Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Australian Pharmaceutical Industries / Event-Driven

Australian Pharmaceutical Industries (API AU)

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<p>Back on the 14 December 2018, wholesale and retail pharmacy health/beauty and lifestyle products operator <a href="https://www.smartkarma.com/entities/19399" target="_blank" data-smartkarma-citation="entities:19399:1" rel="noopener"><strong>Australian Pharmaceutical Industries (API AU)</strong></a> (API) <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2995-02059816-3A507826?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> that it had become a substantial shareholder in key competitor <a href="https://www.smartkarma.com/entities/15966" target="_blank" data-smartkarma-citation="entities:15966:1" rel="noopener">Sigma Healthcare Ltd (SIG AU)</a> by purchasing 137.26mm shares, or 12.95%.</p>
<p>On the same day, it was <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2995-02059834-3A507836?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">made public</a> that API had made an indicative non-binding proposal to Sigma through a Scheme of Arrangement whereby Sigma shareholders would receive 0.31 shares of API and A$0.23 in cash for each share of Sigma held. The proposal was first tabled to the board back on 11 October 2018.</p>
<p><a href="https://www.smartkarma.com/profiles/travis-lundy" target="_blank" data-smartkarma-citation="accounts:25" rel="noopener">Travis Lundy</a> discussed the Offer in <em><a href="https://skr.ma/araq7" target="_blank" rel="noopener">API Tilts at Sigma Healthcare: Expect More</a></em> and <em><a href="https://skr.ma/szfi2" target="_blank" rel="noopener">Sigma Healthcare Market Update: Strategic Review Expects More</a>, </em>concluding the Offer was light. </p>
<p>Sigma thought so too and summarily <a href="https://www.asx.com.au/asxpdf/20190313/pdf/443fhtv2whrv40.pdf" target="_blank" rel="noopener">rejected</a> the Offer on the 13 March 2019 and terminated discussions. Sigma believed its future potential is on a standalone basis. Sigma also cited API's share price decline of &gt;15% since the 11 October announcement, implying a 12% decline in value for its shareholders; and also flagged the potential execution risk in regards to ACCC consent. $60mn in synergies from merging was, however, not disputed by Sigma.</p>
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<p>API said it had <a href="https://www.asx.com.au/asxpdf/20190313/pdf/443ftrffbvj16w.pdf" target="_blank" rel="noopener">closed its data room </a>and was reviewing its shareholding in Sigma.</p>
<p>API subsequently sold its stake in Sigma on the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02185851-3A531484?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">16 December 2019</a>. </p>
<h3>The New News</h3>
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<p>API has now <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02394187-3A570533?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> an indicative, non-binding Offer from <a href="https://www.smartkarma.com/entities/wesfarmers-ltd" target="_blank" data-smartkarma-citation="entities:1104:1" rel="noopener">Wesfarmers Ltd (WES AU)</a> by way of a Scheme at $1.38/share,  a 20.5% premium to last close.  </p>
<p>Separately, Wesfarmers has entered into an agreement with API's largest shareholder <a href="https://www.smartkarma.com/entities/washington-h-soul-pattinson-and-co-ltd" target="_blank" data-smartkarma-citation="entities:6054:1" rel="noopener">Washington H. Soul Pattinson and Co. Ltd (SOL AU)</a> (WHSP), such that WHSP will vote its 19.3% interest in favour of Wesfarmers' proposal, in the absence of a superior Offer.</p>
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<p>This looks done, and is trading accordingly. </p>
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<p>More below the fold.</p>
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Back on the 14 December 2018, wholesale and retail pharmacy health/beauty and lifestyle products operator Australian Pharmaceutical Industries (API AU) (API) announced that it had become a substantial shareholder in key competitor Sigma Healthcare Ltd (SIG AU) by purchasing 137.26mm shares, or 12.95%.
On the same day, it was made public that API had made an indicative non-binding proposal to Sigma through a Scheme of Arrangement whereby Sigma shareholders would receive 0.31 shares of API and A$0.23 in cash for each share of Sigma held. The proposal was first tabled to the board back on 11 October 2018.
Travis Lundy discussed the Offer in API Tilts at Sigma Healthcare: Expect More and Sigma Healthcare Market Update: Strategic Review Expects More, concluding the Offer was light. 
Sigma thought so too and summarily rejected the Offer on the 13 March 2019 and terminated discussions. Sigma believed its future potential is on a standalone basis. Sigma also cited API's share price decline of &gt;15% since the 11 October announcement, implying a 12% decline in value for its shareholders; and also flagged the potential execution risk in regards to ACCC consent. $60mn in synergies from merging was, however, not disputed by Sigma.

API said it had closed its data room and was reviewing its shareholding in Sigma.
API subsequently sold its stake in Sigma on the 16 December 2019. 
The New News

API has now announced an indicative, non-binding Offer from Wesfarmers Ltd (WES AU) by way of a Scheme at $1.38/share,  a 20.5% premium to last close.  
Separately, Wesfarmers has entered into an agreement with API's largest shareholder Washington H. Soul Pattinson and Co. Ltd (SOL AU) (WHSP), such that WHSP will vote its 19.3% interest in favour of Wesfarmers' proposal, in the absence of a superior Offer.

This looks done, and is trading accordingly. 


More below the fold.


API AU: The Hunter Turns The Hunted As Wesfarmers Makes A Move

IPO and L/S equity, 2015 Starmine top stock picker, Global Equity Research Ltd

Rickin Thakrar

IPO and L/S equity, 2015 Starmine top stock picker

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>Below is a recap of the key Event-driven, IPO and placement research produced by the Global Equity Research team. This week we highlight Arun's analysis on the takeover deals for <a href="https://www.smartkarma.com/entities/1099" target="_blank" data-smartkarma-citation="entities:1099:1">Navitas Ltd (NVT AU)</a> and <a href="https://www.smartkarma.com/entities/7297" target="_blank" data-smartkarma-citation="entities:7297:1">Mindtree Ltd (MTCL IN)</a> and the valuation range for <a href="https://www.smartkarma.com/entities/20912" target="_blank" data-smartkarma-citation="entities:20912:1">Delta Electronics Thai (DELTA TB)</a> . In addition, Arun recommends taking the <a href="https://www.smartkarma.com/entities/23649" target="_blank" data-smartkarma-citation="entities:23649:1">Gds Holdings (Adr) (GDS US)</a> placement while recommending the deal for <a href="https://www.smartkarma.com/entities/374" target="_blank" data-smartkarma-citation="entities:374:1">MYOB Group Ltd (MYO AU)</a> and contends investors may need to be patient for the rejected <a href="https://www.smartkarma.com/entities/15966" target="_blank" data-smartkarma-citation="entities:15966:1">Sigma Healthcare (SIG AU)</a> deal. Venkat looks into the bankruptcy arbitrage situation for <a href="https://www.smartkarma.com/entities/18378" target="_blank" data-smartkarma-citation="entities:18378:1">P G &amp; E Corp (PCG US)</a> and contends PG&amp;E has no equity value due to pending litigation risks. Finally, Arun initiates on the IPO of Chinese e-commerce company <a href="https://www.smartkarma.com/entities/27992" target="_blank" data-smartkarma-citation="entities:27992:1">Ruhnn Holding Ltd (RUHN US)</a></p><p>Best of luck for the new week - Arun, Venkat and Rickin</p>

Below is a recap of the key Event-driven, IPO and placement research produced by the Global Equity Research team. This week we highlight Arun's analysis on the takeover deals for Navitas Ltd (NVT AU) and Mindtree Ltd (MTCL IN) and the valuation range for Delta Electronics Thai (DELTA TB) . In addition, Arun recommends taking the Gds Holdings (Adr) (GDS US) placement while recommending the deal for MYOB Group Ltd (MYO AU) and contends investors may need to be patient for the rejected Sigma Healthcare (SIG AU) deal. Venkat looks into the bankruptcy arbitrage situation for P G &amp; E Corp (PCG US) and contends PG&amp;E has no equity value due to pending litigation risks. Finally, Arun initiates on the IPO of Chinese e-commerce company Ruhnn Holding Ltd (RUHN US)Best of luck for the new week - Arun, Venkat and Rickin

Last Week in GER Research: Navitas, Mindtree, PG&E, Delta Electronics, GDS, Myob, Sigma and Ruhnn

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

<p>On Wednesday, <a href="https://www.smartkarma.com/entities/15966" target="_blank" data-smartkarma-citation="entities:15966:1">Sigma Healthcare (SIG AU)</a> rejected an indicative takeover offer from rival <a href="https://www.smartkarma.com/entities/19399" target="_blank" data-smartkarma-citation="entities:19399:1">Australian Pharma Industries (API AU)</a>. Shareholders were disappointed with the news, with Sigma’s shares closing 12.3% lower at A$0.54 per share. API shares fared better and fell 3.6% to A$1.35 each.</p><div class="content-highlight"><p>We believe Sigma’s board were left with the tough choice of accepting a lowball offer or improving the existing business and riding out the inevitable share price fall. By rejecting the API bid, the Sigma board made the difficult but right choice, in our view. While further downside risk to the share price is limited, we caution that shareholders require patience as the road to share price recovery will be long.</p></div>

On Wednesday, Sigma Healthcare (SIG AU) rejected an indicative takeover offer from rival Australian Pharma Industries (API AU). Shareholders were disappointed with the news, with Sigma’s shares closing 12.3% lower at A$0.54 per share. API shares fared better and fell 3.6% to A$1.35 each.We believe Sigma’s board were left with the tough choice of accepting a lowball offer or improving the existing business and riding out the inevitable share price fall. By rejecting the API bid, the Sigma board made the difficult but right choice, in our view. While further downside risk to the share price is limited, we caution that shareholders require patience as the road to share price recovery will be long.

Sigma Healthcare (SIG AU): Rejecting the API Bid Is the Difficult but Right Choice

<p>In this version of the GER weekly research wrap, we assess the bump prospects in the <a href="https://www.smartkarma.com/entities/19399" target="_blank" data-smartkarma-citation="entities:19399:1">Australian Pharma Industries (API AU)</a> / <a href="https://www.smartkarma.com/entities/15966" target="_blank" data-smartkarma-citation="entities:15966:1">Sigma Healthcare (SIG AU)</a> potential merger. Arun updates on <a href="https://www.smartkarma.com/entities/412" target="_blank" data-smartkarma-citation="entities:412:1">M1 Ltd (M1 SP)</a> which could be delisted following an unconditional offer. In addition, we dig into the trading update for <a href="https://www.smartkarma.com/entities/339" target="_blank" data-smartkarma-citation="entities:339:1">Eclipx (ECX AU)</a> and assess the risks that <a href="https://www.smartkarma.com/entities/3023" target="_blank" data-smartkarma-citation="entities:3023:1">Mcmillan Shakespeare (MMS AU)</a> could walk away from the deal. Finally, we initiate on the IPO of <a href="https://www.smartkarma.com/entities/23675" target="_blank" data-smartkarma-citation="entities:23675:1">Hansoh Pharmaceutical (HANSOH HK)</a>. A calendar of upcoming catalysts is also attached. </p><p>More details can be found below. </p><p>Best of luck for the new week - Rickin, Venkat and Arun</p>

In this version of the GER weekly research wrap, we assess the bump prospects in the Australian Pharma Industries (API AU) / Sigma Healthcare (SIG AU) potential merger. Arun updates on M1 Ltd (M1 SP) which could be delisted following an unconditional offer. In addition, we dig into the trading update for Eclipx (ECX AU) and assess the risks that Mcmillan Shakespeare (MMS AU) could walk away from the deal. Finally, we initiate on the IPO of Hansoh Pharmaceutical (HANSOH HK). A calendar of upcoming catalysts is also attached. More details can be found below. Best of luck for the new week - Rickin, Venkat and Arun

Last Week in GER Research: API/Sigma, M1, Eclipx/Mcmillan and Hansoh IPO

Travis Lundy

<p>In my first insight on this potential deal situation in December <a href="https://www.smartkarma.com/insights/api-tilts-at-sigma-healthcare-expect-more" target="_blank" data-smartkarma-citation="insights:26725">API Tilts at Sigma Healthcare: Expect More</a>, I noted that despite the 69% premium and very large jump on Day1 there was still room below the cash and scrip terms of <a href="https://www.smartkarma.com/entities/19399" target="_blank" data-smartkarma-citation="entities:19399:1">Australian Pharma Industries (API AU)</a>'s ("API") non-binding offer (of 0.31 shares of API and A$0.23 in cash for each share of <a href="https://www.smartkarma.com/entities/15966" target="_blank" data-smartkarma-citation="entities:15966:1">Sigma Healthcare (SIG AU)</a> held), which were arguably light (i.e. ascribed too much value to API shareholders for the shares portion). Also, given the nature of "opportunistic bids" made when a recently bombed out former growth stock and the "sunk cost" model of investor and executive mentality, there was every possibility that Sigma would come out saying they were worth more.</p><p>My concluding recommendation was to expect that API would have to bid more, and to think about trading this from a "long gamma" perspective and said I would be long Sigma vs API in the interim (either long-short or against terms). So far that has worked, but mostly because <a href="https://www.smartkarma.com/entities/19399" target="_blank" data-smartkarma-citation="entities:19399:1">Australian Pharma Industries (API AU)</a> has fallen in price. What had been a 24.9% spread to terms when I wrote was down to 13.6% last Friday and to 7.6% after the move Monday after the New News.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/520/original/Screenshot%202019-02-12%20at%206.02.29%20AM.png?1549922590" class="editor-image img-responsive" data-smartkarma-image-id="78520"></figure><div style="text-align: left;" class="content-caption">data source: capitalIQ</div><h2>The New News</h2><p>Friday morning, Sigma Healthcare released a 2-page <a href="https://www.asx.com.au/asxpdf/20190211/pdf/442hxks4204dxs.pdf" target="_blank">Market Update</a> saying the four month Business Review, assisted by Accenture, had identified A$100mm of annual cost savings, confirmed the FY19 EBIT guidance of A$75 million, and confirmed the FY20 EBITDA guidance of $55-60mm (strictly speaking, the conversion from EBIT to EBITDA had been pinpointed to be $54-64mm, so the range has shrunk and the top end has come down).</p><p>The business review sees 10% underlying EBITDA growth from FY20 to FY23 so that after cost savings are included, FY23 sees the same EBITDA as FY19 [i.e. almost A$90mm].</p><p>The last bullet point suggests to expect "minimal net debt by FY20" despite an "extensive capital reinvestment program" and "retention of a high dividend payout." This suggests some use of the capital release from withdrawing from the MC/CW deal to pay down debt.</p><p><em>There is a fair bit one can do to read between the lines. It is worthwhile doing so.</em></p>

In my first insight on this potential deal situation in December API Tilts at Sigma Healthcare: Expect More, I noted that despite the 69% premium and very large jump on Day1 there was still room below the cash and scrip terms of Australian Pharma Industries (API AU)'s ("API") non-binding offer (of 0.31 shares of API and A$0.23 in cash for each share of Sigma Healthcare (SIG AU) held), which were arguably light (i.e. ascribed too much value to API shareholders for the shares portion). Also, given the nature of "opportunistic bids" made when a recently bombed out former growth stock and the "sunk cost" model of investor and executive mentality, there was every possibility that Sigma would come out saying they were worth more.My concluding recommendation was to expect that API would have to bid more, and to think about trading this from a "long gamma" perspective and said I would be long Sigma vs API in the interim (either long-short or against terms). So far that has worked, but mostly because Australian Pharma Industries (API AU) has fallen in price. What had been a 24.9% spread to terms when I wrote was down to 13.6% last Friday and to 7.6% after the move Monday after the New News.data source: capitalIQThe New NewsFriday morning, Sigma Healthcare released a 2-page Market Update saying the four month Business Review, assisted by Accenture, had identified A$100mm of annual cost savings, confirmed the FY19 EBIT guidance of A$75 million, and confirmed the FY20 EBITDA guidance of $55-60mm (strictly speaking, the conversion from EBIT to EBITDA had been pinpointed to be $54-64mm, so the range has shrunk and the top end has come down).The business review sees 10% underlying EBITDA growth from FY20 to FY23 so that after cost savings are included, FY23 sees the same EBITDA as FY19 [i.e. almost A$90mm].The last bullet point suggests to expect "minimal net debt by FY20" despite an "extensive capital reinvestment program" and "retention of a high dividend payout." This suggests some use of the capital release from withdrawing from the MC/CW deal to pay down debt.There is a fair bit one can do to read between the lines. It is worthwhile doing so.

Sigma Healthcare Market Update: Strategic Review Expects More

Australia

Australian Pharmaceutical Industries Limited is a pharmaceutical support company which provides wholesale distribution of pharmaceutical and related products to pharmacies, hospitals and doctors. The Company also provides various retail support services and financial services to pharmacies along with distributing dental and related products to dental practices.

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Australian Pharmaceutical Industries (API AU)

API AU: The Hunter Turns The Hunted As Wesfarmers Makes A Move

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Rickin Thakrar

Sigma Healthcare Market Update: Strategic Review Expects More

In my first insight on this potential deal situation in December API Tilts at Sigma Healthcare: Expect More, I noted that despite the 69% premium...

Travis Lundy

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