Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Every year in April there are two TOPIX rebalance changes - the FFW review for July-September FY-end companies, and the annual liquidity factor adjustments.</li>
<li>This year, the former is replaced by the TOPIX FFW Methodology Change for the new Market Structure. This is a big change, but it will not necessarily overwhelm the latter.</li>
<li>
<a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a>'s piece of 5 weeks ago discussing the Liquidity Factor basket has seen generally good performance. There are two days to go. </li>
</ul>


Every year in April there are two TOPIX rebalance changes - the FFW review for July-September FY-end companies, and the annual liquidity factor adjustments.
This year, the former is replaced by the TOPIX FFW Methodology Change for the new Market Structure. This is a big change, but it will not necessarily overwhelm the latter.

Janaghan Jeyakumar, CFA's piece of 5 weeks ago discussing the Liquidity Factor basket has seen generally good performance. There are two days to go. 


The TOPIX Liquidity Factor Adjustment - Still a Trade To Do

<ul>
<li>
<a href="https://www.smartkarma.com/entities/aomori-bank-ltd" target="_blank" data-smartkarma-citation="entities:18478:1" rel="noopener">Aomori Bank (8342 JP)</a> and fellow Aomori Prefecture denizen <a href="https://www.smartkarma.com/entities/michinoku-bank-ltd" target="_blank" data-smartkarma-citation="entities:6599:1" rel="noopener">Michinoku Bank (8350 JP)</a> agreed in 2019 to form an operational alliance, widely seen as a precursor to merging.</li>
<li>Sep 2020 saw a Nikkei interview and a merger was announced in May this year. </li>
<li>Now we have the details, and a plan to integrate.</li>
</ul>



Aomori Bank (8342 JP) and fellow Aomori Prefecture denizen Michinoku Bank (8350 JP) agreed in 2019 to form an operational alliance, widely seen as a precursor to merging.
Sep 2020 saw a Nikkei interview and a merger was announced in May this year. 
Now we have the details, and a plan to integrate.


Aomori Bank (8342) Michinoku Bank (8350) Bank Merger

David Blennerhassett


For the month of May, 11 new deals were discussed on Smartkarma with an overall announced deal size of ~US$7.3bn.



Clicking on the company name in the table below will take you to the entity page where you can read the initial insight(s) written by Smartkarma contributors on these new deals and follow-up discussions, or simply click on the insight link(s) below the name.







New Deals


Industry


Size (US$bn)


Type


Premium




Australia




APN Property Group (APD AU) 
Property
0.2
Scheme
50%


APN Prop (APD AU): Dexus' Done Deal



Boral Ltd (BLD AU) 
Construction
4.8
Off-market
Nil


Boral Ltd (BLD AU): Seven's Nil Premium



Japara Healthcare (JHC AU) 
Healthcare
0.2
Scheme
30%


Japara Healthcare (JHC AU): Here Comes The Calvary


 



Hong Kong




Chong Hing Bank (1111 HK) 
Banking
0.2
Scheme
51.2%



Chong Hing Bank (1111 HK): Takeover Talk As Shares Pop
Chong Hing Bank (1111 HK): Yue Xiu's Offer Is Light



 



Japan




Aomori Bank (8342 JP) / Michinoku Bank (8350 JP) 
Bank
0.6
Merger



Aomori Bank &amp; Michinoku Bank Merger - Nothing To Write Home About Yet



EPS Holdings (4282 JP) 
Data/software
0.1
Tender Offer
35.5%


Another Too-Cheap MBO as Founder Takes Out EPS


 Locoguide (4497 JP) / Kufu (4399 JP)

Real estate
0.4
Merger



Locoguide (4497 JP) - Kufu (4399 JP): Merger Is a Done Deal



Maruka Machinery (7594 JP) / Furusato Industries (8087 JP) 
Trading
0.4
Merger



A Complex SmallCap Merger in Japan: Maruka (7594) And Furusato (8087)



Secom Joshinetsu (4342 JP) 
Security
0.3
Tender Offer
66.2%


Secom To Finally Buy Out Affiliate Secom Joshinetsu (4342)








Malaysia




Can-One Bhd (CAN MK) 
Manufacturing
0.1
MTO
15.8%


Can-One (CAN MK)? Yeoh Can Lah!



IHH Healthcare (IHH MK) 
Healthcare
N/A
N/A
N/A


IHH Healthcare (IHH MK): More Medicine For Mitsui?


Source: Smartkarma Insights






The above does not include BetMakers Technology Group (BET AU) lobbing a non-binding offer of A$4bn (A$1bn cash, $3bn scrip into BET) for Tabcorp Ltd (TAH AU)'s wagering and media division, and Apollo's prior tilt - Tabcorp (TAH AU): Apollo Shows Its Hand.

Nor does the table include the rumoured merger between  Angang Steel Co Ltd (H) (347 HK) and Bengang Steel (000761 CH) - Amalgamated Steel: Merging Angang &amp; Bengang As, Bs, and Hs.



The average premium for the new deals announced (or first discussed) in May was ~41%, with a year-to-date average of ~31% (78 deals). This compares to the average premium for all deals in 2020 (158 deals) and 2019 (145 deals) of 31% and 31.5% respectively. 




Summary of News in May of Arb Situations On Smartkarma's Radar



(Again, click on the company names to take to you to the insights and/or discussion posts for a more comprehensive read-through on each situation)






Australia


Comments (with links to announcements &amp; insights)




3P Learning (3PL AU) 

No May update




Bingo Industries (BIN AU) 

1-May: Capital Group announced it has sold its entire 9.7% stake in Bingo Industries (BIN AU).




Crown Resorts (CWN AU) 

10-May: Crown Resorts: Blackstone &amp; Star Place Their Bets
17-May: Crown Says Blackstone's Bid Is Light. Undecided On Star
20-May: Crown Resorts Ltd: Blackstone Offer Rejected, Star Offer May Still Not Reflect True Forward Value




Galaxy Resources (GXY AU) 

No May update




Link Administration Holdings (LNK AU) 

27-May: Link Group (LNK AU): KKR Opens The Bidding For PEXA
31-May: Link Admin (LNK AU) Goes IPO Route For PEXA Afterall




Mainstream Group Holdings Ltd (MAI AU) 

2-May: Mainstream (MAI AU): More-Than-Double in Less than 2 Months After Apex Bump
6-May: Mainstream (MAI AU): Bidding War Continues as SS&amp;C Overbids for the 4th Time
14-May: Mainstream (MAI AU): +120% in ~2 Months but Bidding War Continues....




McPherson's Ltd (MCP AU) 

No May update




Mortgage Choice (MOC AU) 

26-Mau FIRB gives its approval



Primewest Group Ltd (PWG AU)

14-May: Target's Statement and Bidder's Statements were published. Primewest Group Ltd (PWG AU)'s Board has unanimously recommended shareholders to accept the Offer. 




Think Childcare (TNK AU) 

12-May: Think Childcare (TNK AU) has agreed to extend the Exclusivity Period with Busy Bees to 31st May 2021 (vs. original deadline of 14th May). This is still a non-binding deal with an expected completion date to be in 1Q CY22. 




Vitalharvest Freehold Trust (VTH AU) 

1-May: And so it goes - MAFM bumps its Offer for Vitalharvest Freehold Trust (VTH AU) to $1.26.
7-May: MAFM exercises a call option and acquires 16.2% of Vitalharvest Freehold Trust (VTH AU).
28-May Roc bumps its Offer for Vitalharvest Freehold Trust (VTH AU) to $1.29/share.  And says it will overbid any MAFM counter! 




Vocus Communications (VOC AU) 

10-May: Vocus Comms (VOC AU): MIRA/Aware's Done Deal
19-May: Vocus Comms (VOC AU): MIRA/​Aware’s Scheme Doc Despatched. EGM On 22 June










Hong Kong


Comments (with links to announcements &amp; insights)




Beijing Digital Telecom (6188 HK) 

1-May: Beijing Digital (6188 HK): Offer Now Open. IFA Says Fair
20-May: Beijing Digital Telecom (6188 HK)'s MGO is now unconditional in all respects. 




China Machinery Engineering (1829 HK) 

28-May: China Machinery Engineering (1829 HK): Movement In The Works?




China Traditional Chinese Medicine (570 HK) 

7-May: In its monthly update regarding a potential Offer, China Traditional Chinese Medicine (570 HK) says there is no update.




China Youzan Limited (8083 HK) 

10-May: China Youzan (8083 HK): Reality Check As Shares Rollover




Kerry Logistics Network (636 HK) 

4-May: Kerry Logistics Network (636 HK) will hold an EGM on the 26 May for shareholders to vote on the sale of the Hong Kong and Taiwan warehouse businesses to Kerry Holdings. 
26-May: At its SGM, Kerry Logistics Network (636 HK) shareholders overwhelmingly approved the sale of its Hong Kong, Taiwan warehouse business to Kerry Holdings.




New Century REIT (1275 HK) 

No May update




Rivera Holdings (281 HK) 

No April update




Sichuan Languang Justbon Service Group (2606 HK) 

3-May: Languang Justbon (2606 HK): Offer Now Open - For Up To Four Months










India


Comments (with links to insights)




Mphasis Ltd (MPHL IN) 

4-May: The Detailed Public Statement on Mphasis Ltd (MPHL IN) has been released. The Open Offer is scheduled tentatively to run from 18 June to 1 July, which means it is running Very Tight and the option is worth a bit less than I expected. But that just means there is more gamma. One could get big at the high Rs 1600s area. 




Vedanta Ltd (VEDL IN) 

4-May: Vedanta Now Caught Up With Peers - A Different Skew Ahead










Japan


Comments (with links to announcements &amp; insights)




BeNEXT Group (2154 JP) 
No May update



Cocokara Fine (3098 JP) 
No May update



Fuji Kosan Company (5009 JP) 
17-May:  Fuji Kosan Company (5009 JP) has responded to Aslead Strategic Value Fund's Tender Offer with its initial Target Opinion Statement which is "Opinion Withheld." This is because Fuji Kosan hasn't actually done anything yet - two weeks in. They have sent questions to Aslead, and Aslead has five business days to respond. This is slow-walking it. This tender offer is likely to be extended because of that.



Hitachi Metals (5486 JP) 

5-May: Hitachi Metals - Should I Stay or Should I Go Now?




Honshu Chemical Industry (4115 JP) 

13-May: Honshu Chemical (4115) Shareholders Perhaps One Day From a Wrong Price Takeover
16-May:: Honshu Chemical Shareholders Get the Short End of the Stick As The Board Is Ex-Gourd




Invesco Office J Reit (3298 JP) 

6-May:  Invesco Office OPPOSES Starwood Hostile Offer and Gets a Distinctly Beige Knight
11-May:  Starwood Bumps Terms, Lowers Threshold on Invesco Office
13-May:  Invesco Office's Terrible, Horrible, No Good Very Bad Day... Changes Things
20-May:  Invesco Office's Beige Knight (Deemed Dirty Gray By Markets) Suddenly Looks Brighter and Whiter
23-May:  Starwood Responds to Invesco Office's White Knight Proposal
24-May: Starwood has extended their Tender Offer on Invesco Office J Reit (3298 JP) from the 24th of May to 15th of June after the close of the 24th. They did not raise the price. This is basically the equivalent of Starwood calling Invesco's bluff. They can extend again if they want but they are going to make Invesco come out. They can change price later if they think it necessary.



Japan Asia (3751 JP)
No May update



Sawada Holdings (8699 JP) 

9-May:  Sawada Selldown Was NOT Done - Shareholder Structure Looks Different Now
23-May: Sawada Is A Different Stock Now
31-May:  Be Careful of Expectations on Sawada (8699)




Toshiba Corp (6502 JP) 

14-May: Toshiba – Shareholder Returns Trump Weak Guidance
17-May: Toshiba Results &amp; Shareholder Return - Possibly Big Impact Buyback Coming











New Zealand


Comments 




Tilt Renewables Ltd (TLT NZ) 

No May update











Singapore


Comments (with links to announcements)




Procurri Corporation (PROC SP) 

3-May: The Partial Offer has not become unconditional in all respects on the Closing Date and has therefore lapsed










Thailand


Comments




Intouch Holdings (INTUCH TB) 

No May update




Vinythai Public Co (VNT TB) 

No May update






Historically, Japan has been overbanked. There have been Tier 1 and Tier 2 regional banks in every prefecture, along with credit unions and the strong presence of agriculturual cooperatives, and of course, Japan Post Bank with some 24,000 branches and outlets across Japan. It has been tough sledding to be a regional bank - too much cash in retail hands, over-cashed corporate customers, flat to declining regional growth on declining regional population growth, and greater urban growth centred around the largest cities.Japan's regional banks have been upping the pace of mergers since the former FSA commissioner Toshihide Endo showed up (before Suga-san became PM - he became commissioner in 2018) and started encouraging banks to merge and enter new businesses (consulting and investment banking advisory for clients, etc). In 2018, the FSA actually came out and said there were 23 different prefectures which were likely unprofitable for even one lender, and 12 other prefectures (out of a total of 47+Tokyo, Hokkaido, and Okinawa) could support just one bank, and 10 other prefectures could support two. When Suga-san became Prime Minister last year, he too pushed on regional banks to merge, saying "there are too many of them."<a href="https://www.smartkarma.com/entities/aomori-bank-ltd" target="_blank" data-smartkarma-citation="entities:18478:1" rel="noopener">Aomori Bank (8342 JP)</a> and fellow Aomori Prefecture bank <a href="https://www.smartkarma.com/entities/michinoku-bank-ltd" target="_blank" data-smartkarma-citation="entities:6599:1" rel="noopener">Michinoku Bank (8350 JP)</a> agreed in 2019 to form an operational alliance, which was widely seen as a precursor to merging. Last year on September 6, the Nikkei carried an article saying that Aomori Bank and Michinoku Bank could consider a merger, and the CEO of Aomori Bank was quoted as saying he didn't rule out the possibility. The two banks had 95 and 94 banks, respectively, last year, and they mostly competed against each other in each major city, minor city, and even small town, and officials from both banks had said that was too many to support. The NEW news is that on Friday, the two banks <a href="https://www.michinokubank.co.jp/news_2726.pdf" target="_blank" rel="noopener">announced</a> they would merge. So now we have a deal to look at.

Historically, Japan has been overbanked. There have been Tier 1 and Tier 2 regional banks in every prefecture, along with credit unions and the strong presence of agriculturual cooperatives, and of course, Japan Post Bank with some 24,000 branches and outlets across Japan. It has been tough sledding to be a regional bank - too much cash in retail hands, over-cashed corporate customers, flat to declining regional growth on declining regional population growth, and greater urban growth centred around the largest cities.Japan's regional banks have been upping the pace of mergers since the former FSA commissioner Toshihide Endo showed up (before Suga-san became PM - he became commissioner in 2018) and started encouraging banks to merge and enter new businesses (consulting and investment banking advisory for clients, etc). In 2018, the FSA actually came out and said there were 23 different prefectures which were likely unprofitable for even one lender, and 12 other prefectures (out of a total of 47+Tokyo, Hokkaido, and Okinawa) could support just one bank, and 10 other prefectures could support two. When Suga-san became Prime Minister last year, he too pushed on regional banks to merge, saying "there are too many of them."Aomori Bank (8342 JP) and fellow Aomori Prefecture bank Michinoku Bank (8350 JP) agreed in 2019 to form an operational alliance, which was widely seen as a precursor to merging. Last year on September 6, the Nikkei carried an article saying that Aomori Bank and Michinoku Bank could consider a merger, and the CEO of Aomori Bank was quoted as saying he didn't rule out the possibility. The two banks had 95 and 94 banks, respectively, last year, and they mostly competed against each other in each major city, minor city, and even small town, and officials from both banks had said that was too many to support. The NEW news is that on Friday, the two banks announced they would merge. So now we have a deal to look at.

Aomori Bank & Michinoku Bank Merger - Nothing To Write Home About Yet

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

2020 was a bad year for <a href="https://www.smartkarma.com/entities/michinoku-bank-ltd" target="_blank" data-smartkarma-citation="entities:6599:1" rel="noopener">Michinoku Bank (8350 JP)</a>, a small embattled regional bank from Aomori Prefecture at the very top of Japan’s main island of Honshu.  The bank recorded a heavy consolidated net loss of ¥4.59 billion in FY3/2020 because of rising credit costs and a synthetic hedge that went disastrously wrong.  2021 is not shaping up to be much better.  True, FY3/2021 started promisingly enough, with 1Q FY3/2021 net profits of ¥694 million beating management’s guidance for the whole of FY3/2021.  However, subsequent quarterly performance has deteriorated rapidly: net profits halved to ¥367 million in 2Q compared with 1Q and have halved again in 3Q to ¥172 million.  The bank is no longer making net losses, but any improvement in core earnings  -  almost entirely because of a huge investment in foreign assets that appear to yield over 4%pa  -  is being offset by rising losses on hedge positions as well as stock valuation losses.  Loan growth has slumped to just +1%pa.  Worryingly, management has kept full-year guidance at ¥500 million even though consolidated net profits for the 9 months to end-December 2020 came to ¥1.23 billion, citing the potential for the economic uncertainty to cause credit costs to rise as well as deferred tax assets to become irrecoverable. Fair warning.From an investment perspective, the only possible interest in Michinoku Bank might be as a merger candidate.  Michinoku Bank is widely expected to come to an agreement on a capital tie-up with larger Aomori rival <a href="https://www.smartkarma.com/entities/aomori-bank-ltd" target="_blank" data-smartkarma-citation="entities:18478:1" rel="noopener">Aomori Bank (8342 JP)</a> Aomori Bank (8342 JP) during CY2021 following the enactment of legislation in November 2020 to allow regional banks in the same prefecture to merge without falling foul of anti-trust laws.  The two banks have high combined market shares both for loans (&gt;73%) and deposits (&gt;56%) in Aomori Prefecture.Our view remains that potential merger activity is insufficient incentive to justify owning this stock.  On a valuation basis, Michinoku Bank remains by far the most demanding stock of all the regional banks from the Tohoku Region.  There are plenty of ‘red flags’ in the balance-sheet and other financial statements that should have warned off potential investors.  Yet foreign institutional investors in aggregate continue to hold 7.4% of outstanding shares.  Caveat Emptor!  (May the Buyer Beware) is our advice to any would-be investor in this bank stock.

2020 was a bad year for Michinoku Bank (8350 JP), a small embattled regional bank from Aomori Prefecture at the very top of Japan’s main island of Honshu.  The bank recorded a heavy consolidated net loss of ¥4.59 billion in FY3/2020 because of rising credit costs and a synthetic hedge that went disastrously wrong.  2021 is not shaping up to be much better.  True, FY3/2021 started promisingly enough, with 1Q FY3/2021 net profits of ¥694 million beating management’s guidance for the whole of FY3/2021.  However, subsequent quarterly performance has deteriorated rapidly: net profits halved to ¥367 million in 2Q compared with 1Q and have halved again in 3Q to ¥172 million.  The bank is no longer making net losses, but any improvement in core earnings  -  almost entirely because of a huge investment in foreign assets that appear to yield over 4%pa  -  is being offset by rising losses on hedge positions as well as stock valuation losses.  Loan growth has slumped to just +1%pa.  Worryingly, management has kept full-year guidance at ¥500 million even though consolidated net profits for the 9 months to end-December 2020 came to ¥1.23 billion, citing the potential for the economic uncertainty to cause credit costs to rise as well as deferred tax assets to become irrecoverable. Fair warning.From an investment perspective, the only possible interest in Michinoku Bank might be as a merger candidate.  Michinoku Bank is widely expected to come to an agreement on a capital tie-up with larger Aomori rival Aomori Bank (8342 JP) Aomori Bank (8342 JP) during CY2021 following the enactment of legislation in November 2020 to allow regional banks in the same prefecture to merge without falling foul of anti-trust laws.  The two banks have high combined market shares both for loans (&gt;73%) and deposits (&gt;56%) in Aomori Prefecture.Our view remains that potential merger activity is insufficient incentive to justify owning this stock.  On a valuation basis, Michinoku Bank remains by far the most demanding stock of all the regional banks from the Tohoku Region.  There are plenty of ‘red flags’ in the balance-sheet and other financial statements that should have warned off potential investors.  Yet foreign institutional investors in aggregate continue to hold 7.4% of outstanding shares.  Caveat Emptor!  (May the Buyer Beware) is our advice to any would-be investor in this bank stock.

Michinoku Bank (8350 JP):  Stuck in a Hedge

Japan

The Aomori Bank, Ltd. is a regional bank based in Aomori prefecture.  The Bank provides banking services such as deposits, loans, foreign exchange transactions, and securities investments.  The Aomori Bank provides financial services such as leasing, credit cards, letter of credit, and mortgage securities.

Aomori Bank (8342 JP)

The TOPIX Liquidity Factor Adjustment - Still a Trade To Do

The TOPIX Liquidity Factor Trade is an esoteric rebalance accompanying the major FFW rebalance to be announced Thursday. The major names have seen...

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Aomori Bank (8342) Michinoku Bank (8350) Bank Merger

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Travis Lundy

(Mostly) Asia M&A: May 2021 Roundup

The average premium for the new deals announced (or first discussed) in May was ~41%, with a year-to-date average of ~31% (78 deals).

David Blennerhassett

Aomori Bank & Michinoku Bank Merger - Nothing To Write Home About Yet

Michinoku Bank and Aomori Bank have announced plans to merge by April 2022. This is not a surprise. Now it is a guess the ratio trade. Not easy....

Travis Lundy

Michinoku Bank (8350 JP): Stuck in a Hedge

2020 was a bad year for Michinoku Bank. After a promising start, 2021 is not shaping up to be much better. A possible merger with Aomori Bank...

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