Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>According to Bloomberg, Bain Capital-backed <a href="https://www.smartkarma.com/entities/chindata-group-holdings-adr" target="_blank" data-smartkarma-citation="entities:29274:1" rel="noopener">Chindata Group (CD US)</a> is being scoped out by industry players.</li>
<li>
<a href="https://www.smartkarma.com/entities/gds-holdings-adr" target="_blank" data-smartkarma-citation="entities:23649:1" rel="noopener">GDS Holdings (ADR) (GDS US)</a> is rumoured to be interested in merging with Chindata. PE outfit PAG and <a href="https://www.smartkarma.com/entities/eqt-ab" target="_blank" data-smartkarma-citation="entities:28922:1" rel="noopener">EQT AB (EQT SS)</a>-backed EdgeConneX are also, reportedly, in the mix.</li>
<li>Chindata's shares popped but are still 64% below its IPO price. This rumour follows data center provider <a href="https://www.smartkarma.com/entities/21-vianet-group-inc-adr" target="_blank" data-smartkarma-citation="entities:8489:1" rel="noopener">21Vianet (VNET US)</a>'s recent proposal from Hina Group and Shanghai's Industrial Bank. </li>
</ul>


According to Bloomberg, Bain Capital-backed Chindata Group (CD US) is being scoped out by industry players.

GDS Holdings (ADR) (GDS US) is rumoured to be interested in merging with Chindata. PE outfit PAG and EQT AB (EQT SS)-backed EdgeConneX are also, reportedly, in the mix.
Chindata's shares popped but are still 64% below its IPO price. This rumour follows data center provider 21Vianet (VNET US)'s recent proposal from Hina Group and Shanghai's Industrial Bank. 


Cloud Chronicles: Chindata Attracting Bytes

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

Market dynamics remain healthy which suggests a new broad-based bull market is not far off. With that said, we are still waiting for confirmation in the form of breakouts or bullish price inflections on the broad global indexes (ACWI-US, ACWX-US, EFA-US, and EEM-US) in order to turn bullish.<ul type="disc">
<li>
Actionable Theme: Major Autos/Auto Parts. Global automobile stocks display bullish price and RS inflections with many breaking out to new highs -- add exposure... see pages 3 and 5-6.</li>
<li>
Actionable Theme: Financials. There continues to be a plethora of attractive Financial stocks globally, ranging from banks and insurance to financial services -- add exposure... see pages 4 and 6-14.</li>
</ul>

Market dynamics remain healthy which suggests a new broad-based bull market is not far off. With that said, we are still waiting for confirmation in the form of breakouts or bullish price inflections on the broad global indexes (ACWI-US, ACWX-US, EFA-US, and EEM-US) in order to turn bullish.

Actionable Theme: Major Autos/Auto Parts. Global automobile stocks display bullish price and RS inflections with many breaking out to new highs -- add exposure... see pages 3 and 5-6.

Actionable Theme: Financials. There continues to be a plethora of attractive Financial stocks globally, ranging from banks and insurance to financial services -- add exposure... see pages 4 and 6-14.


Buying Global Financials & Autos/Auto Parts

European Event-Driven Analyst

Jesus Rodriguez Aguilar

<a href="https://www.smartkarma.com/entities/zooplus-ag" target="_blank" data-smartkarma-citation="entities:21749:1" rel="noopener">zooplus AG (ZO1 GR)</a> welcomed the €3.4 bn bid by <a href="https://www.smartkarma.com/entities/eqt-ab" target="_blank" data-smartkarma-citation="entities:28922:1" rel="noopener">EQT AB (EQT SS)</a> that trumps an improved offer by Hellman &amp; Friedman. Consideration is €470/share, in cash, an implied equity value of c. €3,360 mn (€3,600 mn as reported) and implied EV of €3,286.5 mn. The counteroffer represents 1.45x EV/Fwd Revenue, 39x EV/Fwd EBITDA and 116.3x Fwd P/E. It is a 69% premium to the unaffected share price as of 12 August, the day before H&amp;F announced its voluntary public takeover offer.
Hellman &amp; Friedman had previously hiked its offer from €390 to €460 per share (18% increase) after Zooplus confirmed Bloomberg reports that it was in talks with KKR and EQT about counteroffers.
The ongoing bidding war for zooplus AG shows that full valuations are not an obstacle for some private equity funds as they have record amounts of dry powder from investors (pension funds, insurance companies and HNW individuals).
Comparables are trading at a mean 1.35x EV/Fwd Revenue. This would imply a (generous) fair value for zooplus AG of €438.7/share. The shares are trading c. 11% above that value and offer 1.6% 22e FCF yield. Pet population is rising in Europe though and zooplus AG could keep on adding market share. The bottom line of zooplus is positive, unlike many retail e-commerce peers.
KKR withdrew after Hellman &amp; Friedman increased the prior offer price by 18%. The small increase of EQT's counteroffer should signal that the end of the "auction" is nigh, although I do not rule out further small increases. Gross spread to EQT's offer is -3.3%. We may be already witnessing a case of winner's curse, but of course this does not rule out a further bid by Hellman &amp; Friedman. Hats off to the Board of zooplus AG.

zooplus AG (ZO1 GR) welcomed the €3.4 bn bid by EQT AB (EQT SS) that trumps an improved offer by Hellman &amp; Friedman. Consideration is €470/share, in cash, an implied equity value of c. €3,360 mn (€3,600 mn as reported) and implied EV of €3,286.5 mn. The counteroffer represents 1.45x EV/Fwd Revenue, 39x EV/Fwd EBITDA and 116.3x Fwd P/E. It is a 69% premium to the unaffected share price as of 12 August, the day before H&amp;F announced its voluntary public takeover offer.
Hellman &amp; Friedman had previously hiked its offer from €390 to €460 per share (18% increase) after Zooplus confirmed Bloomberg reports that it was in talks with KKR and EQT about counteroffers.
The ongoing bidding war for zooplus AG shows that full valuations are not an obstacle for some private equity funds as they have record amounts of dry powder from investors (pension funds, insurance companies and HNW individuals).
Comparables are trading at a mean 1.35x EV/Fwd Revenue. This would imply a (generous) fair value for zooplus AG of €438.7/share. The shares are trading c. 11% above that value and offer 1.6% 22e FCF yield. Pet population is rising in Europe though and zooplus AG could keep on adding market share. The bottom line of zooplus is positive, unlike many retail e-commerce peers.
KKR withdrew after Hellman &amp; Friedman increased the prior offer price by 18%. The small increase of EQT's counteroffer should signal that the end of the "auction" is nigh, although I do not rule out further small increases. Gross spread to EQT's offer is -3.3%. We may be already witnessing a case of winner's curse, but of course this does not rule out a further bid by Hellman &amp; Friedman. Hats off to the Board of zooplus AG.

Solarpack Corp Tecnologica / Event-Driven

On 16 June, EQT Infrastructure, a fund managed by <a href="https://www.smartkarma.com/entities/eqt-ab" target="_blank" data-smartkarma-citation="entities:28922:1" rel="noopener">EQT AB (EQT SS)</a> , <a href="http://cnmv.es/portal/verDoc.axd?t=%7B18435c31-8db9-4abc-b1e4-bf7872682d88%7D" target="_blank" rel="noopener">announced a voluntary takeover bid</a> for 100% of the shares of <a href="https://www.smartkarma.com/entities/solarpack-corp-tecnologica-sa" target="_blank" data-smartkarma-citation="entities:33493:1" rel="noopener">Solarpack Corp Tecnologica (SPK SM)</a>, a developer and owner of solar photovoltaic plants, mainly active in Spain, Chile and India.
Consideration is €26.5/share, in cash, for 100% of the shares, for an implied equity value of €881.2 mn and an implied EV of €1,258.7 mn. This is 10.1x EV/Fwd Revenue and 18.7X EV/Fwd EBITDA.
EQT Infrastructure has signed irrevocable agreements for 50.957% (with €5 mn break-up fee, c. 0.6% of the transaction).
The rationale seems to be the development of the company under EQT ownership.
The offer is not particularly generous on the basis of a median TP on Capital IQ consensus of €29.4/share, but the premium offered is 45% to the prior closing. With a nearly 51% irrevocable undertakings committed, the market is discounting the success of the offer.
The shares increased by 43% and closed at €26.15, a gross spread of 1.3%, c. 4% annualised assuming the deal closes in 9 months.
Albeit the spread is not terribly exciting, I recommend long SPK SM, and would take advantage of any dip to add to the position.

On 16 June, EQT Infrastructure, a fund managed by EQT AB (EQT SS) , announced a voluntary takeover bid for 100% of the shares of Solarpack Corp Tecnologica (SPK SM), a developer and owner of solar photovoltaic plants, mainly active in Spain, Chile and India.
Consideration is €26.5/share, in cash, for 100% of the shares, for an implied equity value of €881.2 mn and an implied EV of €1,258.7 mn. This is 10.1x EV/Fwd Revenue and 18.7X EV/Fwd EBITDA.
EQT Infrastructure has signed irrevocable agreements for 50.957% (with €5 mn break-up fee, c. 0.6% of the transaction).
The rationale seems to be the development of the company under EQT ownership.
The offer is not particularly generous on the basis of a median TP on Capital IQ consensus of €29.4/share, but the premium offered is 45% to the prior closing. With a nearly 51% irrevocable undertakings committed, the market is discounting the success of the offer.
The shares increased by 43% and closed at €26.15, a gross spread of 1.3%, c. 4% annualised assuming the deal closes in 9 months.
Albeit the spread is not terribly exciting, I recommend long SPK SM, and would take advantage of any dip to add to the position.

EQT/Solarpack: Friendly Take-Private Deal

On 7 April, The Wall Street Journal reported that <a href="https://www.smartkarma.com/entities/eqt-ab" target="_blank" data-smartkarma-citation="entities:28922:1" rel="noopener">EQT AB (EQT SS)</a> and Stonepeak Infrastructure Partners LP are preparing a joint bid for <a href="https://www.smartkarma.com/entities/koninklijke-kpn-nv" target="_blank" data-smartkarma-citation="entities:21122:1" rel="noopener">Koninklijke KPN (KPN NA)</a>. Market rumours put the offer price at €3 per share. On 8 April, 55 million shares of KPN were traded.
On October 12, KPN shares shot up 10% amid rumors of a possible EQT takeover. KPN was then trading at €2.4 per share. KPN has a protection mechanism against takeover bids (Stichting), and the Dutch government has the right to veto offers, as it considers that the telecommunications network is critical infrastructure. Both are discussed in <a href="https://www.smartkarma.com/insights/k-p-n-e-q-t-prospective-private-equity-bid" target="_blank" data-smartkarma-citation="insights:44129" rel="noopener">K P N - E Q T: Prospective Private Equity Bid</a>. Carlos Slim (through <a href="https://www.smartkarma.com/entities/america-movil-sab-de-cv" target="_blank" data-smartkarma-citation="entities:24634:1" rel="noopener">America Movil Sab De Cv (AMXL MM)</a>) owns a 20% stake in KPN.
KPN has had a good run and gone over my TP from October, on a return to growth basis (see Capital IQ projections further in the next section), with M&amp;A optionality.
KPN has a strong management to run a mature business like the Dutch fixed line/fibre network operations. KPN Dutch's operations are efficiently run, with stable CF and estimated EBITDA margins above 45% for the period 2021e-2023e, in one of the most competitive and mature Telecom markets in Europe. KPN and Vodafone-Zigo are the top players, with T-Mobile the third major player.
Using Capital IQ consensus numbers, a 7.6x EV/EBITDA exit multiple, an acquisition premium of 10% to last closing price (€2.919 per share), an equity portion of 25% and spread of 250bps to 10-year Euro swap rates, I think an offer price of €3.212 could generate an IRR of 10.7% by year 8. And that is probably the bare minimum that the Board of KPN will be willing to discuss. Carlos Slim failed, EQT would not like history repeating itself.
On this basis, recommendation is long KPN, TP €3.211.
Shares should be sustained by a 4.7% dividend yield.

On 7 April, The Wall Street Journal reported that EQT AB (EQT SS) and Stonepeak Infrastructure Partners LP are preparing a joint bid for Koninklijke KPN (KPN NA). Market rumours put the offer price at €3 per share. On 8 April, 55 million shares of KPN were traded.
On October 12, KPN shares shot up 10% amid rumors of a possible EQT takeover. KPN was then trading at €2.4 per share. KPN has a protection mechanism against takeover bids (Stichting), and the Dutch government has the right to veto offers, as it considers that the telecommunications network is critical infrastructure. Both are discussed in K P N - E Q T: Prospective Private Equity Bid. Carlos Slim (through America Movil Sab De Cv (AMXL MM)) owns a 20% stake in KPN.
KPN has had a good run and gone over my TP from October, on a return to growth basis (see Capital IQ projections further in the next section), with M&amp;A optionality.
KPN has a strong management to run a mature business like the Dutch fixed line/fibre network operations. KPN Dutch's operations are efficiently run, with stable CF and estimated EBITDA margins above 45% for the period 2021e-2023e, in one of the most competitive and mature Telecom markets in Europe. KPN and Vodafone-Zigo are the top players, with T-Mobile the third major player.
Using Capital IQ consensus numbers, a 7.6x EV/EBITDA exit multiple, an acquisition premium of 10% to last closing price (€2.919 per share), an equity portion of 25% and spread of 250bps to 10-year Euro swap rates, I think an offer price of €3.212 could generate an IRR of 10.7% by year 8. And that is probably the bare minimum that the Board of KPN will be willing to discuss. Carlos Slim failed, EQT would not like history repeating itself.
On this basis, recommendation is long KPN, TP €3.211.
Shares should be sustained by a 4.7% dividend yield. 

K P N - E Q T Consortium: Prospective Bid (II)

Sweden

EQT AB operates as an investment firm. The Company invests in equity, ventures, infrastructure, and real estate properties. EQT serves customers worldwide.

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EQT (EQT SS)

Cloud Chronicles: Chindata Attracting Bytes

Although no formal sale process has occurred, Chindata is worth picking up here. Despite regulatory concerns, it is trading too cheaply to peers,...

David Blennerhassett

Buying Global Financials & Autos/Auto Parts

Global automobile stocks display bullish price and RS inflections with many breaking out to new highs. Financials are attractive globally, ranging...

Vermilion Research

EQT Bites H&F in War for Zooplus AG

Small increase of EQT's counteroffer should signal that the end of the "auction" is nigh, but I do not rule out further small increases. Gross...

Jesus Rodriguez Aguilar

EQT/Solarpack: Friendly Take-Private Deal

With 51% irrevocable undertakings, the market is discounting the success of the offer. Fross spread is 1.3%, c. 4% annualised assuming the deal...

Jesus Rodriguez Aguilar

K P N - E Q T Consortium: Prospective Bid (II)

KPN is back to growth and well-run. On a 7.6x EV/EBITDA exit, 10% acquisition premium of 10%, 25% equity and spread of 250bps to 10-y € swap, an...

Jesus Rodriguez Aguilar

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