Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

In mid-November 2020, <a href="https://www.smartkarma.com/entities/mitsui-co-ltd" target="_blank" data-smartkarma-citation="entities:20799:1" rel="noopener">Mitsui &amp; Co Ltd (8031 JP)</a> and <a href="https://www.smartkarma.com/entities/mitsui-chemicals-inc" target="_blank" data-smartkarma-citation="entities:1703:1" rel="noopener">Mitsui Chemicals (4183 JP)</a> announced a transaction to take out minorities in jointly-held subsidiary <a href="https://www.smartkarma.com/entities/honshu-chemical-industry-co" target="_blank" data-smartkarma-citation="entities:9094:1" rel="noopener">Honshu Chemical Industry Co (4115 JP)</a>. The price was at a 43% premium to then-traded price and a 20-year high. It was also<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/205/873/original/Screenshot+2021-05-13+at+10.55.05+AM.png?1620874520" class="editor-image img-responsive" data-smartkarma-image-id="205873"></figure></section>At the time, in <a href="https://www.smartkarma.com/insights/honshu-chemical-4115-an-embarrassment-of-riches" target="_blank" data-smartkarma-citation="insights:45197" rel="noopener">Honshu Chemical (4115) - An Embarrassment of Riches</a> I said...<blockquote>The result is a governance embarrassment for the two major acquirers, and the target company itself. </blockquote>The two companies, which combined owned 54% of Honshu Chemical, had said <blockquote>the Target has a high potential for growth with its various high-technologies in domains of high-performance monomer[s] related to ICT, Mobility and Healthcare.</blockquote>Then they decided that the "fair" value of the company (the Tender Offer Price) was decided at a 1-year forward EV/EBITDA of 2.7x (where net receivables and inventory was another 1.5x EBITDA), and a 1-year ex-cash PER of 3.7x. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/205/993/original/trump+low+price.gif?1620903117" class="editor-image img-responsive" data-smartkarma-image-id="205993"></figure></section>Three months later the company revised up its forecasts for EBIT and Net Profit for the full year this year by 25% and 33% respectively in February. This company has minimal debt, huge net cash. If you were to pay out the net cash, this 'fuddy-duddy' cyclical trades at 7x earnings, less than book, with a 16% ROE, and near 50% EBITDAROE.And it "has a high potential for growth."The procedures were expected to be completed in May, and then the tender offer would start. The company reports tomorrow 14 May after the close. Since the announcement, the two parent companies' total share return has averaged +30%. Since the original announcement, Honshu Chemical earnings forecasts are up 33% a share. A basket of mostly Chinese peer pure plays has outperformed Shanghai Composite by 13% since the announcement. This was always bumpable. This remains highly bumpable. With apologies to some of my (non-fella) readers...<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/205/925/original/more+cowbell.gif?1620889670" class="editor-image img-responsive" data-smartkarma-image-id="205925"></figure></section>

In mid-November 2020, Mitsui &amp; Co Ltd (8031 JP) and Mitsui Chemicals (4183 JP) announced a transaction to take out minorities in jointly-held subsidiary Honshu Chemical Industry Co (4115 JP). The price was at a 43% premium to then-traded price and a 20-year high. It was alsoAt the time, in Honshu Chemical (4115) - An Embarrassment of Riches I said...The result is a governance embarrassment for the two major acquirers, and the target company itself. The two companies, which combined owned 54% of Honshu Chemical, had said the Target has a high potential for growth with its various high-technologies in domains of high-performance monomer[s] related to ICT, Mobility and Healthcare.Then they decided that the "fair" value of the company (the Tender Offer Price) was decided at a 1-year forward EV/EBITDA of 2.7x (where net receivables and inventory was another 1.5x EBITDA), and a 1-year ex-cash PER of 3.7x. Three months later the company revised up its forecasts for EBIT and Net Profit for the full year this year by 25% and 33% respectively in February. This company has minimal debt, huge net cash. If you were to pay out the net cash, this 'fuddy-duddy' cyclical trades at 7x earnings, less than book, with a 16% ROE, and near 50% EBITDAROE.And it "has a high potential for growth."The procedures were expected to be completed in May, and then the tender offer would start. The company reports tomorrow 14 May after the close. Since the announcement, the two parent companies' total share return has averaged +30%. Since the original announcement, Honshu Chemical earnings forecasts are up 33% a share. A basket of mostly Chinese peer pure plays has outperformed Shanghai Composite by 13% since the announcement. This was always bumpable. This remains highly bumpable. With apologies to some of my (non-fella) readers...

Honshu Chemical (4115) Shareholders Perhaps One Day From a Wrong Price Takeover

David Blennerhassett

Last Week in Event SPACE:  Swire, Hitachi Metal, Jardine, Softbank, Bingo, Japan Asia, Mainstream

Last November, after <a href="https://www.smartkarma.com/entities/japan-asia-group-ltd" target="_blank" data-smartkarma-citation="entities:12428:1" rel="noopener">Japan Asia (3751 JP)</a> had been trading in a ¥280-350/share range for many months, chairman Yamashita announced a convoluted bid to take the company private at ¥600/share. <a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a> addressed this deal in <a href="https://www.smartkarma.com/insights/japan-asia-3751-jp-management-buyout-should-there-be-a-bump" target="_blank" data-smartkarma-citation="insights:44928" rel="noopener">Japan Asia (3751 JP) Management Buyout: Should There Be a BUMP?</a> where the answer to the title question was YES. Noted Japanese activist Yoshiaki Murakami thought so too and one of his associated companies bought a large stake near the TOB price, then started buying more. And the stock quickly climbed 30% through terms. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/202/910/original/Screenshot+2021-04-27+at+12.17.18+PM.png?1619497251" class="editor-image img-responsive" data-smartkarma-image-id="202910"></figure></section>After accumulating 20% of the stock, they proposed a Tender Offer at 40% through terms at ¥840/share. There was a good reason for this. The original structure effectively allowed the chairman to put up a derisory sum buy the company with Carlyle's help, then sell some hard assets to Carlyle for well more than the entire market cap of the company, and that left him with the stub businesses, which lose money, and an enormous pile of cash PLUS a residual stake in the asset businesses just sold. It was entirely the wrong price. When Murakami-san brought this up, he was rebuffed. Management and Yamashita-san thought so little of his proposal at 40% through that they did not let him do due diligence, then before his bidding entity could obtain approvals, Yamashita-san and Carlyle DOUBLED their bid to ¥1200/share through a little jiggering of how much Yamashita-san put in, and how much of the Sale Assets (notably the PV farm assets) would be held by the stub/residual business. Murakami-san again asked for due diligence, didn't get it, so launched a Tender Offer at ¥1210/share. The Carlyle "MBO" ended up unsuccessful and to block the Murakami bid, on March 1st, the company decided to pay out a special dividend of ¥300/share AND to launch a poison pill rights issuance which would allow Murakami-san to be diluted. This would require a shareholder vote. The record date for both the dividend and the EGM was 18 March, which was just before the end of the Tender Offer on 22 March, which meant Murakami-san would be paying ¥300/share extra. So he withdrew the Tender Offer, then launched an injunction against the rights. He got the injunction, the company appealed, and won the conservation appeal, which was later dismissed. In the meantime, Murakami-san bought more shares on the dip and said that he would launch a new Tender Offer ¥300/share lower than the last one when the matter of the rights was settled.<h3>The NEW News</h3>Yesterday morning before the open, <a href="https://www.smartkarma.com/entities/japan-asia-group-ltd" target="_blank" data-smartkarma-citation="entities:12428:1" rel="noopener">Japan Asia (3751 JP)</a>  <a href="https://www.japanasiagroup.jp/wordpress/wp-content/uploads/2021-4-26.pdf" target="_blank" rel="noopener">announced</a> it was cancelling its planned rights issue.Yesterday during the day the stock rose to ¥946 which was ~4% through the bid Murakami-san had planned. Last night, City Index Eleventh <a href="https://www.businesswire.com/news/home/20210426005380/ja/" target="_blank" rel="noopener">announced</a> that it would launch its planned Tender Offer at ¥910/share (accompanying document link <a href="https://www.japanasiagroup.jp/wordpress/wp-content/uploads/2021-4-26_2.pdf" target="_blank" rel="noopener">here</a>).So here we are again. Japan Asia Group, for its part, announced it would "consider the Tender Offer and respond with its Opinion Statement in a timely manner."Here we go again.

Last November, after Japan Asia (3751 JP) had been trading in a ¥280-350/share range for many months, chairman Yamashita announced a convoluted bid to take the company private at ¥600/share. Janaghan Jeyakumar, CFA addressed this deal in Japan Asia (3751 JP) Management Buyout: Should There Be a BUMP? where the answer to the title question was YES. Noted Japanese activist Yoshiaki Murakami thought so too and one of his associated companies bought a large stake near the TOB price, then started buying more. And the stock quickly climbed 30% through terms. After accumulating 20% of the stock, they proposed a Tender Offer at 40% through terms at ¥840/share. There was a good reason for this. The original structure effectively allowed the chairman to put up a derisory sum buy the company with Carlyle's help, then sell some hard assets to Carlyle for well more than the entire market cap of the company, and that left him with the stub businesses, which lose money, and an enormous pile of cash PLUS a residual stake in the asset businesses just sold. It was entirely the wrong price. When Murakami-san brought this up, he was rebuffed. Management and Yamashita-san thought so little of his proposal at 40% through that they did not let him do due diligence, then before his bidding entity could obtain approvals, Yamashita-san and Carlyle DOUBLED their bid to ¥1200/share through a little jiggering of how much Yamashita-san put in, and how much of the Sale Assets (notably the PV farm assets) would be held by the stub/residual business. Murakami-san again asked for due diligence, didn't get it, so launched a Tender Offer at ¥1210/share. The Carlyle "MBO" ended up unsuccessful and to block the Murakami bid, on March 1st, the company decided to pay out a special dividend of ¥300/share AND to launch a poison pill rights issuance which would allow Murakami-san to be diluted. This would require a shareholder vote. The record date for both the dividend and the EGM was 18 March, which was just before the end of the Tender Offer on 22 March, which meant Murakami-san would be paying ¥300/share extra. So he withdrew the Tender Offer, then launched an injunction against the rights. He got the injunction, the company appealed, and won the conservation appeal, which was later dismissed. In the meantime, Murakami-san bought more shares on the dip and said that he would launch a new Tender Offer ¥300/share lower than the last one when the matter of the rights was settled.The NEW NewsYesterday morning before the open, Japan Asia (3751 JP)  announced it was cancelling its planned rights issue.Yesterday during the day the stock rose to ¥946 which was ~4% through the bid Murakami-san had planned. Last night, City Index Eleventh announced that it would launch its planned Tender Offer at ¥910/share (accompanying document link here).So here we are again. Japan Asia Group, for its part, announced it would "consider the Tender Offer and respond with its Opinion Statement in a timely manner."Here we go again. 

City Index Eleventh OFFICIALLY Launches Next Japan Asia Group (3751) Hostile Tender Offer

The now four-month long and more-than-sordid affair which is the Japan Asia Group MBO, <ul>
<li>
<a href="https://www.smartkarma.com/entities/japan-asia-group-ltd" target="_blank" data-smartkarma-citation="entities:12428:1" rel="noopener">Japan Asia (3751 JP)</a> chairman Yamashita in November announced an "MBO" at ¥600/share (against the ¥300+/share where it had been trading) for the hodgepodge of businesses which is Japan Asia Group, but did so with Carlyle stripping out the two high-dollar prized assets, executing some elaborate corporate restructuring, leaving the CEO - was contributing US$600,000 to the enterprise - owning some residual stakes in those assets, more than $100mm of cash, plus the residual businesses. </li>
<li>The board agreed that was reasonable and recommended the offer. </li>
<li>Activist Yoshiaki Murakami, operating through his unit City Index Eleventh Inc. decided it was not, bought 10% in quick order, then kept on buying and that lifted the price well through terms. He ended up with 20% and suggested instead to the Board he buy the company at ¥840/share. </li>
<li>To avoid that, the bidding party re-arranged their finances and came up with a new price of ¥1200/share. The Board agreed this too was reasonable and recommended the offer.</li>
<li>Murakami-san asked for due diligence so he could put forth a plan to be considered by the Board, and a chance to talk to the employees. JAG refused.</li>
<li>City Index Eleventh launched a Tender Offer at ¥1210. The JAG Board rejected it, saying City Index Eleventh was somehow disrespecting shareholders, and did not have a plan, accusing it of plans to strip out the assets that Yamashita-san was going to strip out, and accusing City Index Eleventh of not caring for employees. </li>
<li>JAG decided on a new business plan which involved stripping out the same two assets, paying a special dividend to shareholders of ¥300/share, and then pursuing restructuring. </li>
<li>Murakami-san dropped his Tender Offer to avoid paying ¥300/share more.</li>
</ul>That was two weeks ago. <h3>The NEW News</h3><ul>
<li>Japan Asia Group on 9 March <a href="https://www.japanasiagroup.jp/wordpress/wp-content/uploads/2021-3-9_2.pdf" target="_blank" rel="noopener">announced</a> it would propose a poison pill measure to the June AGM.</li>
<li>Unbeknownst to everyone at the time, CIE had been buying more - 2.29% from 4 March through 9 March. That was announced on the 12th and 15th.</li>
<li>Yesterday the stock went ex-dividend, awaiting an EGM for shareholders to approve. </li>
<li>On the 17th of March, City Index Eleventh <a href="https://www.japanasiagroup.jp/wordpress/wp-content/uploads/2021-3-18_2.pdf" target="_blank" rel="noopener">announced</a> they would re-launch another Tender Offer at ¥910/share this time - the old Tender Offer Price of ¥1,210 less the ¥300/share special dividend which just went ex-.</li>
<li>On the 18th, JAG announced CIE's plans, and got upset that CIE had not responded to the JAG "question" posed in the threat to introduce a poison pill. </li>
</ul>More below the fold.

The now four-month long and more-than-sordid affair which is the Japan Asia Group MBO, 

Japan Asia (3751 JP) chairman Yamashita in November announced an "MBO" at ¥600/share (against the ¥300+/share where it had been trading) for the hodgepodge of businesses which is Japan Asia Group, but did so with Carlyle stripping out the two high-dollar prized assets, executing some elaborate corporate restructuring, leaving the CEO - was contributing US$600,000 to the enterprise - owning some residual stakes in those assets, more than $100mm of cash, plus the residual businesses. 
The board agreed that was reasonable and recommended the offer. 
Activist Yoshiaki Murakami, operating through his unit City Index Eleventh Inc. decided it was not, bought 10% in quick order, then kept on buying and that lifted the price well through terms. He ended up with 20% and suggested instead to the Board he buy the company at ¥840/share. 
To avoid that, the bidding party re-arranged their finances and came up with a new price of ¥1200/share. The Board agreed this too was reasonable and recommended the offer.
Murakami-san asked for due diligence so he could put forth a plan to be considered by the Board, and a chance to talk to the employees. JAG refused.
City Index Eleventh launched a Tender Offer at ¥1210. The JAG Board rejected it, saying City Index Eleventh was somehow disrespecting shareholders, and did not have a plan, accusing it of plans to strip out the assets that Yamashita-san was going to strip out, and accusing City Index Eleventh of not caring for employees. 
JAG decided on a new business plan which involved stripping out the same two assets, paying a special dividend to shareholders of ¥300/share, and then pursuing restructuring. 
Murakami-san dropped his Tender Offer to avoid paying ¥300/share more.
That was two weeks ago. The NEW News
Japan Asia Group on 9 March announced it would propose a poison pill measure to the June AGM.
Unbeknownst to everyone at the time, CIE had been buying more - 2.29% from 4 March through 9 March. That was announced on the 12th and 15th.
Yesterday the stock went ex-dividend, awaiting an EGM for shareholders to approve. 
On the 17th of March, City Index Eleventh announced they would re-launch another Tender Offer at ¥910/share this time - the old Tender Offer Price of ¥1,210 less the ¥300/share special dividend which just went ex-.
On the 18th, JAG announced CIE's plans, and got upset that CIE had not responded to the JAG "question" posed in the threat to introduce a poison pill. 
More below the fold. 

Murakami-San Launches New JAG (3751) Tender Offer

Last Week in Event SPACE: China Youzan, Mcdonald's, Beijing Jingneng, Ricoh, Melco Resorts, LG Corp

Japan

Japan Asia Group Limited provides consulting services to both the private and public sectors relating to social infrastructure development. The Company also develops green communities as well as renewable energy plants. Japan Asia Group aditionally provides various financial services such as security brokerage.

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Japan Asia (3751 JP)

Honshu Chemical (4115) Shareholders Perhaps One Day From a Wrong Price Takeover

Smallcap monomer maker Honshu Chemical is a TOB target. The parents decided in November to take out minorities. At the WRONG price. Directors...

Travis Lundy

Last Week in Event SPACE: Swire, Hitachi Metal, Jardine, Softbank, Bingo, Japan Asia, Mainstream

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

David Blennerhassett

City Index Eleventh OFFICIALLY Launches Next Japan Asia Group (3751) Hostile Tender Offer

Murakami-san today launched his next Hostile Tender Offer against Japan Asia Group (3751) at ¥910/share. The shares haven't traded that low since...

Travis Lundy

Murakami-San Launches New JAG (3751) Tender Offer

JAG busts Murakami's deal, then decides to launch a poison pill. Murakami-san responds by announcing a new tender offer. It's fun, but there are...

Travis Lundy

Last Week in Event SPACE: China Youzan, Mcdonald's, Beijing Jingneng, Ricoh, Melco Resorts, LG Corp

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

David Blennerhassett

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