Equity Analyst, Event-driven, Quiddity Advisors

Janaghan Jeyakumar, CFA

Equity Analyst, Event-driven

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

The Tokyo Stock Exchange (TSE) calculates Free-Float Weight (FFW) for each listed company and uses this value as a key component of TOPIX Index Calculation. For companies with "low liquidity" the FFW will be multiplied by a fixed liquidity factor of 0.75 to derive the final FFW used for index calculation. This affects both TSE-1 incumbents and new entrants (depending on the date of entry). Every April, the application of this liquidity factor is reviewed by the TSE for all TSE1 constituents. Last April, 71 constituents saw their liquidity factors removed causing an increase in their respective FFWs used for index calculation resulting in a TOPIX upweight.This situation opens up interesting opportunities for a basket trade. Below is a discussion regarding the key details of TSE's FFW Calculation Methodology and the candidate stocks which could potentially experience a change in the application of the liquidity factor (including some surprisingly big names).

The Tokyo Stock Exchange (TSE) calculates Free-Float Weight (FFW) for each listed company and uses this value as a key component of TOPIX Index Calculation. For companies with "low liquidity" the FFW will be multiplied by a fixed liquidity factor of 0.75 to derive the final FFW used for index calculation. This affects both TSE-1 incumbents and new entrants (depending on the date of entry). Every April, the application of this liquidity factor is reviewed by the TSE for all TSE1 constituents. Last April, 71 constituents saw their liquidity factors removed causing an increase in their respective FFWs used for index calculation resulting in a TOPIX upweight.This situation opens up interesting opportunities for a basket trade. Below is a discussion regarding the key details of TSE's FFW Calculation Methodology and the candidate stocks which could potentially experience a change in the application of the liquidity factor (including some surprisingly big names).   

TOPIX Index Upweights: The Big April Basket 2021

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Last week, the founder and Chairman of <a href="https://www.smartkarma.com/entities/eps-holdings-inc" target="_blank" data-smartkarma-citation="entities:13246:1" rel="noopener">EPS Holdings (4282 JP)</a> announced an MBO to take the company private. In <a href="https://www.smartkarma.com/insights/another-too-cheap-mbo-as-founder-takes-out-eps" target="_blank" data-smartkarma-citation="insights:52208" rel="noopener">Another Too-Cheap MBO as Founder Takes Out EPS</a> I discussed the details of the MBO and Tender Offer and noted that it was "too cheap."The stock traded briefly through terms at the open of trading on Monday 31 May - the first day it could trade freely post-announcement. Today, it traded briefly through terms on a spike, settled back, and then rose into the close, as the two-day 5-minute chart below shows. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/210/483/original/Screenshot+2021-06-01+at+6.43.23+PM.png?1622544595" class="editor-image img-responsive" data-smartkarma-image-id="210483"></figure></section>Separately, I heard that there was some talk of "a higher price."I do not have the full story or the content but one has to be careful of the details.

Last week, the founder and Chairman of EPS Holdings (4282 JP) announced an MBO to take the company private. In Another Too-Cheap MBO as Founder Takes Out EPS I discussed the details of the MBO and Tender Offer and noted that it was "too cheap."The stock traded briefly through terms at the open of trading on Monday 31 May - the first day it could trade freely post-announcement. Today, it traded briefly through terms on a spike, settled back, and then rose into the close, as the two-day 5-minute chart below shows. Separately, I heard that there was some talk of "a higher price."I do not have the full story or the content but one has to be careful of the details.

EPS MBO Is Cheap. Too Cheap. But Be Careful Of Your Assumptions

David Blennerhassett


For the month of May, 11 new deals were discussed on Smartkarma with an overall announced deal size of ~US$7.3bn.



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




APN Property Group (APD AU) 
Property
0.2
Scheme
50%


APN Prop (APD AU): Dexus' Done Deal



Boral Ltd (BLD AU) 
Construction
4.8
Off-market
Nil


Boral Ltd (BLD AU): Seven's Nil Premium



Japara Healthcare (JHC AU) 
Healthcare
0.2
Scheme
30%


Japara Healthcare (JHC AU): Here Comes The Calvary


 



Hong Kong




Chong Hing Bank (1111 HK) 
Banking
0.2
Scheme
51.2%



Chong Hing Bank (1111 HK): Takeover Talk As Shares Pop
Chong Hing Bank (1111 HK): Yue Xiu's Offer Is Light



 



Japan




Aomori Bank (8342 JP) / Michinoku Bank (8350 JP) 
Bank
0.6
Merger



Aomori Bank &amp; Michinoku Bank Merger - Nothing To Write Home About Yet



EPS Holdings (4282 JP) 
Data/software
0.1
Tender Offer
35.5%


Another Too-Cheap MBO as Founder Takes Out EPS


 Locoguide (4497 JP) / Kufu (4399 JP)

Real estate
0.4
Merger



Locoguide (4497 JP) - Kufu (4399 JP): Merger Is a Done Deal



Maruka Machinery (7594 JP) / Furusato Industries (8087 JP) 
Trading
0.4
Merger



A Complex SmallCap Merger in Japan: Maruka (7594) And Furusato (8087)



Secom Joshinetsu (4342 JP) 
Security
0.3
Tender Offer
66.2%


Secom To Finally Buy Out Affiliate Secom Joshinetsu (4342)








Malaysia




Can-One Bhd (CAN MK) 
Manufacturing
0.1
MTO
15.8%


Can-One (CAN MK)? Yeoh Can Lah!



IHH Healthcare (IHH MK) 
Healthcare
N/A
N/A
N/A


IHH Healthcare (IHH MK): More Medicine For Mitsui?


Source: Smartkarma Insights






The above does not include BetMakers Technology Group (BET AU) lobbing a non-binding offer of A$4bn (A$1bn cash, $3bn scrip into BET) for Tabcorp Ltd (TAH AU)'s wagering and media division, and Apollo's prior tilt - Tabcorp (TAH AU): Apollo Shows Its Hand.

Nor does the table include the rumoured merger between  Angang Steel Co Ltd (H) (347 HK) and Bengang Steel (000761 CH) - Amalgamated Steel: Merging Angang &amp; Bengang As, Bs, and Hs.



The average premium for the new deals announced (or first discussed) in May was ~41%, with a year-to-date average of ~31% (78 deals). This compares to the average premium for all deals in 2020 (158 deals) and 2019 (145 deals) of 31% and 31.5% respectively. 




Summary of News in May 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)




3P Learning (3PL AU) 

No May update




Bingo Industries (BIN AU) 

1-May: Capital Group announced it has sold its entire 9.7% stake in Bingo Industries (BIN AU).




Crown Resorts (CWN AU) 

10-May: Crown Resorts: Blackstone &amp; Star Place Their Bets
17-May: Crown Says Blackstone's Bid Is Light. Undecided On Star
20-May: Crown Resorts Ltd: Blackstone Offer Rejected, Star Offer May Still Not Reflect True Forward Value




Galaxy Resources (GXY AU) 

No May update




Link Administration Holdings (LNK AU) 

27-May: Link Group (LNK AU): KKR Opens The Bidding For PEXA
31-May: Link Admin (LNK AU) Goes IPO Route For PEXA Afterall




Mainstream Group Holdings Ltd (MAI AU) 

2-May: Mainstream (MAI AU): More-Than-Double in Less than 2 Months After Apex Bump
6-May: Mainstream (MAI AU): Bidding War Continues as SS&amp;C Overbids for the 4th Time
14-May: Mainstream (MAI AU): +120% in ~2 Months but Bidding War Continues....




McPherson's Ltd (MCP AU) 

No May update




Mortgage Choice (MOC AU) 

26-Mau FIRB gives its approval



Primewest Group Ltd (PWG AU)

14-May: Target's Statement and Bidder's Statements were published. Primewest Group Ltd (PWG AU)'s Board has unanimously recommended shareholders to accept the Offer. 




Think Childcare (TNK AU) 

12-May: Think Childcare (TNK AU) has agreed to extend the Exclusivity Period with Busy Bees to 31st May 2021 (vs. original deadline of 14th May). This is still a non-binding deal with an expected completion date to be in 1Q CY22. 




Vitalharvest Freehold Trust (VTH AU) 

1-May: And so it goes - MAFM bumps its Offer for Vitalharvest Freehold Trust (VTH AU) to $1.26.
7-May: MAFM exercises a call option and acquires 16.2% of Vitalharvest Freehold Trust (VTH AU).
28-May Roc bumps its Offer for Vitalharvest Freehold Trust (VTH AU) to $1.29/share.  And says it will overbid any MAFM counter! 




Vocus Communications (VOC AU) 

10-May: Vocus Comms (VOC AU): MIRA/Aware's Done Deal
19-May: Vocus Comms (VOC AU): MIRA/​Aware’s Scheme Doc Despatched. EGM On 22 June










Hong Kong


Comments (with links to announcements &amp; insights)




Beijing Digital Telecom (6188 HK) 

1-May: Beijing Digital (6188 HK): Offer Now Open. IFA Says Fair
20-May: Beijing Digital Telecom (6188 HK)'s MGO is now unconditional in all respects. 




China Machinery Engineering (1829 HK) 

28-May: China Machinery Engineering (1829 HK): Movement In The Works?




China Traditional Chinese Medicine (570 HK) 

7-May: In its monthly update regarding a potential Offer, China Traditional Chinese Medicine (570 HK) says there is no update.




China Youzan Limited (8083 HK) 

10-May: China Youzan (8083 HK): Reality Check As Shares Rollover




Kerry Logistics Network (636 HK) 

4-May: Kerry Logistics Network (636 HK) will hold an EGM on the 26 May for shareholders to vote on the sale of the Hong Kong and Taiwan warehouse businesses to Kerry Holdings. 
26-May: At its SGM, Kerry Logistics Network (636 HK) shareholders overwhelmingly approved the sale of its Hong Kong, Taiwan warehouse business to Kerry Holdings.




New Century REIT (1275 HK) 

No May update




Rivera Holdings (281 HK) 

No April update




Sichuan Languang Justbon Service Group (2606 HK) 

3-May: Languang Justbon (2606 HK): Offer Now Open - For Up To Four Months










India


Comments (with links to insights)




Mphasis Ltd (MPHL IN) 

4-May: The Detailed Public Statement on Mphasis Ltd (MPHL IN) has been released. The Open Offer is scheduled tentatively to run from 18 June to 1 July, which means it is running Very Tight and the option is worth a bit less than I expected. But that just means there is more gamma. One could get big at the high Rs 1600s area. 




Vedanta Ltd (VEDL IN) 

4-May: Vedanta Now Caught Up With Peers - A Different Skew Ahead










Japan


Comments (with links to announcements &amp; insights)




BeNEXT Group (2154 JP) 
No May update



Cocokara Fine (3098 JP) 
No May update



Fuji Kosan Company (5009 JP) 
17-May:  Fuji Kosan Company (5009 JP) has responded to Aslead Strategic Value Fund's Tender Offer with its initial Target Opinion Statement which is "Opinion Withheld." This is because Fuji Kosan hasn't actually done anything yet - two weeks in. They have sent questions to Aslead, and Aslead has five business days to respond. This is slow-walking it. This tender offer is likely to be extended because of that.



Hitachi Metals (5486 JP) 

5-May: Hitachi Metals - Should I Stay or Should I Go Now?




Honshu Chemical Industry (4115 JP) 

13-May: Honshu Chemical (4115) Shareholders Perhaps One Day From a Wrong Price Takeover
16-May:: Honshu Chemical Shareholders Get the Short End of the Stick As The Board Is Ex-Gourd




Invesco Office J Reit (3298 JP) 

6-May:  Invesco Office OPPOSES Starwood Hostile Offer and Gets a Distinctly Beige Knight
11-May:  Starwood Bumps Terms, Lowers Threshold on Invesco Office
13-May:  Invesco Office's Terrible, Horrible, No Good Very Bad Day... Changes Things
20-May:  Invesco Office's Beige Knight (Deemed Dirty Gray By Markets) Suddenly Looks Brighter and Whiter
23-May:  Starwood Responds to Invesco Office's White Knight Proposal
24-May: Starwood has extended their Tender Offer on Invesco Office J Reit (3298 JP) from the 24th of May to 15th of June after the close of the 24th. They did not raise the price. This is basically the equivalent of Starwood calling Invesco's bluff. They can extend again if they want but they are going to make Invesco come out. They can change price later if they think it necessary.



Japan Asia (3751 JP)
No May update



Sawada Holdings (8699 JP) 

9-May:  Sawada Selldown Was NOT Done - Shareholder Structure Looks Different Now
23-May: Sawada Is A Different Stock Now
31-May:  Be Careful of Expectations on Sawada (8699)




Toshiba Corp (6502 JP) 

14-May: Toshiba – Shareholder Returns Trump Weak Guidance
17-May: Toshiba Results &amp; Shareholder Return - Possibly Big Impact Buyback Coming











New Zealand


Comments 




Tilt Renewables Ltd (TLT NZ) 

No May update











Singapore


Comments (with links to announcements)




Procurri Corporation (PROC SP) 

3-May: The Partial Offer has not become unconditional in all respects on the Closing Date and has therefore lapsed










Thailand


Comments




Intouch Holdings (INTUCH TB) 

No May update




Vinythai Public Co (VNT TB) 

No May update






Well-known largecap Japanese Security Services firm <a href="https://www.smartkarma.com/entities/secom-co-ltd" target="_blank" data-smartkarma-citation="entities:11405:1" rel="noopener">Secom Co Ltd (9735 JP)</a> on Friday announced a Tender Offer to take out minorities of its subsidiary <a href="https://www.smartkarma.com/entities/secom-joshinetsu-co-ltd" target="_blank" data-smartkarma-citation="entities:2081:1" rel="noopener">Secom Joshinetsu (4342 JP)</a>. This is a slightly unusual two-step transaction. To start with, while SECOM itself only owns 54%, the combination of SECOM, its Singaporean sub, two connected individuals and two partner companies gets Related Parties to 73.6%. SECOM will conduct a Tender Offer for the shares of Secom Joshinetsu at ¥6350/share, which is a 66.2% premium to Friday's close, then will merge SECOM Joshinetsu into SECOM at a scrip exchange ratio to be determined later. That looks like a good premium.Is it good enough? It doesn't really matter.

Well-known largecap Japanese Security Services firm Secom Co Ltd (9735 JP) on Friday announced a Tender Offer to take out minorities of its subsidiary Secom Joshinetsu (4342 JP). This is a slightly unusual two-step transaction. To start with, while SECOM itself only owns 54%, the combination of SECOM, its Singaporean sub, two connected individuals and two partner companies gets Related Parties to 73.6%. SECOM will conduct a Tender Offer for the shares of Secom Joshinetsu at ¥6350/share, which is a 66.2% premium to Friday's close, then will merge SECOM Joshinetsu into SECOM at a scrip exchange ratio to be determined later. That looks like a good premium.Is it good enough? It doesn't really matter. 

Secom To Finally Buy Out Affiliate Secom Joshinetsu (4342)

<a href="https://www.smartkarma.com/entities/eps-holdings-inc" target="_blank" data-smartkarma-citation="entities:13246:1" rel="noopener">Eps Holdings (4282 JP)</a> was founded in 1991 by Hao Yan with 100,000 yen when he was 28 years old. It was a company which was built around software to manage clinical trials. Basically, the entire company was built off that idea of providing an infrastructure to allow a small company to act like a big one, or to allow a big one to interface with 5,000 smaller ones. A couple of years later the company became a CRO (Contract Research Organization) by amalgamating case registration and drug allocation services for those same clinical trials. Less than a decade later and they were managing the interfaces with clinical trial sites (i.e. they were a Site Management Organization (SMO)) for pharmaceutical companies, then they tacked on a CSO (Contract Sales Organization) status so they could take existing product from that same group of pharmaceutical companies for whom they were managing drug trials and could sell those drugs to the same doctors who were in situ at the thousands of sites across Japan conducting trials. Later, the company launched some of those same services in China and in SE Asia. It's a good business. About 15yrs ago the company listed on the TSE1. About five years ago they formed a tie-up with <a href="https://www.smartkarma.com/entities/suzuken-co-ltd" target="_blank" data-smartkarma-citation="entities:14996:1" rel="noopener">Suzuken Co Ltd (9987 JP)</a>. Now they are participating in the joint development of a DNA vaccine for covid-19. <h2>The NEW News</h2>Earlier this week, EPS launched a Takeunder of a Hong Kong company called Speed Apparel Holdings (3860 HK - held as to 75% by a single holder). It's not clear why they are doing this takeunder but it has been arranged as of earlier this spring.And on Thursday 27 May, the company announced that Mr. Hao Yan's company and an executive team of EPS would launch a Management Buyout (MBO) of EPS Holdings with contributions from partner Suzuken and MBK Partners as sponsor.It's a decent deal at a decent premium so... we dig in.

Eps Holdings (4282 JP) was founded in 1991 by Hao Yan with 100,000 yen when he was 28 years old. It was a company which was built around software to manage clinical trials. Basically, the entire company was built off that idea of providing an infrastructure to allow a small company to act like a big one, or to allow a big one to interface with 5,000 smaller ones. A couple of years later the company became a CRO (Contract Research Organization) by amalgamating case registration and drug allocation services for those same clinical trials. Less than a decade later and they were managing the interfaces with clinical trial sites (i.e. they were a Site Management Organization (SMO)) for pharmaceutical companies, then they tacked on a CSO (Contract Sales Organization) status so they could take existing product from that same group of pharmaceutical companies for whom they were managing drug trials and could sell those drugs to the same doctors who were in situ at the thousands of sites across Japan conducting trials. Later, the company launched some of those same services in China and in SE Asia. It's a good business. About 15yrs ago the company listed on the TSE1. About five years ago they formed a tie-up with Suzuken Co Ltd (9987 JP). Now they are participating in the joint development of a DNA vaccine for covid-19. The NEW NewsEarlier this week, EPS launched a Takeunder of a Hong Kong company called Speed Apparel Holdings (3860 HK - held as to 75% by a single holder). It's not clear why they are doing this takeunder but it has been arranged as of earlier this spring.And on Thursday 27 May, the company announced that Mr. Hao Yan's company and an executive team of EPS would launch a Management Buyout (MBO) of EPS Holdings with contributions from partner Suzuken and MBK Partners as sponsor.It's a decent deal at a decent premium so... we dig in.

Another Too-Cheap MBO as Founder Takes Out EPS

Japan

EPS Holdings, Inc. provides clinical testing services to contract research organizations (CROs) who are in the pharmaceutical industry in Japan. The Company's services range from planning, monitoring, and analyzing study and clinical testing for development of new drugs. EPS also develops systems and provides data management as well as patent registration.

EPS Holdings (4282 JP)

TOPIX Index Upweights: The Big April Basket 2021

TOPIX does an annual exercise to adjust Liquidity Factor. The time for trades around that is upon us. This insight looks at the best trade around...

Janaghan Jeyakumar, CFA

EPS MBO Is Cheap. Too Cheap. But Be Careful Of Your Assumptions

The EPS Holding (8242 JP) MBO is too cheap. Lots too cheap. But it is NOT because management asked for JPY 2100/share. There are good reasons for...

Travis Lundy

(Mostly) Asia M&A: May 2021 Roundup

The average premium for the new deals announced (or first discussed) in May was ~41%, with a year-to-date average of ~31% (78 deals).

David Blennerhassett

Secom To Finally Buy Out Affiliate Secom Joshinetsu (4342)

Secom is finally taking out Secom Joshinetsu minorities. Because affiliates own more than 13%, this deal is done before it starts. You get cash, or...

Travis Lundy

Another Too-Cheap MBO as Founder Takes Out EPS

EPS Holdings is being taken private by its founder in an MBO with help from existing directors and insiders, Suzuken, and MBK. Not unusually, it is...

Travis Lundy