Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" data-smartkarma-citation="entities:1:1" rel="noopener">Canon Inc (7751 JP)</a> has just started its 17th buyback in 15 years. Like the 16 before, this one is for ¥50bn. </li>
<li>The patterns/dynamics of the canon buybacks in the past are remarkable when compared to buybacks of other companies. </li>
<li>There are outperformance and under-performance patterns vs Peers, and it is worth taking note if you have a position to trade. </li>
</ul>



Canon Inc (7751 JP) has just started its 17th buyback in 15 years. Like the 16 before, this one is for ¥50bn. 
The patterns/dynamics of the canon buybacks in the past are remarkable when compared to buybacks of other companies. 
There are outperformance and under-performance patterns vs Peers, and it is worth taking note if you have a position to trade. 


Looking at Canon Buyback Dynamics History - Patterns Vs Peers Gives Execution Hints

<ul>
<li>
<a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" data-smartkarma-citation="entities:1:1" rel="noopener">Canon Inc (7751 JP)</a> reported Q2 earnings early last week. Shares dropped 4% the next day but closed down only 1%. Now they are above the prior close. </li>
<li>They biked the dividend nicely (was ¥45/share last year, guided to ¥50 this year, but made ¥60/share instead. </li>
<li>And now they have announced another ¥50bn buyback on top of the one announced in May. Fourth time in 14 years a second tranche is announced in one year. </li>
</ul>



Canon Inc (7751 JP) reported Q2 earnings early last week. Shares dropped 4% the next day but closed down only 1%. Now they are above the prior close. 
They biked the dividend nicely (was ¥45/share last year, guided to ¥50 this year, but made ¥60/share instead. 
And now they have announced another ¥50bn buyback on top of the one announced in May. Fourth time in 14 years a second tranche is announced in one year. 


Canon (7751) - Second Buyback This Year - Last Happened in 2014

<ul>
<li>
<a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" data-smartkarma-citation="entities:1:1" rel="noopener">Canon Inc (7751 JP)</a> on Monday announced a share buyback programme.</li>
<li>It isn't very big. But it bears consideration because of other things going on. </li>
<li>Shareholder structure is of much more importance than many investors appreciate. Here even more so.</li>
</ul>



Canon Inc (7751 JP) on Monday announced a share buyback programme.
It isn't very big. But it bears consideration because of other things going on. 
Shareholder structure is of much more importance than many investors appreciate. Here even more so.


Canon (7751) - Buyback Looks Small But Shareholder Structure Matters

Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<ul>
<li>The focus of this article is on the company's announcement that it will buy back up to 10 billion yen (5.5 million shares, or 2.11% of the total outstanding shares).</li>
<li>Without explanation of how Brother will actually allocate the expected cash flow between investment and shareholder-return, it is impossible to fully answer why the amount was set at JPY10 billion.</li>
<li>Capital Allocation is not well explained, and not many investors are paying attention to our niche business, but we should get more attention because the company is a cash cow.</li>
</ul>


The focus of this article is on the company's announcement that it will buy back up to 10 billion yen (5.5 million shares, or 2.11% of the total outstanding shares).
Without explanation of how Brother will actually allocate the expected cash flow between investment and shareholder-return, it is impossible to fully answer why the amount was set at JPY10 billion.
Capital Allocation is not well explained, and not many investors are paying attention to our niche business, but we should get more attention because the company is a cash cow.


Japan's Governance: Brother Industries (6448): 3QFY3/2022 Meeting - Share Buybuck

Today after the close, <a href="https://www.smartkarma.com/entities/brother-industries-ltd" target="_blank" data-smartkarma-citation="entities:6114:1" rel="noopener">Brother Industries (6448 JP)</a> announced a takeover of its TSE2 and Nagoya2-listed subsidiary <a href="https://www.smartkarma.com/entities/nissei-corp" target="_blank" data-smartkarma-citation="entities:10064:1" rel="noopener">Nissei Corp (6271 JP)</a>.This is not entirely unexpected. The TSE has been pressuring companies to reduce parent/subsidiary "dual listings" because of the inherent conflicts of interest posed by a parent company which wants to benefit from its subsidiary, perhaps at the expense of minority shareholders in the subsidiary. METI, in summer of 2019, released the <a href="https://www.meti.go.jp/policy/economy/keiei_innovation/keizaihousei/pdf/fairmaguidelines_english.pdf" target="_blank" rel="noopener">METI Fair M&amp;A Guidelines</a> to attempt to reduce the inequity often seen in the process, where asymmetric information, incumbency, and existing control of a board (and thereby management) could lead to sub-optimal outcome for minority shareholders. Despite the fanfare, and some initial adherence to the guidelines by good corporate citizens, there has been a run of takeovers since then whereby Boards of Target Companies have not seen fit to abide by the Fair M&amp;A Guidelines and takeovers have been proposed (and effected) at prices which would not otherwise be possible in a fair process for control and delisting. This is yet another example of a too-low price. To be sure, it is a decent premium to the last-traded price - about 37.6%. And it is a not quite 4-year high price. But...<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/240/309/original/Screenshot+2021-11-08+at+3.09.18+PM.png?1636355720" class="editor-image img-responsive" data-smartkarma-image-id="240309"></figure></section>...while the Takeover Price at ¥1,500/share yields a Tender Offer Market Cap of ¥41.55bn, which seems relatively high for a company whose highest net income in 5yrs is ¥1.211bn, looking a little closer changes things.When one realises the company has ¥11.4bn of cash, another ¥10.1bn of securities holdings, and other current assets (mostly receivables) less ALL other liabilities at the company would be another ¥6.3bn, that means Brother is buying out the company at a 'valuation' of ¥13.7bn, which is the cumulative EBITDA forecast by management from now until about August 2025. Management forecasts used by the DCF valuation agent suggest EBITDA should double in the five years from March 2023 to March 2028, and Operating Profit should triple. And for this, a takeover at just under 1.0x book value. Given the real estate could be sold and leased back, or there could be synergies by adding Nissei Corp back into Brother to share facilities, that effectively means the takeover is basically free. I may sound like a scratched record, but this seems.... too low?

Today after the close, Brother Industries (6448 JP) announced a takeover of its TSE2 and Nagoya2-listed subsidiary Nissei Corp (6271 JP).This is not entirely unexpected. The TSE has been pressuring companies to reduce parent/subsidiary "dual listings" because of the inherent conflicts of interest posed by a parent company which wants to benefit from its subsidiary, perhaps at the expense of minority shareholders in the subsidiary. METI, in summer of 2019, released the METI Fair M&amp;A Guidelines to attempt to reduce the inequity often seen in the process, where asymmetric information, incumbency, and existing control of a board (and thereby management) could lead to sub-optimal outcome for minority shareholders. Despite the fanfare, and some initial adherence to the guidelines by good corporate citizens, there has been a run of takeovers since then whereby Boards of Target Companies have not seen fit to abide by the Fair M&amp;A Guidelines and takeovers have been proposed (and effected) at prices which would not otherwise be possible in a fair process for control and delisting. This is yet another example of a too-low price. To be sure, it is a decent premium to the last-traded price - about 37.6%. And it is a not quite 4-year high price. But......while the Takeover Price at ¥1,500/share yields a Tender Offer Market Cap of ¥41.55bn, which seems relatively high for a company whose highest net income in 5yrs is ¥1.211bn, looking a little closer changes things.When one realises the company has ¥11.4bn of cash, another ¥10.1bn of securities holdings, and other current assets (mostly receivables) less ALL other liabilities at the company would be another ¥6.3bn, that means Brother is buying out the company at a 'valuation' of ¥13.7bn, which is the cumulative EBITDA forecast by management from now until about August 2025. Management forecasts used by the DCF valuation agent suggest EBITDA should double in the five years from March 2023 to March 2028, and Operating Profit should triple. And for this, a takeover at just under 1.0x book value. Given the real estate could be sold and leased back, or there could be synergies by adding Nissei Corp back into Brother to share facilities, that effectively means the takeover is basically free. I may sound like a scratched record, but this seems.... too low?

Brother MBO/LBO of Nissei Corp (6271) - Another Too-Low Price Parent/Sub Takeout

Japan

BROTHER INDUSTRIES, LTD. manufactures and markets communications and office equipment.  The Company's main products include facsimiles, digital copy machines, label printers, and word processors.  Brother Industries also manufactures and sells sewing machines and other tools.  The Company operates its business worldwide.

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Brother Industries (6448 JP)

Looking at Canon Buyback Dynamics History - Patterns Vs Peers Gives Execution Hints

Canon has done 6 buybacks in the last 15 years. They all have particular terms and patterns in common and that can help guide execution.

Travis Lundy

Canon (7751) - Second Buyback This Year - Last Happened in 2014

Canon last week announced OK Q2 earnings, and higher FY22 guidance, raising it for the second quarter in a row. It also hiked its div guidance. Now...

Travis Lundy

Canon (7751) - Buyback Looks Small But Shareholder Structure Matters

Canon's buyback is "small" but it probably matters more than most think in terms of near-term market structure and performance.

Travis Lundy

Brother MBO/LBO of Nissei Corp (6271) - Another Too-Low Price Parent/Sub Takeout

Brother Industries is taking over gear motor, induction motor, and gear maker/subsidiary Nissei Corp. The price is cheap, but the company is highly...

Travis Lundy

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Looking at Canon Buyback Dynamics History - Patterns Vs Peers Gives Execution Hints

Canon has done 6 buybacks in the last 15 years. They all have particular terms and patterns in common and that can help guide execution.

Travis Lundy

Canon (7751) - Second Buyback This Year - Last Happened in 2014

Canon last week announced OK Q2 earnings, and higher FY22 guidance, raising it for the second quarter in a row. It also hiked its div guidance. Now...

Travis Lundy

Canon (7751) - Buyback Looks Small But Shareholder Structure Matters

Canon's buyback is "small" but it probably matters more than most think in terms of near-term market structure and performance.

Travis Lundy

Japan's Governance: Brother Industries (6448): 3QFY3/2022 Meeting - Share Buybuck

Brother which announced share buyback in 3QFY3/2022 results, doesn't fully explain the background of the buyback, but the company, which is a cash...

Metrical Inc

Brother MBO/LBO of Nissei Corp (6271) - Another Too-Low Price Parent/Sub Takeout

Brother Industries is taking over gear motor, induction motor, and gear maker/subsidiary Nissei Corp. The price is cheap, but the company is highly...

Travis Lundy