Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

<p>On 10 November 2020, <a href="https://www.smartkarma.com/entities/gs-holdings" target="_blank" data-smartkarma-citation="entities:18524:1" rel="noopener">GS Holdings (078930 KS)</a> announced the merger of two of its retail units <a href="https://www.smartkarma.com/entities/gs-retail-co-ltd" target="_blank" data-smartkarma-citation="entities:3867:1" rel="noopener">GS Retail (007070 KS)</a> and <a href="https://www.smartkarma.com/entities/gs-home-shopping-inc" target="_blank" data-smartkarma-citation="entities:3916:1" rel="noopener">GS Home Shopping (028150 KS)</a>. The merger ratio was announced as 4.22 shares of <a href="https://www.smartkarma.com/entities/gs-retail-co-ltd" target="_blank" data-smartkarma-citation="entities:3867:1" rel="noopener">GS Retail (007070 KS)</a> for 1 share of <a href="https://www.smartkarma.com/entities/gs-home-shopping-inc" target="_blank" data-smartkarma-citation="entities:3916:1" rel="noopener">GS Home Shopping (028150 KS)</a>.</p><p>Last evening, the KRX announced the deletion of <a href="https://www.smartkarma.com/entities/gs-home-shopping-inc" target="_blank" data-smartkarma-citation="entities:3916:1" rel="noopener">GS Home Shopping (028150 KS)</a> from the <a href="https://www.smartkarma.com/entities/kosdaq-150-index" target="_blank" data-smartkarma-citation="entities:31077:1" rel="noopener">KOSDAQ 150 Index (KOSDQ150 INDEX)</a> and the inclusion of <a href="https://www.smartkarma.com/entities/modetour-network-inc" target="_blank" data-smartkarma-citation="entities:14818:1" rel="noopener">Modetour Network (080160 KS)</a> with the change becoming effective after the close of trading on 28 June.</p><p>We estimate passive <a href="https://www.smartkarma.com/entities/kosdaq-150-index" target="_blank" data-smartkarma-citation="entities:31077:1" rel="noopener">KOSDAQ 150 Index (KOSDQ150 INDEX)</a> trackers will need to sell 5 days of ADV on <a href="https://www.smartkarma.com/entities/gs-home-shopping-inc" target="_blank" data-smartkarma-citation="entities:3916:1" rel="noopener">GS Home Shopping (028150 KS)</a> while buying 1 day of ADV on <a href="https://www.smartkarma.com/entities/modetour-network-inc" target="_blank" data-smartkarma-citation="entities:14818:1" rel="noopener">Modetour Network (080160 KS)</a>. </p><p>KRX will increase the number of index shares for <a href="https://www.smartkarma.com/entities/gs-retail-co-ltd" target="_blank" data-smartkarma-citation="entities:3867:1" rel="noopener">GS Retail (007070 KS)</a> in the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> at the same time and passive trackers will need to buy 0.7 days of ADV on the stock.</p><p>The <a href="https://www.smartkarma.com/entities/gs-retail-co-ltd" target="_blank" data-smartkarma-citation="entities:3867:1" rel="noopener">GS Retail (007070 KS)</a> / <a href="https://www.smartkarma.com/entities/gs-home-shopping-inc" target="_blank" data-smartkarma-citation="entities:3916:1" rel="noopener">GS Home Shopping (028150 KS)</a> spread will be interesting at the close on 28 June and there will be opportunities to unwind existing positions or to initiate new positions.</p>

On 10 November 2020, GS Holdings (078930 KS) announced the merger of two of its retail units GS Retail (007070 KS) and GS Home Shopping (028150 KS). The merger ratio was announced as 4.22 shares of GS Retail (007070 KS) for 1 share of GS Home Shopping (028150 KS).Last evening, the KRX announced the deletion of GS Home Shopping (028150 KS) from the KOSDAQ 150 Index (KOSDQ150 INDEX) and the inclusion of Modetour Network (080160 KS) with the change becoming effective after the close of trading on 28 June.We estimate passive KOSDAQ 150 Index (KOSDQ150 INDEX) trackers will need to sell 5 days of ADV on GS Home Shopping (028150 KS) while buying 1 day of ADV on Modetour Network (080160 KS). KRX will increase the number of index shares for GS Retail (007070 KS) in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) at the same time and passive trackers will need to buy 0.7 days of ADV on the stock.The GS Retail (007070 KS) / GS Home Shopping (028150 KS) spread will be interesting at the close on 28 June and there will be opportunities to unwind existing positions or to initiate new positions.

KOSDAQ150 Index Rebalance: Modetour to Replace GS Home Shopping; GS Retail Weight Increase in KOSPI2

Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Event-Driven

<h2>Merger arbitrage yield</h2><p>The merger arb yield currently stands at 5.86%, excluding transaction costs, as I'm writing this post (10:30 AM in Korea local time). You buy a GS Home Shopping share for the current price of ₩156,400. Then, you short 4.22368 GS Retail shares for the current price of ₩165,568 (₩39,200 x 4.22368). Your one GS Home Shopping share will be converted into 4.22368 GS Retail shares to cover your short position.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread - swap"}'>Spread - swap</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Acquirer"}'>GS Retail - Acquirer</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Target company"}'>GS Home Shopping - Target company</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":39200}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula='=googlefinance(Terms!R[2]C[0], "price")'>₩39,200</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":156400}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula='=googlefinance(Terms!R[5]C[-1], "price")'>₩156,400</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price"}'>Swap price</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":33800}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[7]C[0]">₩33,800</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":142762}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[13]C[-1]">₩142,762</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - x Swap ratio"}'>- x Swap ratio</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":165568.38927999997}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-2]C[0]*Terms!R[15]C[0]">₩165,568</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":156400}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-2]C[0]">₩156,400</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread"}'><strong>Spread</strong></td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":0.058621414833759426}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-1]C[1])/R[-1]C[1]"><strong>5.86%</strong></td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table><p>The arb spread went south as low as 4.59% this Monday, then bounced back to 5.86% today.</p><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/210/638/original/GS+Retail+%26+GS+Home+Shopping+merger+swap+arb+yield+%281%29.png?1622597895" class="editor-image img-responsive" data-smartkarma-image-id="210638"></figure></section><h2>Remaining schedule</h2>
<p>Last Friday had an EGM for both companies to get shareholder approval on this merger. GS Retail got a 98.47% approval rate of the attending votes. GS Home Shopping got a 78.5% approval of the attending votes. Both companies met the approval requirements: 1. two-thirds of attending votes and 2. one-thirds of all voting votes.</p>
<p>Now, we are in the middle of the appraisal rights exercise period. It began last Friday and will run until June 29. Then, we will see a trade suspension on GS Home Shopping from June 29 to July 15. The listing of new shares will hit the market the following day, on July 16.</p>
<table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Timetable"}'>Timetable</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Shareholder meeting"}'>Shareholder meeting</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44344}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 5. 28</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stock purchase right exercise (GS Retail &amp; GS Home Shopping)"}'><strong>Stock purchase right exercise (GS Retail &amp; GS Home Shopping)</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 5. 28 ~ 6. 29"}'><strong>2021. 5. 28 ~ 6. 29</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Trade suspension (GS Home Shopping)"}'>Trade suspension (GS Home Shopping)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 6. 29 ~ 7. 15"}'>2021. 6. 29 ~ 7. 15</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Listing"}'><strong>Listing</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44393}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 7. 16</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table></section><p>The only risk to a merger arb trade at this point is a cancellation resulting from the stock purchase cost. A combined ₩350B is the limit that GS will consider canceling the merger. We still have about a month to go. But given the substantially negative spread at this point, the cancellation risk should be pretty minimal.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread - stock purchase"}'>Spread - stock purchase</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Acquirer"}'>GS Retail - Acquirer</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Target company"}'>GS Home Shopping - Target company</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":39200}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-35]C[0]">₩39,200</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":156400}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-35]C[0]">₩156,400</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price"}'>Exercise price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":34125}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[-16]C[0]">₩34,125</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":138855}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[-15]C[-1]">₩138,855</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread"}'><strong>Spread</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.12946428571428573}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-40]C[0])/R[-40]C[0]"><strong>-12.95%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.11218030690537084}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-40]C[0])/R[-40]C[0]"><strong>-11.22%</strong></td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table>

Merger arbitrage yieldThe merger arb yield currently stands at 5.86%, excluding transaction costs, as I'm writing this post (10:30 AM in Korea local time). You buy a GS Home Shopping share for the current price of ₩156,400. Then, you short 4.22368 GS Retail shares for the current price of ₩165,568 (₩39,200 x 4.22368). Your one GS Home Shopping share will be converted into 4.22368 GS Retail shares to cover your short position.







Spread - swap
GS Retail - Acquirer
GS Home Shopping - Target company


Current price
₩39,200
₩156,400


Swap price
₩33,800
₩142,762


- x Swap ratio
₩165,568
₩156,400


Spread
5.86%

Source: DART &amp; KRX

The arb spread went south as low as 4.59% this Monday, then bounced back to 5.86% today.Remaining schedule
Last Friday had an EGM for both companies to get shareholder approval on this merger. GS Retail got a 98.47% approval rate of the attending votes. GS Home Shopping got a 78.5% approval of the attending votes. Both companies met the approval requirements: 1. two-thirds of attending votes and 2. one-thirds of all voting votes.
Now, we are in the middle of the appraisal rights exercise period. It began last Friday and will run until June 29. Then, we will see a trade suspension on GS Home Shopping from June 29 to July 15. The listing of new shares will hit the market the following day, on July 16.






Timetable

Shareholder meeting
2021. 5. 28


Stock purchase right exercise (GS Retail &amp; GS Home Shopping)
2021. 5. 28 ~ 6. 29


Trade suspension (GS Home Shopping)
2021. 6. 29 ~ 7. 15


Listing
2021. 7. 16

Source: DART

The only risk to a merger arb trade at this point is a cancellation resulting from the stock purchase cost. A combined ₩350B is the limit that GS will consider canceling the merger. We still have about a month to go. But given the substantially negative spread at this point, the cancellation risk should be pretty minimal.







Spread - stock purchase
GS Retail - Acquirer
GS Home Shopping - Target company


Current price
₩39,200
₩156,400


Exercise price
₩34,125
₩138,855


Spread
-12.95%
-11.22%

Source: DART &amp; KRX



<h2>Merger arbitrage yield at +6% now.</h2><p>GS Retail merger swap's arb trade yield is now back to +6%. To be exact, it is 6.31% at the current prices as I am writing this post (1:10 PM in Korea local time).</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/206/668/original/GS+Retail+%26+GS+Home+Shopping+merger+swap+arb+yield.png?1621224773" class="editor-image img-responsive" data-smartkarma-image-id="206668"></figure></section><h2>Here is a quick recap of the stock swap.</h2><p>The swap prices of both GS Retail (the acquiring company) and GS Home Shopping (the target company) were already fixed as follows:</p><p><strong>GS Retail</strong></p><ul>
<li>A: 1-month VWAP (Oct 12~Nov 9, 2020) = ₩34,903</li>
<li>B: 1-week VWAP (Nov 3~9, 2020) = ₩33,098</li>
<li>C: 1-day close (Nov 9, 2020) = ₩33,400</li>
<li><strong>Swap price: (A+B+C)/3 = ₩33,800</strong></li>
</ul><p><strong>GS Home Shopping</strong></p><ul>
<li>A: 1-month VWAP (Oct 12~Nov 9, 2020) = ₩140,216</li>
<li>B: 1-week VWAP (Nov 3~9, 2020) = ₩141,969</li>
<li>C: 1-day close (Nov 9, 2020) = ₩146,100</li>
<li><strong>Swap price: (A+B+C)/3 = ₩142,762</strong></li>
</ul><p>These swap prices give a swap ratio of 4.22368 for 1. <strong>GS Home Shopping shareholders will get 4.22368 GS Retail shares for each GS Home Shopping share.</strong></p><p>So, the swap yield calculation is straightforward. You buy a GS Home Shopping share for the current price of <strong>₩146,400</strong>. Then, you short <strong>4.22368</strong> GS Retail shares for the current price of <strong>₩155,643 </strong>(₩36,850 x 4.22368). Your one GS Home Shopping share will be converted into 4.22368 GS Retail shares. So, it is basically like you instantly gain <strong>₩9,843</strong>, giving a <strong>6.31%</strong> trade yield, excluding transaction costs.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread - swap"}'>Spread - swap</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Acquirer"}'>Acquirer</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Target company"}'>Target company</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":36850}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩36,850</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":146400}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula='=googlefinance(Terms!R[5]C[-1], "price")'>₩146,400</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price"}'>Swap price</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":33800}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[7]C[0]">₩33,800</td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":142762}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[13]C[-1]">₩142,762</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - x Swap ratio"}'><strong>- Current price x Swap ratio</strong></td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":155642.73328999997}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-2]C[0]*Terms!R[15]C[0]"><strong>₩155,643</strong></td>
<td style="text-align: center;" data-sheets-value='{"1":3,"3":146400}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-2]C[0]"><strong>₩146,400</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread"}'><strong>Arb trade yield</strong></td>
<td colspan="2" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":0.06313342411202169}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-1]C[1])/R[-1]C[1]"><strong>+6.31%</strong></td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table><h2><strong>Cancellation risk</strong></h2><p>Of course, there is a cancellation risk. Two potential factors may lead to cancellation.</p><p><strong>The first one is shareholder approval.</strong> The shareholder approval ratio is two-thirds of attending votes and one-thirds of all voting votes. Both companies require shareholder approval. A small-scale merger only requires shareholder approval from an acquiring company. But this didn't qualify as a small-scale merger.</p><p>The shareholder meeting is scheduled for May 28 for both companies, less than 10 days from now.</p><div id="ember3040" data-message-id="386959"><div id="ember3041">
<ul>
<li>
<a href="https://kind.krx.co.kr/common/disclsviewer.do?method=search&amp;acptno=20210325001449&amp;docno=&amp;viewerhost=&amp;viewerport=" target="_blank" rel="noopener">This is the regulatory filing by GS Retail for the EGM.</a><a href="https://kind.krx.co.kr/common/disclsviewer.do?method=search&amp;acptno=20210325001449&amp;docno=&amp;viewerhost=&amp;viewerport=" target="_blank" rel="noopener"></a>
</li>
<li><a href="https://kind.krx.co.kr/common/disclsviewer.do?method=search&amp;acptno=20210325001266&amp;docno=&amp;viewerhost=&amp;viewerport=" target="_blank" rel="noopener">This is the regulatory filing by GS Home Shopping for the EGM.</a></li>
</ul>
<p><strong>The second one is appraisal right exercise cost</strong>. Both companies' appraisal rights exercise prices are already fixed as follows:</p>
<p><strong>GS Retail </strong></p>
<ul>
<li>A: 2-month VWAP (Sep 10~Nov 9, 2020) = ₩34,373</li>
<li>B: 1-month VWAP (Oct 12~Nov 9, 2020) = ₩33,903</li>
<li>C: 1-week VWAP (Nov 3~9, 2020) = ₩33,098</li>
<li>Appraisal rights exercise price: (A+B+C)/3 = ₩34,125</li>
</ul>
<p><strong>GS Home Shopping</strong></p>
<ul>
<li>A: 2-month VWAP (Sep 10~Nov 9, 2020) = ₩134,380</li>
<li>B: 1-month VWAP (Oct 12~Nov 9, 2020) = ₩140,216</li>
<li>C: 1-week VWAP (Nov 3~9, 2020) = ₩141,969</li>
<li>Appraisal rights exercise price: (A+B+C)/3 = ₩138,855</li>
</ul>
<p>The dissident shareholders opposing the merger can request the companies to purchase their shares at the appraisal rights exercise price. GS Retail and GS Home Shopping set the ceiling of the total cost for stock repurchase at <strong>a combined ₩350bil</strong>. If<strong> the total cost for both companies reaches ₩350bil, they will consider canceling the merger. </strong>But that doesn't mean that they will automatically cancel the merger. Some cases in the past had a merger go through despite the total stock repurchase cost exceeded the ceiling set by a company.</p>
<p>Only those shareholders who held onto the shares until November 11 last year and then gave a dissenting opinion between May 13~27 this year are eligible to exercise the appraisal rights from May 28 to June 17.</p>
</div></div>

Merger arbitrage yield at +6% now.GS Retail merger swap's arb trade yield is now back to +6%. To be exact, it is 6.31% at the current prices as I am writing this post (1:10 PM in Korea local time).Here is a quick recap of the stock swap.The swap prices of both GS Retail (the acquiring company) and GS Home Shopping (the target company) were already fixed as follows:GS Retail
A: 1-month VWAP (Oct 12~Nov 9, 2020) = ₩34,903
B: 1-week VWAP (Nov 3~9, 2020) = ₩33,098
C: 1-day close (Nov 9, 2020) = ₩33,400
Swap price: (A+B+C)/3 = ₩33,800
GS Home Shopping
A: 1-month VWAP (Oct 12~Nov 9, 2020) = ₩140,216
B: 1-week VWAP (Nov 3~9, 2020) = ₩141,969
C: 1-day close (Nov 9, 2020) = ₩146,100
Swap price: (A+B+C)/3 = ₩142,762
These swap prices give a swap ratio of 4.22368 for 1. GS Home Shopping shareholders will get 4.22368 GS Retail shares for each GS Home Shopping share.So, the swap yield calculation is straightforward. You buy a GS Home Shopping share for the current price of ₩146,400. Then, you short 4.22368 GS Retail shares for the current price of ₩155,643 (₩36,850 x 4.22368). Your one GS Home Shopping share will be converted into 4.22368 GS Retail shares. So, it is basically like you instantly gain ₩9,843, giving a 6.31% trade yield, excluding transaction costs.







Spread - swap
Acquirer
Target company


Current price
₩36,850
₩146,400


Swap price
₩33,800
₩142,762


- Current price x Swap ratio
₩155,643
₩146,400


Arb trade yield
+6.31%

Source: DART &amp; KRX

Cancellation riskOf course, there is a cancellation risk. Two potential factors may lead to cancellation.The first one is shareholder approval. The shareholder approval ratio is two-thirds of attending votes and one-thirds of all voting votes. Both companies require shareholder approval. A small-scale merger only requires shareholder approval from an acquiring company. But this didn't qualify as a small-scale merger.The shareholder meeting is scheduled for May 28 for both companies, less than 10 days from now.


This is the regulatory filing by GS Retail for the EGM.

This is the regulatory filing by GS Home Shopping for the EGM.

The second one is appraisal right exercise cost. Both companies' appraisal rights exercise prices are already fixed as follows:
GS Retail 

A: 2-month VWAP (Sep 10~Nov 9, 2020) = ₩34,373
B: 1-month VWAP (Oct 12~Nov 9, 2020) = ₩33,903
C: 1-week VWAP (Nov 3~9, 2020) = ₩33,098
Appraisal rights exercise price: (A+B+C)/3 = ₩34,125

GS Home Shopping

A: 2-month VWAP (Sep 10~Nov 9, 2020) = ₩134,380
B: 1-month VWAP (Oct 12~Nov 9, 2020) = ₩140,216
C: 1-week VWAP (Nov 3~9, 2020) = ₩141,969
Appraisal rights exercise price: (A+B+C)/3 = ₩138,855

The dissident shareholders opposing the merger can request the companies to purchase their shares at the appraisal rights exercise price. GS Retail and GS Home Shopping set the ceiling of the total cost for stock repurchase at a combined ₩350bil. If the total cost for both companies reaches ₩350bil, they will consider canceling the merger. But that doesn't mean that they will automatically cancel the merger. Some cases in the past had a merger go through despite the total stock repurchase cost exceeded the ceiling set by a company.
Only those shareholders who held onto the shares until November 11 last year and then gave a dissenting opinion between May 13~27 this year are eligible to exercise the appraisal rights from May 28 to June 17.


GS Retail Merger Arbitrage: Yield Back at +6% & Local Arb Traders in Action

<p>GS Retail merger swap now gives an arb yield of 4.27% at the current prices. If you short 4.22368 GS Retail shares at the current price of ₩36,250 and buy one GS Home Shopping share at the current price of ₩146,400, you will virtually fix your trade yield at 4.27%.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread - swap"}'>Merger swap arb trade yield</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Acquirer"}'>GS Retail</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Target company"}'>GS Home Shopping</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":36250}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula='=googlefinance(Terms!R[2]C[0], "price")'>₩36,250</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":146400}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula='=googlefinance(Terms!R[5]C[-1], "price")'>₩146,400</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price"}'>Swap price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":33800}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[7]C[0]">₩33,800</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":142762}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[13]C[-1]">₩142,762</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Gain/loss"}'><strong>Gain/loss</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.06758620689655172}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-2]C[0]-R[-1]C[0])/R[-2]C[0]"><strong>6.76%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.024849726775956284}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-2]C[0])/R[-2]C[0]"><strong>-2.48%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread"}'><strong>Spread</strong></td>
<td colspan="2" rowspan="1" style="text-align: right;" data-sheets-value='{"1":3,"3":0.04273648012059543}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[-1]C[0]+R[-1]C[1]"><strong>4.27%</strong></td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table><div>
<p>When short-selling resumes this Monday, the arb yield stayed at 1.59%. It has gradually climbed back to a +4% level now. Like the previous local merger swap cases, GS seems to require as many arb traders as possible to minimize stock repurchase cost.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/204/782/original/GS+Retail+%26+GS+Home+Shopping+merger+swap+arb+yield.png?1620351095" class="editor-image img-responsive" data-smartkarma-image-id="204782"></figure></section><hr>
<p>For those who aren't familiar with this event, here is a quick recap.</p>
<p>GS Retail will merge with GS Home Shopping through a stock swap. The GS Home Shopping shareholders will get 4.22368 GS Retail shares for each GS Home Shopping share.</p>
</div><div><div><table class="table table-striped">
<colgroup>
<col width="300">
<col width="300">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Overview (₩B)"}'>Overview (₩B)</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Type"}'>Type</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Stock swap"}'>Stock swap</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Acquirer"}'>Acquirer</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"GS Retail Co Ltd"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>GS Retail Co Ltd (007070)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target company"}'>Target company</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"GS Home Shopping Inc."}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>GS Home Shopping Inc. (028150)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Offering price"}'><strong>Swap price for GS Retail</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":33800}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩33,800</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target price"}'><strong>Swap price for GS Home Shopping</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":142762}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩142,762</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio"}'><strong>Swap ratio</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4.2236834}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}'><strong>4.2236834</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table></div></div><div>The next big day is the shareholder meeting scheduled for May 28. Yes, there is a cancellation risk if not getting shareholder approval on May 28. Combining the NPS and the friendly shareholders (Hanjin), the controlling stake reaches 72% for Retail and 50% for Home Shopping. It seems that the risk of not getting shareholder approval is pretty low.</div><div>
<br><table class="table table-striped">
<colgroup>
<col width="300">
<col width="300">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Timetable"}' data-sheets-note="Sang Hyun Park: We have to buy shares until BOD+1 to be eligible to receive stock purchase rights. We then have to notify our dissenting opinion until the end of dissenting opinion notice period.">Timetable</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"EGM"}'><strong>Shareholder meeting</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44344}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 5. 28</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stock purchase right exercise begins"}'>Stock purchase right exercise (GS Retail &amp; GS Home Shopping)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44344}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 5. 28 ~ 6. 29</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Trade suspension begins - GS Home Shopping"}'><strong>Trade suspension (GS Home Shopping)</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44376}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 6. 29 ~ 7. 15</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Listing"}'>Listing</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44393}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 7. 16</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>
<p>Also, the stock purchase cost ceiling is set at ₩350.0B combined for both. The exercise prices are currently 5.73% and 5.22% below the current prices for GS Retail and GS Home Shopping. </p>
<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread - stock purchase"}'>Spread - stock purchase</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Acquirer"}'>GS Retail</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Target company"}'>GS Home Shopping</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":36200}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-35]C[0]">₩36,200</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":146500}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-35]C[0]">₩146,500</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price"}'>Exercise price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":34125}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[-16]C[0]">₩34,125</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":138855}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=Terms!R[-15]C[-1]">₩138,855</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread"}'><strong>Spread</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.057320441988950276}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-40]C[0])/R[-40]C[0]"><strong>-5.73%</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.05218430034129693}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-40]C[0])/R[-40]C[0]"><strong>-5.22%</strong></td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table>
</div>

GS Retail merger swap now gives an arb yield of 4.27% at the current prices. If you short 4.22368 GS Retail shares at the current price of ₩36,250 and buy one GS Home Shopping share at the current price of ₩146,400, you will virtually fix your trade yield at 4.27%.







Merger swap arb trade yield
GS Retail
GS Home Shopping


Current price
₩36,250
₩146,400


Swap price
₩33,800
₩142,762


Gain/loss
6.76%
-2.48%


Spread
4.27%

Source: DART &amp; KRX


When short-selling resumes this Monday, the arb yield stayed at 1.59%. It has gradually climbed back to a +4% level now. Like the previous local merger swap cases, GS seems to require as many arb traders as possible to minimize stock repurchase cost.

For those who aren't familiar with this event, here is a quick recap.
GS Retail will merge with GS Home Shopping through a stock swap. The GS Home Shopping shareholders will get 4.22368 GS Retail shares for each GS Home Shopping share.






Overview (₩B)

Type
Stock swap


Acquirer
GS Retail Co Ltd (007070)


Target company
GS Home Shopping Inc. (028150)


Swap price for GS Retail
₩33,800


Swap price for GS Home Shopping
₩142,762


Swap ratio
4.2236834

Source: DART

The next big day is the shareholder meeting scheduled for May 28. Yes, there is a cancellation risk if not getting shareholder approval on May 28. Combining the NPS and the friendly shareholders (Hanjin), the controlling stake reaches 72% for Retail and 50% for Home Shopping. It seems that the risk of not getting shareholder approval is pretty low.
 





Timetable

Shareholder meeting
2021. 5. 28


Stock purchase right exercise (GS Retail &amp; GS Home Shopping)
2021. 5. 28 ~ 6. 29


Trade suspension (GS Home Shopping)
2021. 6. 29 ~ 7. 15


Listing
2021. 7. 16

Source: DART


Also, the stock purchase cost ceiling is set at ₩350.0B combined for both. The exercise prices are currently 5.73% and 5.22% below the current prices for GS Retail and GS Home Shopping. 








Spread - stock purchase
GS Retail
GS Home Shopping


Current price
₩36,200
₩146,500


Exercise price
₩34,125
₩138,855


Spread
-5.73%
-5.22%

Source: DART &amp; KRX




GS Retail Merger Swap Arb Yield Currently at 4.27%: Trade It Now Rather than Later

<p>GS Retail merger swap with GS Home Shopping is still in progress. It is a stock swap. The GS Home Shopping shareholders will get 4.22368 GS Retail shares for each GS Home Shopping share.</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="300">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Overview (₩B)"}'>Overview (₩B)</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Type"}'>Type</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Stock swap"}'>Stock swap</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Acquirer"}'>Acquirer</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"GS Retail Co Ltd"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>GS Retail Co Ltd (007070)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target company"}'>Target company</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"GS Home Shopping Inc."}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>GS Home Shopping Inc. (028150)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Offering price"}'><strong>Swap price for GS Retail</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":33800}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩33,800</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target price"}'><strong>Swap price for GS Home Shopping</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":142762}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩142,762</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio"}'><strong>Swap ratio</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4.2236834}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}'><strong>4.2236834</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><div>
<p>May 28 is the big day to ger shareholder approval for the merger. Stock repurchase right exercise will proceed on May 28 to June 17.</p>
<p>Of course, it is only for those who purchased the shares before November 11 last year. But stock swap arb trade? Everyone can do it any time from now until the trade suspension begins June 29.</p>
<table class="table table-striped">
<colgroup>
<col width="300">
<col width="300">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Timetable"}' data-sheets-note="Sang Hyun Park: We have to buy shares until BOD+1 to be eligible to receive stock purchase rights. We then have to notify our dissenting opinion until the end of dissenting opinion notice period.">Timetable</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Dissenting opinion notice begins"}'>Dissenting opinion notice</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44329}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>5. 13 ~ 27</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"EGM"}'><strong>EGM</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44344}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>5. 28</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stock purchase right exercise begins"}'><strong>Stock purchase right exercise</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44344}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>5. 28 ~ 6. 17</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Trade suspension begins - GS Home Shopping"}'>Trade suspension (GS Home Shopping)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44376}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>6. 29 ~ 7. 15</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Listing"}'><strong>Listing</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44393}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>7. 16</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>
</div>

GS Retail merger swap with GS Home Shopping is still in progress. It is a stock swap. The GS Home Shopping shareholders will get 4.22368 GS Retail shares for each GS Home Shopping share.





Overview (₩B)

Type
Stock swap


Acquirer
GS Retail Co Ltd (007070)


Target company
GS Home Shopping Inc. (028150)


Swap price for GS Retail
₩33,800


Swap price for GS Home Shopping
₩142,762


Swap ratio
4.2236834

Source: DART


May 28 is the big day to ger shareholder approval for the merger. Stock repurchase right exercise will proceed on May 28 to June 17.
Of course, it is only for those who purchased the shares before November 11 last year. But stock swap arb trade? Everyone can do it any time from now until the trade suspension begins June 29.






Timetable

Dissenting opinion notice
5. 13 ~ 27


EGM
5. 28


Stock purchase right exercise
5. 28 ~ 6. 17


Trade suspension (GS Home Shopping)
6. 29 ~ 7. 15


Listing
7. 16

Source: DART




GS Retail Merger Swap Arb Trade Begins This Monday

South Korea

GS Home Shopping Inc. operates a cable television shopping channel and an Internet-based shopping mall.  The Company also sells its merchandise through catalogs delivered via direct mail in Korea.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

GS Home Shopping (028150 KS)

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Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)