IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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.

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/blackstone-group-inc" target="_blank" data-smartkarma-citation="entities:27166:1" rel="noopener">Blackstone Group (BX US)</a> has returned for a third time with a A$12.50 cash per share offer, a marginal 1.2% bump to its last offer of A$12.35 on 10 May.</li>
<li>
<a href="https://www.smartkarma.com/entities/crown-resorts-ltd" target="_blank" data-smartkarma-citation="entities:808:1" rel="noopener">Crown Resorts (CWN AU)</a> is at the start of a difficult reform agenda it needs to fulfil to maintain its gaming licenses. Nevertheless, Blackstone’s ongoing interest suggest inherent value.</li>
<li>Blackstone’s bid retains leeway for a bump and may draw out previous suitors. At the last close of A$11.54, the shares trade at an 8.3% gross spread to the offer.</li>
</ul>



Blackstone Group (BX US) has returned for a third time with a A$12.50 cash per share offer, a marginal 1.2% bump to its last offer of A$12.35 on 10 May.

Crown Resorts (CWN AU) is at the start of a difficult reform agenda it needs to fulfil to maintain its gaming licenses. Nevertheless, Blackstone’s ongoing interest suggest inherent value.
Blackstone’s bid retains leeway for a bump and may draw out previous suitors. At the last close of A$11.54, the shares trade at an 8.3% gross spread to the offer.


Blackstone Third-Time Lucky with Crown Resorts Bid?

<a href="https://www.smartkarma.com/entities/soho-china-ltd" target="_blank" data-smartkarma-citation="entities:4123:1" rel="noopener">Soho China Ltd (410 HK)</a> is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. On Friday after market close, SOHO China announced that <a href="https://www.smartkarma.com/entities/blackstone-group-inc" target="_blank" data-smartkarma-citation="entities:27166:1" rel="noopener">Blackstone Group (BX US)</a> has withdrawn its pre-conditional voluntary conditional cash offer of HK$5.00 per share. The key pre-condition was SAMR anti-trust approval. On 2 August, the SOHO China/Blackstone case was accepted for SAMR review by normal procedure rather than a simplified procedure which can take 180 days. On 6 September, SOHO China noted that Blackstone has provided further documents in response to the SAMR’s requests for additional information. Blackstone had received further requests to provide additional information by SAMR and the statement noted that it remains uncertain when the review process will be completed. We previously argued in <a href="https://www.smartkarma.com/insights/soho-china-s-spread-risk-reward-update" target="_blank" data-smartkarma-citation="insights:56578" rel="noopener">SOHO China's Spread Risk/Reward Update</a> that SAMR approval should be forthcoming due to Blackstone’s prior experience in securing SAMR approval for real estate deals, SOHO China will continue to be listed and the deal will not lead to a material increase in market concentration. Four days later 10 September, Blackstone and Pan Shiyi mutually agreed to terminate the offer as they concluded that the pre-condition (SAMR antitrust approval) will be unlikely to be satisfied on or before the Long Stop date (31 December 2021). Revealingly, the parties also agreed that there will be no extension to the Long Stop date suggesting that recent interactions with SAMR had headed downhill.  We think that Blackstone decided to walk away as it was unwilling to expend all its political goodwill to complete a single transaction. The transaction had caused disquiet in China with several Chinese press and social media posts urging SAMR to block the transaction due to the premise that the deal is unpatriotic for reasons highlighted in <a href="https://www.smartkarma.com/insights/soho-china-s-spread-risk-reward-update" target="_blank" data-smartkarma-citation="insights:56578" rel="noopener">SOHO China's Spread Risk/Reward Update</a>. While we previously argued that the rationale presented in these articles for blocking the deal is poor, a SAMR antitrust approval would also not sit well with President Xi Jinping’s recent calls for wealth redistribution.On the other hand, Pan Shiyi is stuck between a rock and a hard place. The publicity from the pulled transaction means that potential buyers will stay away in the short term. When the dust settles, Pan Shiyi can pursue selling individual assets or sell his stake to a domestic private equity bidder or real estate firm. Long-term, we see a limited rationale for SOHO China to remain publicly listed.   <div class="content-highlight">With the offer terminated, the immediate focus turns to the extent of the share price drop on Monday. Our analysis suggests that the share price could fall between HK$2.45-3.25 per share range. At the last close price of HK$3.50 per share, our share price range represents a decline of -30% to -7%. </div>

Soho China Ltd (410 HK) is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. On Friday after market close, SOHO China announced that Blackstone Group (BX US) has withdrawn its pre-conditional voluntary conditional cash offer of HK$5.00 per share. The key pre-condition was SAMR anti-trust approval. On 2 August, the SOHO China/Blackstone case was accepted for SAMR review by normal procedure rather than a simplified procedure which can take 180 days. On 6 September, SOHO China noted that Blackstone has provided further documents in response to the SAMR’s requests for additional information. Blackstone had received further requests to provide additional information by SAMR and the statement noted that it remains uncertain when the review process will be completed. We previously argued in SOHO China's Spread Risk/Reward Update that SAMR approval should be forthcoming due to Blackstone’s prior experience in securing SAMR approval for real estate deals, SOHO China will continue to be listed and the deal will not lead to a material increase in market concentration. Four days later 10 September, Blackstone and Pan Shiyi mutually agreed to terminate the offer as they concluded that the pre-condition (SAMR antitrust approval) will be unlikely to be satisfied on or before the Long Stop date (31 December 2021). Revealingly, the parties also agreed that there will be no extension to the Long Stop date suggesting that recent interactions with SAMR had headed downhill.  We think that Blackstone decided to walk away as it was unwilling to expend all its political goodwill to complete a single transaction. The transaction had caused disquiet in China with several Chinese press and social media posts urging SAMR to block the transaction due to the premise that the deal is unpatriotic for reasons highlighted in SOHO China's Spread Risk/Reward Update. While we previously argued that the rationale presented in these articles for blocking the deal is poor, a SAMR antitrust approval would also not sit well with President Xi Jinping’s recent calls for wealth redistribution.On the other hand, Pan Shiyi is stuck between a rock and a hard place. The publicity from the pulled transaction means that potential buyers will stay away in the short term. When the dust settles, Pan Shiyi can pursue selling individual assets or sell his stake to a domestic private equity bidder or real estate firm. Long-term, we see a limited rationale for SOHO China to remain publicly listed.   With the offer terminated, the immediate focus turns to the extent of the share price drop on Monday. Our analysis suggests that the share price could fall between HK$2.45-3.25 per share range. At the last close price of HK$3.50 per share, our share price range represents a decline of -30% to -7%. 

Global Special Situations & Strategy, SR Services Ltd

David Lepper

Global Special Situations & Strategy

SR Services Ltd

SR Services provides Strategic Knowledge and Solutions services for Family Offices and Corporate Business. 

We deliver this via advisory services, strategic planning, opportunity analysis/sourcing, as well as solution implementation. 

Whilst, we create intellectual discipline and operational leverage for your projects or daily activities, our ultimate objective is to empower whilst enhancing your decision making. 

Strategic Knowledge and Solutions

Equity Bottom-Up

<h2>
Examining key questions from the Kioxia &amp; PE news flow
</h2>In our July 2021 note <a href="https://www.smartkarma.com/insights/toshiba-corp-6502-jp-chapter-5" target="_blank" data-smartkarma-citation="insights:54649" rel="noopener">Toshiba Corp (6502 JP) Chapter 5: Assessing the Next Move</a> we stated that one of the key events to be expected as early as September 2021, was the IPO of the firms 40% stake in Kioxia Holdings Corporation (Kioxia). Kioxia was due to be listed in 2020, but did not occur due to “the coronavirus pandemic and market volatility.” At the time of pulling the IPO in 2020, Toshiba was expecting a valuation of around $16 billion. Several media sources, including Bloomberg and the Wall Street Journal, have alluded to the fact that a potential merger of Kioxia with Western Digital to the value of US$20bn may be on the cards. They have cited a possible transaction using shares as opposed to cash or a combination. This is news that shareholders and in particular the activist shareholders have wanted to hear for some time and a transaction that is expected to be welcomed. We examine several of the key questions surrounding the Kioxia news and what is next for Toshiba - including the potential for a full PE bid.


Examining key questions from the Kioxia &amp; PE news flow
In our July 2021 note Toshiba Corp (6502 JP) Chapter 5: Assessing the Next Move we stated that one of the key events to be expected as early as September 2021, was the IPO of the firms 40% stake in Kioxia Holdings Corporation (Kioxia). Kioxia was due to be listed in 2020, but did not occur due to “the coronavirus pandemic and market volatility.” At the time of pulling the IPO in 2020, Toshiba was expecting a valuation of around $16 billion. Several media sources, including Bloomberg and the Wall Street Journal, have alluded to the fact that a potential merger of Kioxia with Western Digital to the value of US$20bn may be on the cards. They have cited a possible transaction using shares as opposed to cash or a combination. This is news that shareholders and in particular the activist shareholders have wanted to hear for some time and a transaction that is expected to be welcomed. We examine several of the key questions surrounding the Kioxia news and what is next for Toshiba - including the potential for a full PE bid. 

Toshiba Corp (6502 JP) Chapter 6: Potential for Value Creation

<a href="https://www.smartkarma.com/entities/soho-china-ltd" target="_blank" data-smartkarma-citation="entities:4123:1" rel="noopener">Soho China Ltd (410 HK)</a> is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. As a reminder on 16 June, SOHO China announced a pre-conditional voluntary conditional cash offer from <a href="https://www.smartkarma.com/entities/blackstone-group-inc" target="_blank" data-smartkarma-citation="entities:27166:1" rel="noopener">Blackstone Group (BX US)</a>. The offer of HK$5.00 in cash per share is a 31.6% premium over the closing price of HK$3.80 per share on the last trading day (11 June prior to the trading halt). The offer is conditional on the offeror holding more than 50% of the voting rights. The offer will meet the 50+% acceptance threshold as the offeror has secured irrevocables from Pan Shiyi and Zhang Xin representing 54.93% of the outstanding shares.However, since the announcement of the offer, the spread has widened from 9% on the first trading day after the deal announcement to touch a remarkable 74% on 30 July on the back of a dubious Chinese press article suggesting that deal would be blocked by SAMR under the PRC anti-monopoly law. The gross spread has subsequently declined to a still elevated 47% at the last close price. We previously argued that SAMR approval should be forthcoming due to Blackstone’s prior experience in securing SAMR approval for real estate deals, SOHO China will continue to be listed and the deal will not lead to a material increase in market concentration. On 2 August, the SOHO China/Blackstone case was accepted for SAMR review by normal procedure rather than a simplified procedure which can take 180 days. Due to the tightening anti-monopoly regulatory environment and Pan Shiyi's status as a pioneering real estate entrepreneur, the SAMR approval process can take some time.Several Chinese press and social media posts urge SAMR to block the transaction due to the premise that the deal is unpatriotic for various reasons. These negative articles and social media posts have led investors to take the sell first, ask questions later approach. We think that the rationale presented in these articles for blocking the deal is weak and largely speculation.<div class="content-highlight">Based on a break price of HK$2.45 per share and at the last close price of HK$3.39 per share, the deal probability remains at a low of 37%. A 60% deal probability would imply a price of HK$4.00 per share and an 18% gross spread to last close, which we view as reasonable. </div>

Soho China Ltd (410 HK) is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. As a reminder on 16 June, SOHO China announced a pre-conditional voluntary conditional cash offer from Blackstone Group (BX US). The offer of HK$5.00 in cash per share is a 31.6% premium over the closing price of HK$3.80 per share on the last trading day (11 June prior to the trading halt). The offer is conditional on the offeror holding more than 50% of the voting rights. The offer will meet the 50+% acceptance threshold as the offeror has secured irrevocables from Pan Shiyi and Zhang Xin representing 54.93% of the outstanding shares.However, since the announcement of the offer, the spread has widened from 9% on the first trading day after the deal announcement to touch a remarkable 74% on 30 July on the back of a dubious Chinese press article suggesting that deal would be blocked by SAMR under the PRC anti-monopoly law. The gross spread has subsequently declined to a still elevated 47% at the last close price. We previously argued that SAMR approval should be forthcoming due to Blackstone’s prior experience in securing SAMR approval for real estate deals, SOHO China will continue to be listed and the deal will not lead to a material increase in market concentration. On 2 August, the SOHO China/Blackstone case was accepted for SAMR review by normal procedure rather than a simplified procedure which can take 180 days. Due to the tightening anti-monopoly regulatory environment and Pan Shiyi's status as a pioneering real estate entrepreneur, the SAMR approval process can take some time.Several Chinese press and social media posts urge SAMR to block the transaction due to the premise that the deal is unpatriotic for various reasons. These negative articles and social media posts have led investors to take the sell first, ask questions later approach. We think that the rationale presented in these articles for blocking the deal is weak and largely speculation.Based on a break price of HK$2.45 per share and at the last close price of HK$3.39 per share, the deal probability remains at a low of 37%. A 60% deal probability would imply a price of HK$4.00 per share and an 18% gross spread to last close, which we view as reasonable. 

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Advanced Micro Devices / Technical Analysis

The market continues to send mixed signals and we remain cautious and selective, preferring large-caps over small-caps, growth over value, and defensives (Utilities, Staples, REITs, Health Care) over cyclical value (Energy, Materials, Manufacturing, Transportation, Financials). While market dynamics suggest a 5-15% pullback is in the cards, there continues to be an absence of breakdowns at the index and Sector level; even the weaker Sectors such as Energy and Transportation are not yet breaking down. Until we start to see breakdowns at the Sector and index level, we remain constructive overall.

The market continues to send mixed signals and we remain cautious and selective, preferring large-caps over small-caps, growth over value, and defensives (Utilities, Staples, REITs, Health Care) over cyclical value (Energy, Materials, Manufacturing, Transportation, Financials). While market dynamics suggest a 5-15% pullback is in the cards, there continues to be an absence of breakdowns at the index and Sector level; even the weaker Sectors such as Energy and Transportation are not yet breaking down. Until we start to see breakdowns at the Sector and index level, we remain constructive overall.

U.S. Equity Strategy: Buying Semiconductors, Auto Dealers, and Asset Mgmt/Custody Banks

United States

Blackstone Inc. operates as an investment company. The Company focuses on real estate, hedge funds, private equity, leveraged lending, senior debts, and rescue financing. Blackstone serves customers worldwide.

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Blackstone (BX US)

Blackstone Third-Time Lucky with Crown Resorts Bid?

Blackstone’s new A$12.50 cash per share bid retains leeway for a bump and may draw out previous suitors. At the last close of A$11.54 per share,...

Arun George

SOHO China: Blackstone Walks Away

With the offer terminated, the immediate focus turns to the extent of the share price drop on Monday. Our analysis suggests that the share price...

Arun George

Toshiba Corp (6502 JP) Chapter 6: Potential for Value Creation

@Toshiba (6502.JP) activists might applaud a Wester Digital Merger, but this is just one alternative - PE bids still viable. Perhaps value...

David Lepper

SOHO China's Spread Risk/Reward Update

Negative articles have led investors to take the sell first, ask questions later approach. The reasoning for blocking the deal presented in these...

Arun George

U.S. Equity Strategy: Buying Semiconductors, Auto Dealers, and Asset Mgmt/Custody Banks

Despite our overall cautious outlook, several areas are attractive and buyable, including: Semiconductors, Auto Dealers, and Asset Management...

Vermilion Research

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