last Week in Event SPACE: Vedanta, Cardinal Res., Japan Retail Fund, HSBC, Opticomm, Tiffany/LVMH

Hong Kong

Allied Group Limited provides investment, finance and corporate management, and consultancy services.  The Company also trades securities, invests in and develops real estate properties and provides building management and maintenance services.

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Allied Group (373 HK)

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It's an attractive spread to terms here, but not a particularly liquid arb situation. I like AGL as it further simplifies its holdings. I think...

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Allied Prop (56 HK): In High Court Today ...

Logic prevailed. Appeal upheld. Scheme to be sanctioned. Possible payment early December. No closure on the erroneous headcount analysis.

David Blennerhassett

Metlifecare: Statutory Vacuum

A small Metlifecare shareholder strongly believes the deal needs to be blocked and has lodged an opposition with the Takeovers Panel. This would...

David Blennerhassett

Allied Properties (56 HK): Amateur Hour

Amateur hour by Company Counsel leads to a frustrated judge torpedoing the Allied Properties (56 HK) Scheme. Expect an Appeal.

David Blennerhassett

Last Week in Event SPACE: Vedanta, Cardinal Res., Japan Retail Fund, HSBC, Opticomm, Tiffany/LVMH

Last Week in Event SPACE ... Plus, other events, CCASS movements and Mood Spins. (This insight covers specific insights & comments...

David Blennerhassett

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