Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Today, <a href="https://www.smartkarma.com/entities/nippo-corp" target="_blank" data-smartkarma-citation="entities:2583:1" rel="noopener">NIPPO Corp (1881 JP)</a> reported Q2 earnings down sharply yoy (but forecasts for full year remained unchanged) and the Roadmap entity which two months ago had announced the intention to launch a Tender Offer on NIPPO today announced that the tender offer would start tomorrow.

Today, NIPPO Corp (1881 JP) reported Q2 earnings down sharply yoy (but forecasts for full year remained unchanged) and the Roadmap entity which two months ago had announced the intention to launch a Tender Offer on NIPPO today announced that the tender offer would start tomorrow. 

NIPPO (1881) Tender Offer to Launch - May Not Be A Done Deal

A year-plus ago I wrote that <a href="https://www.smartkarma.com/insights/japan-needs-more-cowbell" target="_blank" rel="noopener">Japan needs more cowbell</a>(I personally think it worth a regular re-read for Japan investors - passive or active).<section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/240/379/original/more+cowbell.gif?1636370842" class="editor-image img-responsive" data-smartkarma-image-id="240379"></figure></section></section>The idea was that when the Japan-ness of corporate actions went against the economic imperative of shareholders, they need to speak up. This was in part a response to several lowball tender offers in then-recent months (FamilyMart, Nichii Gakkan, Sony Financial, Odelic, Showa Aircraft, Toshiba's deal for Nuflare, and others) where parent companies or founding families launched takeovers of companies at inappropriately low prices, without adequate safeguards to protect minority shareholder interests, despite METI urging companies in June 2019 - a full year before - to avoid conflicts and follow conflict-mitigation procedures by following 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>.In fact, I had also written a guest post in the FT about the <a href="https://www.ft.com/content/dd680521-a9cc-4b1c-922d-4787d2a314f6" target="_blank" rel="noopener">complexities of stewardship</a> as it relates to passive investing as a gentle rebuke of Hiro Mizuno at the GPIF who had looked at lending out shares and short-selling as a problem. My conclusions came in two parts. The first was that shorting actually helped improve stewardship, not because the issues around governance were brought to light by short-sellers but because when they sold, the idiosyncratic risk of the short-sold shares would be bought by active investors - not passive investors - and those active shareholders had more stewardship risk attached to their ownership than passive managers did. Allowing short-sellers in effect allows passive investors to outsource stewardship to those with more 'skin in the game.'That, however, was not the real crux. My concluding paragraphs were as below:<blockquote>
Finally, the GPIF should encourage its mandated managers to pressure companies about bad capital allocation decisions that destroy shareholder value. For instance, the Toyota Model AA preference share issuance four-plus years ago — bonds with above-market coupons, free-equity options, and voting rights attached — was a governance nightmare. However, a vast majority of domestic institutional investors voted to approve that issuance, as they also voted in 2018 to approve Alpine’s merger with Alps, an act which immediately destroyed their shareholder value.
Investors have also approved numerous takeovers in the past several years at substantial discounts to book value because the target company’s legal advisers have ticked the boxes which say “minority investors are not unreasonably disadvantaged”. And where was the domestic institutional fund manager outcry on Unizo which this past autumn effectively created a quasi-poison pill without shareholder authorisation?
Eliminating one of the root causes of undervaluation — a lack of active investor confidence that Japanese companies will do the right thing with the capital allocated to them — might be the best long-term investment the GPIF could ever make. That involves more owners with more financial incentives to engage with companies to do the right thing. Lending shares — even for free — is a great way to get more active parties to the table.
</blockquote>The point is that when investors see a problem in the valuation of a takeover, they should say something. Given so few do so, it is important that when such comments are made, they be public, so that others may learn and publicly agree. If several people make comments to the target company privately and their response is "Well, the Board decided to recommend the deal based on a variety of factors which would allow for medium-to-long-term growth of the company", it is the right of investors to say "That. Doesn't. Matter."It is important to remember that when a Board decides to recommend a takeover, they are recommending that investors no longer care about growth of medium-to-long-term corporate value, instead trading that long-term interest in corporate growth... for cash. But if you want a better result, you have to ask. Squeaky wheel gets the oil and all that. Or you have to be willing to show your interest by buying higher than the offer (my first insight just after the announcement suggested a fair price was north of ¥5,500/share, and days later a shareholder publicly suggested ¥5,600/share).As explained in a series of insights about the Tender Offer for <a href="https://www.smartkarma.com/entities/nippo-corp" target="_blank" data-smartkarma-citation="entities:2583:1" rel="noopener">Nippo Corp (1881 JP)</a> which is presented as <a href="https://www.smartkarma.com/entities/eneos-holdings-inc" target="_blank" data-smartkarma-citation="entities:638:1" rel="noopener">ENEOS Holdings (5020 JP)</a> taking over its subsidiary but which is really ENEOS net selling, and the merchant bank of Goldman Sachs buying the economics, starting with <a href="https://www.smartkarma.com/insights/eneos-to-steamroll-nippo-1881-jp-minorities" target="_blank" data-smartkarma-citation="insights:57299" rel="noopener">ENEOS To Steamroll Nippo (1881 JP) Minorities</a> and continuing with <a href="https://www.smartkarma.com/insights/nippo-1881-jp-gets-some-cowbell-it-probably-needs-more" target="_blank" data-smartkarma-citation="insights:58103" rel="noopener">NIPPO (1881 JP) Gets Some Cowbell - It Probably Needs More</a> followed by <a href="https://www.smartkarma.com/insights/nippo-1881-jp-gets-more-cowbell-as-oasis-objects" target="_blank" data-smartkarma-citation="insights:58486" rel="noopener">NIPPO (1881 JP) Gets MORE Cowbell as Oasis Objects</a>, the price here is wrong. Just wrong. It may have come at a decent premium, but some of that comes from market expectations of bad governance, and when an inadequate premium for transfer of control is exercised - for reasons I am having difficulty fathoming without assuming there could be some ulterior motive which does not benefit minority shareholders of NIPPO - it just cements that bad governance discount. This is something which deserves attention. More shareholders should make their opinions known. It could be anonymous, it could be a word to a journalist, or it could be a word to a central agent who then tallies all the complaints but does not suggest that shareholders work together.Sometimes it requires an overbid.So far, as described in previous insights, four shareholders have come forth publicly in somewhat unprecedented fashion. They have started clanging the cowbell. The stock has not traded below terms for a month. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/240/365/original/Screenshot+2021-11-08+at+6.36.12+PM.png?1636367874" class="editor-image img-responsive" data-smartkarma-image-id="240365"></figure></section>Which is why today's development (a website called <a href="https://www.protectnippo.com/" target="_blank" rel="noopener">www.protectnippo.com</a>) is interesting...More below the fold.

A year-plus ago I wrote that Japan needs more cowbell(I personally think it worth a regular re-read for Japan investors - passive or active).The idea was that when the Japan-ness of corporate actions went against the economic imperative of shareholders, they need to speak up. This was in part a response to several lowball tender offers in then-recent months (FamilyMart, Nichii Gakkan, Sony Financial, Odelic, Showa Aircraft, Toshiba's deal for Nuflare, and others) where parent companies or founding families launched takeovers of companies at inappropriately low prices, without adequate safeguards to protect minority shareholder interests, despite METI urging companies in June 2019 - a full year before - to avoid conflicts and follow conflict-mitigation procedures by following the METI Fair M&amp;A Guidelines.In fact, I had also written a guest post in the FT about the complexities of stewardship as it relates to passive investing as a gentle rebuke of Hiro Mizuno at the GPIF who had looked at lending out shares and short-selling as a problem. My conclusions came in two parts. The first was that shorting actually helped improve stewardship, not because the issues around governance were brought to light by short-sellers but because when they sold, the idiosyncratic risk of the short-sold shares would be bought by active investors - not passive investors - and those active shareholders had more stewardship risk attached to their ownership than passive managers did. Allowing short-sellers in effect allows passive investors to outsource stewardship to those with more 'skin in the game.'That, however, was not the real crux. My concluding paragraphs were as below:
Finally, the GPIF should encourage its mandated managers to pressure companies about bad capital allocation decisions that destroy shareholder value. For instance, the Toyota Model AA preference share issuance four-plus years ago — bonds with above-market coupons, free-equity options, and voting rights attached — was a governance nightmare. However, a vast majority of domestic institutional investors voted to approve that issuance, as they also voted in 2018 to approve Alpine’s merger with Alps, an act which immediately destroyed their shareholder value.
Investors have also approved numerous takeovers in the past several years at substantial discounts to book value because the target company’s legal advisers have ticked the boxes which say “minority investors are not unreasonably disadvantaged”. And where was the domestic institutional fund manager outcry on Unizo which this past autumn effectively created a quasi-poison pill without shareholder authorisation?
Eliminating one of the root causes of undervaluation — a lack of active investor confidence that Japanese companies will do the right thing with the capital allocated to them — might be the best long-term investment the GPIF could ever make. That involves more owners with more financial incentives to engage with companies to do the right thing. Lending shares — even for free — is a great way to get more active parties to the table.
The point is that when investors see a problem in the valuation of a takeover, they should say something. Given so few do so, it is important that when such comments are made, they be public, so that others may learn and publicly agree. If several people make comments to the target company privately and their response is "Well, the Board decided to recommend the deal based on a variety of factors which would allow for medium-to-long-term growth of the company", it is the right of investors to say "That. Doesn't. Matter."It is important to remember that when a Board decides to recommend a takeover, they are recommending that investors no longer care about growth of medium-to-long-term corporate value, instead trading that long-term interest in corporate growth... for cash. But if you want a better result, you have to ask. Squeaky wheel gets the oil and all that. Or you have to be willing to show your interest by buying higher than the offer (my first insight just after the announcement suggested a fair price was north of ¥5,500/share, and days later a shareholder publicly suggested ¥5,600/share).As explained in a series of insights about the Tender Offer for Nippo Corp (1881 JP) which is presented as ENEOS Holdings (5020 JP) taking over its subsidiary but which is really ENEOS net selling, and the merchant bank of Goldman Sachs buying the economics, starting with ENEOS To Steamroll Nippo (1881 JP) Minorities and continuing with NIPPO (1881 JP) Gets Some Cowbell - It Probably Needs More followed by NIPPO (1881 JP) Gets MORE Cowbell as Oasis Objects, the price here is wrong. Just wrong. It may have come at a decent premium, but some of that comes from market expectations of bad governance, and when an inadequate premium for transfer of control is exercised - for reasons I am having difficulty fathoming without assuming there could be some ulterior motive which does not benefit minority shareholders of NIPPO - it just cements that bad governance discount. This is something which deserves attention. More shareholders should make their opinions known. It could be anonymous, it could be a word to a journalist, or it could be a word to a central agent who then tallies all the complaints but does not suggest that shareholders work together.Sometimes it requires an overbid.So far, as described in previous insights, four shareholders have come forth publicly in somewhat unprecedented fashion. They have started clanging the cowbell. The stock has not traded below terms for a month. Which is why today's development (a website called www.protectnippo.com) is interesting...More below the fold.   

NIPPO (1881 JP) - Belated Cowbell, Worth Getting Involved.

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

We have covered Chiyoda’s SPERA hydrogen technology since 2017 and have been fascinated by the technology’s potential to make existing oil and gas infrastructure usable in a hydrogen transition. Now in partnership with ENEOS and the Queensland University of Technology, Chiyoda appears to have made significant further strides in reducing costs and investment burdens in the hydrogen supply chain.

We have covered Chiyoda’s SPERA hydrogen technology since 2017 and have been fascinated by the technology’s potential to make existing oil and gas infrastructure usable in a hydrogen transition. Now in partnership with ENEOS and the Queensland University of Technology, Chiyoda appears to have made significant further strides in reducing costs and investment burdens in the hydrogen supply chain.

Chiyoda – This Just Removed a Big Hydrogen Bottleneck

David Blennerhassett


For the month of October, 18 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$10bn.



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




Apollo Consolidated (AOP AU) 
Gold
0.1
Off-market Takeover
27%


Ramelius (RMS AU) Adds Apollo To Its Portfolio



Aventus Group (AVN AU) 
Real estate
0.3
Scheme
N/A


HomeCo Daily Needs REIT (HDN AU) To Merge with Aventus (AVN AU) In Self-Takeunder



Cashrewards (CRW AU) 
Online shopping
0.1
Scheme
19.5%


Cashrewards (CRW AU)'s Offer Is 34% Below Last December's IPO



Class Ltd (CL1 AU) 
Cloud accounting
0.3
Scheme
71.6%


Class - Hub24: Scheme Trading Wide



Irongate Group (IAP AU) 
Real estate
0.7
Scheme
10%


Irongate (IAP AU): 360 Capital's Tilt Reminiscent Of ARA/Cromwell Stoush



Intega Group Ltd (ITG AU) 
Construction
0.3
Scheme
95%


Intega (ITG AU) Enters Scheme With Kiwa



Over the Wire Holdings Ltd (OTW AU) 
Telco/It provider
0.3
Scheme
15%


 Over The Wire (OTW AU): The Latest Aussie IT Play



Senex Energy (SXY AU) 
Gas producer
0.6
Off-market Takeover
40%


 Senex (SXY AU): Posco's Looming Offer



Hong Kong




Ausnutria Dairy Corp (1717 HK) 
Infant formula
0.7
MGO
13.67%


Yili's Pre-Conditional Offer &amp; Ausnutria (1717 HK)'s Crowded Register



Chinese Estates Holdings (127 HK) 
Real estate
0.3
Scheme
37.9%


Chinese Estates (127 HK): $4.00/Share Offer



Cp Pokphand (43 HK) 
Agri play
0.9
Scheme
19.79%


C.P. Pokphand (43 HK): Privatisation Offer From CP Foods



Dragon Crown Group (935 HK) 
Chemical storage
0.2
Pre-con Offer
8.475


Dragon Crown (935 HK)'s VGO Is A Done Deal



Yorkey Optical International Cayman (2788 HK) 
Optics
0.1
Scheme
54.4%



Yorkey Optical (2788 HK)'s Scheme: What Will Webb Do? Yorkey Optical (2788 HK): Webb Bumps... Will Asia Optical? Yorkey Optical (2788 HK): Time To Buy




Japan




Ebook Initiative Japan Co Ltd (3658 JP) 
Digital books
0.2
Tender Offer
4.6%


E-Book Initiative (3658 JP) Tender Offer Takeout - This One Needs Cowbell Too



Pipedo HD Inc (3919 JP) 
Info platform
0.1
Tender Offer
N/A


 Pipedo HD (3919 JP): Advantage Partners MBO




Singapore




ESR-REIT (EREIT SP) /ARA LOGOS (ALLT SP)

Property
1.0
Scheme
N/A


ARA Logos (ALLT SP) To Merge with ESR-REIT (EREIT SP)



Singapore Press Holdings (SPH SP) 
Conglomerate
2.5
Scheme
10%


SPH Lobang - Holders So Shiok, Bidders So Kiasu. This May Not Be The End



Taiwan




IBF Financial (2889 TT) / Entie Commercial Bank (2849 TT) 
Finance
1.2
Share swap
N/A


20-Oct: EnTie (2849 TT) - IBF (2889 TT): US$1.2bn Cash &amp; Scrip Deal Far From Done



Source: Smartkarma Insights






The average premium for the new deals announced (or first discussed) in October was ~30%, with a year-to-date average of ~32% (139 deals &amp; total deal size of US$259bn).
This compares to the average premium for all deals in 2020 (158 deals) and 2019 (145 deals) of 31% and 31.5% respectively.




Offer Premium Summary





     




2019


2020


2021 YTD



Australia
33.0%
32.4%
36.0%


Hong Kong
25.2%
34.7%
32.2%


Japan
44.0%
35.2%
27.4%


ROW
29.1%
24.2%
32.5%


Average
31.5%
31.1%
32.2%



Source: Smartkarma Insights









Summary of News in October 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)




1300 Smiles Ltd (ONT AU) 

13-Oct Scheme Booklet registered with ASIC. Scheme meeting to be held on the 12 November.




5G Networks Ltd/Australia (5GN AU) / Webcentral (WCG AU) 

1-Oct: The Federal Court of Australia has approved the convening of Scheme Meeting and distribution of Scheme Booklet. The Scheme Meeting will be held virtually at 10:00am (Melbourne time) on Monday, 8 November 2021. Indicative Timeline is shown in the image below.




Afterpay Touch (APT AU) 

No October update




Ale Property (LEP AU) 

20-Oct: Ale Property (LEP AU) is suspended "pending release of a judgement of the Supreme Court of Victoria in relation to the 2018 Rent Determinations as advised by ASX announcement on 19 October 2021". Some background on this can be found on page 12 of the 2021 annual report. According to Philip Cheetham, Head Of Listed Investor Relations at Charter Hall Long Wale Reit (CLW AU):"The outcome of this litigation does not form a defeating condition or alter our bid for LEP."




Ausnet Services (AST AU) 

15-Oct: Ausnet Services (AST AU) announces that it proposes to engage with APA Group (APA AU) on its indicative, non-binding and conditional proposal. This follows the decision and final orders announced by the Takeovers Panel in response to the application previously submitted by APA.  25-Oct: Ausnet Services (AST AU) has announced that they have granted due diligence access to APA Group (APA AU) and have been granted reverse due diligence access.  29-Oct: AusNet (AST AU): ACCC Commences Informal Review




Australian Pharmaceutical Industries (API AU) 

7-Oct: Pursuant to an undertaking agreement with Washington H. Soul Pattinson and Co. Ltd (SOL AU), Wesfarmers Ltd (WES AU) has now taken a 19.3% stake in Australian Pharmaceutical Industries (API AU).




Empired Ltd (EPD AU) 

25-Oct: Empired Ltd (EPD AU) shareholders approved the Scheme. Implementation is the 16 November.




iCar Asia Ltd (ICQ AU) 

19-Oct: ICar (ICQ AU) &amp; Carsome Enter Into Scheme




Huon Aquaculture (HUO AU) 

29-Oct: Huon Aquaculture (HUO AU) shareholders overwhelmingly supported the Scheme. The implementation date is expected to be the 17 November. 




Japara Healthcare (JHC AU) 

21-Oct: Japara Healthcare (JHC AU) shareholders approve the Scheme. The implementation date is the 5 November. 




Oil Search Ltd (OSH AU) 

29-Oct: Oil Search Ltd (OSH AU)'s first court hearing is expected to take place on the 10 November in place of 27 October as previously announced. 




Rhipe Ltd (RHP AU) 

11-Oct: Rhipe Ltd (RHP AU)'s shareholders approve the Scheme. Shares to be suspended at the close of trading on the 14 October. 




Smartgroup Corp (SIQ AU) 

25-Oct: Smartgroup Corp (SIQ AU) have announced that the TPG and Potentia consortium have decided not to proceed with the acquisition at A$10.35/share and have revised their proposal to A$9.25/share.




Spark Infrastructure (SKI AU) 

21-Oct: Spark (SKI AU): Scheme Booklet Out. Meeting On The 22 November




Sydney Airport (SYD AU) 

7-Oct: Australia's ACCC is now seeking views on the proposed acquisition of Sydney Airport (SYD AU) by the Sydney Aviation Alliance. Responses are required to be submitted by the 28 October. 










Hong Kong


Comments (with links to announcements &amp; insights)




China Youzan Limited (8083 HK) 

1-Oct: The Offeror and China Youzan (8083 HK) announced they are preparing the Scheme doc.  20 Oct: Well, not quite yet. The despatch date has been pushed o the 31 December from 19 October previously. 




Golden Throat Holdings (6896 HK) 

29-Oct: Golden Throat (6896 HK): Scheme Doc Out. Court Meeting On 30 November




Nature Home Holding Company (2083 HK) 

14-Sep: Nature Home (2083 HK): Scheme Doc Out. Court Meeting On 6 Oct. Evergrande Overhang
28-Sep: Nature Home (2083 HK): Risk Aversity Sees Spread Blow Out




Suchuang Gas Corp (1430 HK) 

29-Oct: Suchuang Gas Corp (1430 HK)'s Scheme Doc has been delayed until the 29 December. 










India


Comments 




Adani Power (ADANI IN) 

No October update




Mphasis Ltd (MPHL IN) 

No October update










Japan


Comments (with links to announcements &amp; insights)




Ebook Initiative Japan Co Ltd (3658 JP) 

No October update




Hitachi Metals (5486 JP) 

No October update




Kansai Super Market (9919 JP) 

No October update




Maxvalu Nishinihon (8287 JP) / Fuji Co Ltd (8278 JP) 

No October update




Nippo Corp (1881 JP) 

7-Oct: The Nikkei (English and Japanese) is out with an article saying that ENEOS Holdings (5020 JP) has agreed to buy JRE from GS and GIC. 




Pipedo HD Inc (3919 JP) 

No October update




Shinsei Bank (8303 JP) 

21-Oct: Shinsei Objects to SBI Tender - Offers "Requirements" To Approve 27-Oct: Shinsei TOB: A Complicated Game of 🐓 Nobody Has Thought About?










Malaysia


Comments 




Daibochi Plastic &amp; Packaging Industry (DPP MK) 
15-Oct: The independent advisor recommends the unconditional offer for Daibochi Plastic &amp; Packaging Industry (DPP MK). 25-Oct: Daibochi (DPP MK)'s Offer has been extended to the 8 November. 



Ijm Plantations (IJMP MK) 
1 Oct: Ijm Plantations (IJMP MK)'s IFA recommends Offer to shareholders.  7-Oct: Ijm Plantations (IJMP MK)'s Offer has been extended to the 25 October.   25-Oct: Ijm Plantations (IJMP MK) extends the closing date of its Offer to the 18 November.



MMC Corp Bhd (MMC MK) 
No October update











When the bid was announced, in <a href="https://www.smartkarma.com/insights/eneos-to-steamroll-nippo-1881-jp-minorities" target="_blank" data-smartkarma-citation="insights:57299" rel="noopener">ENEOS To Steamroll Nippo (1881 JP) Minorities</a> I wrote about how in parent <a href="https://www.smartkarma.com/entities/eneos-holdings-inc" target="_blank" data-smartkarma-citation="entities:638:1" rel="noopener">ENEOS Holdings (5020 JP)</a> bid to buy out the minority holders of <a href="https://www.smartkarma.com/entities/nippo-corp" target="_blank" data-smartkarma-citation="entities:2583:1" rel="noopener">Nippo Corp (1881 JP)</a> despite being an all-time high price, the bid was still egregiously low. NIPPO's independent panel and board, of course, agreed with its parent company that the convoluted construct where ENEOS would participate in a 3rd party buyout, then sell its ownership back to the company (taking the cash out) while still controlling the company (then eventually try to re-list the company after taking the money out) was all good for shareholders and the company itself. Investors should not be under any illusion that NIPPO's Board will, when presented with numbers which suggest they are selling the company too cheaply for the benefit of ENEOS will suddenly say "aha, you are right, we didn't count the securities and real estate correctly."If NIPPO's Board officially reviews the numbers and comes to the conclusion that they made a mistake, that upsets the entire ecosystem - the acquiror, the lawyers on both sides, the accountants and fair value assessors, and all the advisors who told them that this was fair and appropriate. Every single member of the ecosystem would be wrong.And that can't happen, so it won't. The only one who changes the outcome here is the buyer - who can raise the price - or the investor base - who can raise the price on the buyer, challenging them to pay more. A short while ago, the CEO of Monex Oki Matsumoto in his role as CIO of the small activist-ish Monex Activist Mother Fund said that the ¥4,000/share TOB price was too cheap, and NIPPO should consider a special dividend to shareholders. This was discussed in <a href="https://www.smartkarma.com/insights/nippo-1881-jp-gets-some-cowbell-it-probably-needs-more" target="_blank" data-smartkarma-citation="insights:58103" rel="noopener">NIPPO (1881 JP) Gets Some Cowbell - It Probably Needs More</a> a bit over a week ago.  Three days later (27 Sep), Silchester International Investors - which says it is not an activist and generally does not make public comment - apparently said that generally agreed with what Matsumoto-san had to say. What investors may not have realised if they did not read the fine print of the original announcement is that the Board of NIPPO has already agreed to support a huge distribution of the company's cash to shareholders. It is at the bottom of <a href="https://www.nippo-c.co.jp/english/images/aboutnippo/irinfo/2021_0910_5.pdf" target="_blank" rel="noopener">p5</a> and it says that NIPPO will distribute 194.098bn yen of the company's cash to shareholders.Actually, it will only give that cash to one shareholder - ENEOS - but the principle is the same. This cash is not needed for its operations. Therefore, in the process of "raising corporate value through the transaction" it will give that cash to shareholders. Investors have it in front of them. This morning Asia time, activist investor Oasis Management Company issued a <a href="https://www.businesswire.com/news/home/20211004005747/en/Oasis-Statement-on-NIPPO-Corporation" target="_blank" rel="noopener">press release</a> calling on NIPPO to conduct an active market check to achieve a higher price, and says it believes NIPPO shares are worth "over JPY5,600" apiece. I do not disagree. In my first insight, I said the ¥4,000/share TOB price was ¥1,500-2,000/share light. For investors...<ol>
<li>The <a href="https://www.businesswire.com/news/home/20211004005747/en/Oasis-Statement-on-NIPPO-Corporation" target="_blank" rel="noopener">press release</a> is definitely worth reading. </li>
<li>The <a href="https://www.nippo-c.co.jp/english/images/aboutnippo/irinfo/2021_0910_5.pdf" target="_blank" rel="noopener">original announcement</a> is definitely worth re-reading</li>
<li>It is worth digging through the structure and process to figure out how ENEOS (and NIPPO and GS?) are taking advantage of minorities. The statements and the actions do not necessarily agree with each other and the fiduciary duties of ENEOS and NIPPO.</li>
<li>And as is usually the case in these situations, it is worth getting out your <a href="https://www.smartkarma.com/insights/japan-needs-more-cowbell" target="_blank" rel="noopener">cowbell</a>.</li>
</ol><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/233/564/original/will-ferrell-cowbell.gif?1633414041" class="editor-image img-responsive" data-smartkarma-image-id="233564"></figure></section>So below, I try to do #3.<hr>Separately, investors should have questions about the Sentaku article which came out discussing the coincidence that GS has just perhaps agreed to sell an asset to ENEOS at a price below other bidders, and is now being accorded the opportunity to participate in a separate transaction with ENEOS where they bring neither value nor net capital.

When the bid was announced, in ENEOS To Steamroll Nippo (1881 JP) Minorities I wrote about how in parent ENEOS Holdings (5020 JP) bid to buy out the minority holders of Nippo Corp (1881 JP) despite being an all-time high price, the bid was still egregiously low. NIPPO's independent panel and board, of course, agreed with its parent company that the convoluted construct where ENEOS would participate in a 3rd party buyout, then sell its ownership back to the company (taking the cash out) while still controlling the company (then eventually try to re-list the company after taking the money out) was all good for shareholders and the company itself. Investors should not be under any illusion that NIPPO's Board will, when presented with numbers which suggest they are selling the company too cheaply for the benefit of ENEOS will suddenly say "aha, you are right, we didn't count the securities and real estate correctly."If NIPPO's Board officially reviews the numbers and comes to the conclusion that they made a mistake, that upsets the entire ecosystem - the acquiror, the lawyers on both sides, the accountants and fair value assessors, and all the advisors who told them that this was fair and appropriate. Every single member of the ecosystem would be wrong.And that can't happen, so it won't. The only one who changes the outcome here is the buyer - who can raise the price - or the investor base - who can raise the price on the buyer, challenging them to pay more. A short while ago, the CEO of Monex Oki Matsumoto in his role as CIO of the small activist-ish Monex Activist Mother Fund said that the ¥4,000/share TOB price was too cheap, and NIPPO should consider a special dividend to shareholders. This was discussed in NIPPO (1881 JP) Gets Some Cowbell - It Probably Needs More a bit over a week ago.  Three days later (27 Sep), Silchester International Investors - which says it is not an activist and generally does not make public comment - apparently said that generally agreed with what Matsumoto-san had to say. What investors may not have realised if they did not read the fine print of the original announcement is that the Board of NIPPO has already agreed to support a huge distribution of the company's cash to shareholders. It is at the bottom of p5 and it says that NIPPO will distribute 194.098bn yen of the company's cash to shareholders.Actually, it will only give that cash to one shareholder - ENEOS - but the principle is the same. This cash is not needed for its operations. Therefore, in the process of "raising corporate value through the transaction" it will give that cash to shareholders. Investors have it in front of them. This morning Asia time, activist investor Oasis Management Company issued a press release calling on NIPPO to conduct an active market check to achieve a higher price, and says it believes NIPPO shares are worth "over JPY5,600" apiece. I do not disagree. In my first insight, I said the ¥4,000/share TOB price was ¥1,500-2,000/share light. For investors...
The press release is definitely worth reading. 
The original announcement is definitely worth re-reading
It is worth digging through the structure and process to figure out how ENEOS (and NIPPO and GS?) are taking advantage of minorities. The statements and the actions do not necessarily agree with each other and the fiduciary duties of ENEOS and NIPPO.
And as is usually the case in these situations, it is worth getting out your cowbell.
So below, I try to do #3.Separately, investors should have questions about the Sentaku article which came out discussing the coincidence that GS has just perhaps agreed to sell an asset to ENEOS at a price below other bidders, and is now being accorded the opportunity to participate in a separate transaction with ENEOS where they bring neither value nor net capital. 

NIPPO (1881 JP) Gets MORE Cowbell as Oasis Objects

Japan

ENEOS Holdings, Inc. operates refining and marketing businesses. The Company refines and distributes petroleum and petroleum chemical products. ENEOS Holdings also provides non ferrous metals, electronic materials, and other products.

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ENEOS Holdings (5020 JP)

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