Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Four weeks ago, the sovereign wealth fund of the UAE sold out of a 15% position in <a href="https://www.smartkarma.com/entities/cosmo-energy-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:26565:1" rel="noopener">Cosmo Energy Holdings (5021 JP)</a> they'd held for 15yrs. </li>
<li>Today we see noted Japanese activist Murakami Yoshiaki and affiliates have purchased 5+% of the company, including a large chunk the day after the block trade.</li>
<li>Oftentimes he buys stakes in industries where consolidation is overdue and/or natural. Construction has been one such sector. Refiners probably need consolidation too, but it's not clear it's easy here.</li>
</ul>


Four weeks ago, the sovereign wealth fund of the UAE sold out of a 15% position in Cosmo Energy Holdings (5021 JP) they'd held for 15yrs. 
Today we see noted Japanese activist Murakami Yoshiaki and affiliates have purchased 5+% of the company, including a large chunk the day after the block trade.
Oftentimes he buys stakes in industries where consolidation is overdue and/or natural. Construction has been one such sector. Refiners probably need consolidation too, but it's not clear it's easy here.


Activist Murakami-San Goes Substantial on Cosmo Oil (5021)

<ul>
<li>Mubadala bought 20.8% of <a href="https://www.smartkarma.com/entities/cosmo-energy-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:26565:1" rel="noopener">Cosmo Energy Holdings (5021 JP)</a> in 2007 at ¥5,068/share (split-adjusted). A few months later it dipped below that and hasn't seen that price since. </li>
<li>The sovereign wealth fund sold 5% last year at ¥2,610, and just 7 months later is bailing on the other 15.7% at a 12-17% discount. </li>
<li>Result? Float will rise. Index funds will buy a bit, and active foreign institutional investors will nearly double their holdings.</li>
</ul>


Mubadala bought 20.8% of Cosmo Energy Holdings (5021 JP) in 2007 at ¥5,068/share (split-adjusted). A few months later it dipped below that and hasn't seen that price since. 
The sovereign wealth fund sold 5% last year at ¥2,610, and just 7 months later is bailing on the other 15.7% at a 12-17% discount. 
Result? Float will rise. Index funds will buy a bit, and active foreign institutional investors will nearly double their holdings.


Cosmo Oil (5021 JP) Accelerated Block Offering - Big Discount But... 👀

David Blennerhassett

Last Week in Event SPACE: Softbank, Sydney Airports, SPH, SingTel, Oil Search, Japex/Inpex, Nippo

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

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)

Activist Murakami-San Goes Substantial on Cosmo Oil (5021)

Murakami-san seems to have bailed on construction names recently and is now in two refiners, having gone substantial on Cosmo Oil (5021) after the...

Travis Lundy

Cosmo Oil (5021 JP) Accelerated Block Offering - Big Discount But... 👀

Mubadala - Abu Dhabi's SWF is selling the remaining 15.7% of Cosmo Energy Holdings it holds in an Accelerated Block Offering for a 12-17% discount....

Travis Lundy

Last Week in Event SPACE: Softbank, Sydney Airports, SPH, SingTel, Oil Search, Japex/Inpex, Nippo

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

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

The ENEOS+GS Tender Offer for ENEOS subsidiary NIPPO (1881) launches tomorrow. NIPPO is willing to distribute all their cash. The price is too low....

Travis Lundy

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

NIPPO is belatedly getting more interesting. Apparently the Special Committee would welcome any alternate bidders - some who may have stayed away...

Travis Lundy

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