Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>There are currently 46  - mostly firm - transactions currently being discussed and analysed on Smartkarma. </li>
<li>Two new deals this week: the <a href="https://www.smartkarma.com/entities/total-access-communication" target="_blank" data-smartkarma-citation="entities:948:1" rel="noopener">Total Access Communication (DTAC TB)</a> / <a href="https://www.smartkarma.com/entities/true-corp-pcl" target="_blank" data-smartkarma-citation="entities:8:1" rel="noopener">True Corp Pcl (TRUE TB)</a> merger; and the pre-conditional Offer for <a href="https://www.smartkarma.com/entities/shanghai-jin-jiang-capital-company-limited" target="_blank" data-smartkarma-citation="entities:15781:1" rel="noopener">Shanghai Jin Jiang Capital Company (2006 HK)</a>.</li>
<li>Keys updates took place for: <a href="https://www.smartkarma.com/entities/shinsei-bank-ltd" target="_blank" data-smartkarma-citation="entities:16897:1" rel="noopener">Shinsei Bank (8303 JP)</a>, <a href="https://www.smartkarma.com/entities/chinese-estates-holdings-limited" target="_blank" data-smartkarma-citation="entities:20954:1" rel="noopener">Chinese Estates Holdings (127 HK)</a>, and <a href="https://www.smartkarma.com/entities/cp-pokphand-co-ltd" target="_blank" data-smartkarma-citation="entities:10135:1" rel="noopener">Cp Pokphand (43 HK)</a>.</li>
</ul>


There are currently 46  - mostly firm - transactions currently being discussed and analysed on Smartkarma. 
Two new deals this week: the Total Access Communication (DTAC TB) / True Corp Pcl (TRUE TB) merger; and the pre-conditional Offer for Shanghai Jin Jiang Capital Company (2006 HK).
Keys updates took place for: Shinsei Bank (8303 JP), Chinese Estates Holdings (127 HK), and Cp Pokphand (43 HK).


Asia-Pac Weekly Risk Arb Summary: Shanghai Jin Jiang, Shinsei Bank, Chinese Estates, CP Pokphand

<div>
Back on the 26 February this year, Huon <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02347852-3A562617?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> a loss of A$95.3mn for the 1H21, including a non-impairment charge of A$113.9mn. In a <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02336871-3A560489?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">market update</a> earlier that month, Huon said salmon prices had declined ~40% relative to the first six months of 2020. Concurrent with its 1H21 results, Huon said the board has initiated a strategic review to assess the potential for corporate-level transactions for the benefit of shareholders. In a follow-up announcement on the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02387935-3A569418?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">25 June</a>, Huon said that strategic review remained ongoing. 
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<div>
The most likely outcome of the review was a take-private transaction, however, an auction process dragged on, with a number of bidders pulling out on account of pricing. 
On the 6 August, Huon <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02404691-3A572314?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> a firm Offer, by way of a Scheme, with  Brazil's <a href="https://www.smartkarma.com/entities/jbs-sa" target="_blank" data-smartkarma-citation="entities:24455:1" rel="noopener">JBS SA (JBSS3 BZ)</a>. Huon shareholders would receive A$3.85/share in cash. A fully-franked dividend of $0.0125/share - if paid - will be netted.
The cash price was a 61% premium to the last close, before the strategic review was announced on the 26 February. The Bender family with 53% of shares out intend to vote all of their shares in support of the Scheme, in the absence of a superior offer. The Offer also required approval from FIRB.
Apart from FIRB signing off - no small ask given JBS had fallen foul of US regulators recently - this looked like a done deal, with possible completion in November. 
</div>
<div>
But Andrew Forrest's family fund Tattarang had other plans and promptly upped its stake to <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02405676-3A572494?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">18.51%</a> on the 10 August from 7.33% at the time of the SID announcement. That current stake all but blocks a Scheme. 
Not to be outdone,  JBS announced a parallel takeover bid on the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02406953-3A572757?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">13 August</a>. This second Offer is conditional on 50.1% acceptances from shareholders.  With the Bender's stake, that Offer is effectively done - barring FIRB rejection. The Bender family also entered in a pre-bid acceptance agreement for 19.9% of shares out. 
It was unclear at the time whether Forrest was trying to block JBS in Huon or just looking for a better price.
In various media advertisements last Friday, Forrest <a href="https://www.harvestroad.com/its-time-to-commit-a-public-challenge-to-jbs-from-dr-andrew-forrest-ao/" target="_blank" rel="noopener">called on</a> JBS to commit to the same principles as Tattarang’s agri-food business, Harvest Road, and its beef processing company, Harvey Beef.
<div>
<blockquote>
For a small expense and through good management at Harvey Beef, we have established a clear No Pain No Fear framework in the critical stages of cattle processing as part of our ambition to exceed animal welfare standards and create a path for others to follow.
This means our customers don’t have to compromise their values when they choose to buy our products.
Animals provide humans with a valuable source of protein, the least we can do is respect this by ensuring they are treated with the utmost care.
As the world’s biggest protein producer, JBS can rise to this same standard.
</blockquote>
Not altogether surprisingly, JBS took umbrage with this challenge, saying it already adheres to high standards in its animal handling. As did Huon. 
Huon <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02409974-3A573426?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">said</a> this morning...   that it has been...
<blockquote>
uncompromising in its commitment to the highest standards of animal husbandry, biosecurity, environmental management, and sustainable farming practices. Huon remains the only seafood producer in Australia to achieve RSPCA Approved Farming certification and firmly believes its sustainable salmon farming practices can be benchmarked against the best standards in the world.
</blockquote>
</div>
Huon also added Tattarang had earlier expressed interest in Huon and submitted a non-binding and conditional indicative offer. Tattarang was invited to participate further in the strategic review process but declined to do so. Tattarang’s non-binding and conditional indicative offer was at a material discount to JBS’s $3.85 offer.
Oddly, Huon is trading almost at terms. Given the non-negligible risk FIRB blocks the deal, I would avoid shares here.
More below the fold. 

</div>


Back on the 26 February this year, Huon announced a loss of A$95.3mn for the 1H21, including a non-impairment charge of A$113.9mn. In a market update earlier that month, Huon said salmon prices had declined ~40% relative to the first six months of 2020. Concurrent with its 1H21 results, Huon said the board has initiated a strategic review to assess the potential for corporate-level transactions for the benefit of shareholders. In a follow-up announcement on the 25 June, Huon said that strategic review remained ongoing. 


The most likely outcome of the review was a take-private transaction, however, an auction process dragged on, with a number of bidders pulling out on account of pricing. 
On the 6 August, Huon announced a firm Offer, by way of a Scheme, with  Brazil's JBS SA (JBSS3 BZ). Huon shareholders would receive A$3.85/share in cash. A fully-franked dividend of $0.0125/share - if paid - will be netted.
The cash price was a 61% premium to the last close, before the strategic review was announced on the 26 February. The Bender family with 53% of shares out intend to vote all of their shares in support of the Scheme, in the absence of a superior offer. The Offer also required approval from FIRB.
Apart from FIRB signing off - no small ask given JBS had fallen foul of US regulators recently - this looked like a done deal, with possible completion in November. 


But Andrew Forrest's family fund Tattarang had other plans and promptly upped its stake to 18.51% on the 10 August from 7.33% at the time of the SID announcement. That current stake all but blocks a Scheme. 
Not to be outdone,  JBS announced a parallel takeover bid on the 13 August. This second Offer is conditional on 50.1% acceptances from shareholders.  With the Bender's stake, that Offer is effectively done - barring FIRB rejection. The Bender family also entered in a pre-bid acceptance agreement for 19.9% of shares out. 
It was unclear at the time whether Forrest was trying to block JBS in Huon or just looking for a better price.
In various media advertisements last Friday, Forrest called on JBS to commit to the same principles as Tattarang’s agri-food business, Harvest Road, and its beef processing company, Harvey Beef.


For a small expense and through good management at Harvey Beef, we have established a clear No Pain No Fear framework in the critical stages of cattle processing as part of our ambition to exceed animal welfare standards and create a path for others to follow.
This means our customers don’t have to compromise their values when they choose to buy our products.
Animals provide humans with a valuable source of protein, the least we can do is respect this by ensuring they are treated with the utmost care.
As the world’s biggest protein producer, JBS can rise to this same standard.

Not altogether surprisingly, JBS took umbrage with this challenge, saying it already adheres to high standards in its animal handling. As did Huon. 
Huon said this morning...   that it has been...

uncompromising in its commitment to the highest standards of animal husbandry, biosecurity, environmental management, and sustainable farming practices. Huon remains the only seafood producer in Australia to achieve RSPCA Approved Farming certification and firmly believes its sustainable salmon farming practices can be benchmarked against the best standards in the world.


Huon also added Tattarang had earlier expressed interest in Huon and submitted a non-binding and conditional indicative offer. Tattarang was invited to participate further in the strategic review process but declined to do so. Tattarang’s non-binding and conditional indicative offer was at a material discount to JBS’s $3.85 offer.
Oddly, Huon is trading almost at terms. Given the non-negligible risk FIRB blocks the deal, I would avoid shares here.
More below the fold. 



A drop in global demand resulted in international salmon prices declining 28% in the first six months of 2020. 
In June of last year, China experienced a second Covid outbreak in Beijing that Chines authorities attributed to chopping boards used to handle imported salmon at the Xinfadi meat wholesale market. 
Tasmania's <a href="https://www.smartkarma.com/entities/huon-aquaculture-group-ltd" target="_blank" data-smartkarma-citation="entities:12348:1" rel="noopener">Huon Aquaculture (HUO AU)</a> and <a href="https://www.smartkarma.com/entities/tassal-group-ltd" target="_blank" data-smartkarma-citation="entities:16234:1" rel="noopener">Tassal (TGR AU)</a> both sell salmon to China, although China's imports are primarily sourced from Chile, Denmark, and Norway.  
On the 26 February this year, Huon <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02347852-3A562617?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> a loss of A$95.3mn for the 1H21, including a non-impairment charge of A$113.9mn. In a <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02336871-3A560489?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">market update</a> earlier that month, Huon said salmon prices had declined ~40% relative to the first six months of 2020.
Concurrent with its 1H21 results, Huon said...
<blockquote>
In light of recent unsolicited approaches, the board has initiated a strategic review to assess the potential for corporate-level transactions for the benefit of shareholders.
</blockquote>
In a follow-up announcement on the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02387935-3A569418?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">25 June</a>, Huon said that strategic review remains ongoing. 
Huon is in need of cash in the face of burgeoning debt amid falling salmon prices and rising freight expenses. A possible placement has been floated, although it would need to be substantial, which would reduce the Bender family's major shareholding. 
A more likely outcome was a take-private transaction, yet an ongoing auction process, one that was (allegedly) repeatedly extended, appeared to be losing traction. As of about a week ago, reportedly only Brazil's <a href="https://www.smartkarma.com/entities/jbs-sa" target="_blank" data-smartkarma-citation="entities:24455:1" rel="noopener">JBS SA (JBSS3 BZ)</a> was still in the running.
<div>
<h3>The New News</h3>
Huon has now <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02404691-3A572314?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> a firm Offer with JBS.
</div>
<div>
Under the terms of the Offer, by way of Scheme, Huon shareholders will receive A$3.85/share in cash. A fully-franked dividend of $0.0125/share  - if paid - will be netted. The cash price is a 61% premium to the last close, before the strategic review was announced on the 26 February. 
The founding family (the Benders) with 53% intend to vote all of their shares in support of the Scheme, in the absence of a superior offer.
In addition to a shareholder vote, this Offer requires approval from FIRB.
A Scheme meeting is expected to take place late October with possible competition in November. 
</div>
<div>
More below the fold.
</div>
<div>

</div>

A drop in global demand resulted in international salmon prices declining 28% in the first six months of 2020. 
In June of last year, China experienced a second Covid outbreak in Beijing that Chines authorities attributed to chopping boards used to handle imported salmon at the Xinfadi meat wholesale market. 
Tasmania's Huon Aquaculture (HUO AU) and Tassal (TGR AU) both sell salmon to China, although China's imports are primarily sourced from Chile, Denmark, and Norway.  
On the 26 February this year, Huon announced a loss of A$95.3mn for the 1H21, including a non-impairment charge of A$113.9mn. In a market update earlier that month, Huon said salmon prices had declined ~40% relative to the first six months of 2020.
Concurrent with its 1H21 results, Huon said...

In light of recent unsolicited approaches, the board has initiated a strategic review to assess the potential for corporate-level transactions for the benefit of shareholders.

In a follow-up announcement on the 25 June, Huon said that strategic review remains ongoing. 
Huon is in need of cash in the face of burgeoning debt amid falling salmon prices and rising freight expenses. A possible placement has been floated, although it would need to be substantial, which would reduce the Bender family's major shareholding. 
A more likely outcome was a take-private transaction, yet an ongoing auction process, one that was (allegedly) repeatedly extended, appeared to be losing traction. As of about a week ago, reportedly only Brazil's JBS SA (JBSS3 BZ) was still in the running.

The New News
Huon has now announced a firm Offer with JBS.


Under the terms of the Offer, by way of Scheme, Huon shareholders will receive A$3.85/share in cash. A fully-franked dividend of $0.0125/share  - if paid - will be netted. The cash price is a 61% premium to the last close, before the strategic review was announced on the 26 February. 
The founding family (the Benders) with 53% intend to vote all of their shares in support of the Scheme, in the absence of a superior offer.
In addition to a shareholder vote, this Offer requires approval from FIRB.
A Scheme meeting is expected to take place late October with possible competition in November. 


More below the fold.





Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Thematic (Sector/Industry)

The Australian grocery industry continues to evolve and everyday dry groceries are likely to become even more commoditised. Aldi re-established the discount channel in Australia and is forecast to ultimately capture close to 10% market share. On this premise, we have re-examined our assumptions on market share and profitability for the Australian supermarket sector and conclude EBIT margins are expected to tighten further. Price competition has heated up as the two dominating players, <a href="https://www.smartkarma.com/entities/500" target="_blank" data-smartkarma-citation="entities:500:1">Woolworths Ltd (WOW AU)</a> and Coles, expand their everyday low price lines to preserve market share. The price cutting has resulted in food price deflation and tightening of operating margins, especially at Woolworths. Coles plans to pass on efficiency gains to consumers by ongoing price cutting, and we expect Woolworths to follow suit, effectively capping operating margins of their supermarket businesses at sustainable levels of 4%. <a href="https://www.smartkarma.com/entities/14632" target="_blank" data-smartkarma-citation="entities:14632:1">Metcash Ltd (MTS AU)</a> network of independent retailers is exposed to the same dynamics, and is continuing with its Price Match programme. However, IGA stores are less able to compete on price than their integrated competition and we expect the network to continue losing a disproportionately high amount of share. On top of the near-term challenges, we identify two conceivable longer-term threats. The potential entry of discounter Lidl or online grocer AmazonFresh, or both, would introduce further pricing tension and increase pressure on margins even more.These key changes lowered <a href="https://www.smartkarma.com/entities/500" target="_blank" data-smartkarma-citation="entities:500:1">Woolworths Ltd (WOW AU)</a>' fair value estimate to AUD 22 from AUD 28. We reduced <a href="https://www.smartkarma.com/entities/1104" target="_blank" data-smartkarma-citation="entities:1104:1">Wesfarmers Ltd (WES AU)</a> fair value estimate to AUD 39.00 per share from AUD 42.00, predominantly due to lower margin estimates. For <a href="https://www.smartkarma.com/entities/14632" target="_blank" data-smartkarma-citation="entities:14632:1">Metcash Ltd (MTS AU)</a>, we have materially increased our fair value estimate to AUD 1.80 from AUD 1.10 due to a much-improved outlook on IGA's market shareAnalyst: Johannes Faul, CFA

The Australian grocery industry continues to evolve and everyday dry groceries are likely to become even more commoditised. Aldi re-established the discount channel in Australia and is forecast to ultimately capture close to 10% market share. On this premise, we have re-examined our assumptions on market share and profitability for the Australian supermarket sector and conclude EBIT margins are expected to tighten further. Price competition has heated up as the two dominating players, Woolworths Ltd (WOW AU) and Coles, expand their everyday low price lines to preserve market share. The price cutting has resulted in food price deflation and tightening of operating margins, especially at Woolworths. Coles plans to pass on efficiency gains to consumers by ongoing price cutting, and we expect Woolworths to follow suit, effectively capping operating margins of their supermarket businesses at sustainable levels of 4%. Metcash Ltd (MTS AU) network of independent retailers is exposed to the same dynamics, and is continuing with its Price Match programme. However, IGA stores are less able to compete on price than their integrated competition and we expect the network to continue losing a disproportionately high amount of share. On top of the near-term challenges, we identify two conceivable longer-term threats. The potential entry of discounter Lidl or online grocer AmazonFresh, or both, would introduce further pricing tension and increase pressure on margins even more.These key changes lowered Woolworths Ltd (WOW AU)' fair value estimate to AUD 22 from AUD 28. We reduced Wesfarmers Ltd (WES AU) fair value estimate to AUD 39.00 per share from AUD 42.00, predominantly due to lower margin estimates. For Metcash Ltd (MTS AU), we have materially increased our fair value estimate to AUD 1.80 from AUD 1.10 due to a much-improved outlook on IGA's market shareAnalyst: Johannes Faul, CFA 

Aldi's Presence Makes a Return to Duopoly-Like Margins Unlikely

Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

<ul><li>In the past week, two bottom up developments have dominated the financial market news flow in Australia: the belated announcement of CEO succession at Woolworths and renewed concerns that Australian banks represent a 'big short' thanks to rumours of the imminent collapse of residential house prices. </li><li>The losses announced by Woolworths in its home improvement division this week and decision to exit the business altogether serves as a timely and powerful signal to other companies about the dangers associated with investing for growth in the current environment of deficient demand.  Corporate Australia has already taken heed, with the economy on the precipice of a capex cliff.  The recently released ABS survey of capex intentions points to a 20% slide in business investment in the current financial year, which would represent the largest annual decline in over 25 years.</li><li>Any bubble talk around housing discounts the important role that dwelling investment and household consumption still has to play to support the outlook while the economy is on the precipice of a capex cliff.  Against the backdrop that interest rates will remain low for an extended period (and likely move lower from here), if there is a bubble in Australian housing it might well persist.  To take a cue from John Maynard Keynes, hedge funds seeking to capitalise on Australia's 'big short' will probably need an abundance of patience (and capital).</li></ul>

In the past week, two bottom up developments have dominated the financial market news flow in Australia: the belated announcement of CEO succession at Woolworths and renewed concerns that Australian banks represent a 'big short' thanks to rumours of the imminent collapse of residential house prices. The losses announced by Woolworths in its home improvement division this week and decision to exit the business altogether serves as a timely and powerful signal to other companies about the dangers associated with investing for growth in the current environment of deficient demand.  Corporate Australia has already taken heed, with the economy on the precipice of a capex cliff.  The recently released ABS survey of capex intentions points to a 20% slide in business investment in the current financial year, which would represent the largest annual decline in over 25 years.Any bubble talk around housing discounts the important role that dwelling investment and household consumption still has to play to support the outlook while the economy is on the precipice of a capex cliff.  Against the backdrop that interest rates will remain low for an extended period (and likely move lower from here), if there is a bubble in Australian housing it might well persist.  To take a cue from John Maynard Keynes, hedge funds seeking to capitalise on Australia's 'big short' will probably need an abundance of patience (and capital).

What the Capex Cliff Means for Australia's 'Big Short'

Australia

Huon Aquaculture Group Ltd supplies fish products. The Company offers cutlets, portions, sashimi and sushi, whole salmon, smoked salmon, gravadlax, aswell as provides health and cooking programs.

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Huon Aquaculture (HUO AU)

Asia-Pac Weekly Risk Arb Summary: Shanghai Jin Jiang, Shinsei Bank, Chinese Estates, CP Pokphand

This insight provides a summary of gross/annualised spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and...

David Blennerhassett

Huon Ag (Huo AU): Twiggy Went To Market

Trading at a gross/annualised return of 0.2%/1.2%. I doubt there is a bump here. I'd be inclined to avoid this transaction. I think FIRB approval...

David Blennerhassett

JBS Nets Huon Agriculture (ASX: HUO)

The company is on the back foot in the face of increasing debt amid falling salmon prices and skyrocketing freight prices. JBS appears the only...

David Blennerhassett

Aldi's Presence Makes a Return to Duopoly-Like Margins Unlikely

The Australian grocery industry continues to evolve and everyday dry groceries are likely to become even more commoditised. Aldi re-established the...

Morningstar, Inc.

What the Capex Cliff Means for Australia's 'Big Short'

In the past week, two bottom up developments have dominated the financial market news flow in Australia: the belated announcement of CEO...

Sam Ferraro

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