Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

At the end of January 2021 when <a href="https://www.smartkarma.com/entities/toa-oil-co-ltd" target="_blank" data-smartkarma-citation="entities:11021:1" rel="noopener">Toa Oil Co Ltd (5008 JP)</a> announced its Q3 results and very big full-year forecast revision (discussed in <a href="https://www.smartkarma.com/insights/toa-oil-5008-tender-offer-updated-update-still-looks-bumpity" target="_blank" data-smartkarma-citation="insights:47625" rel="noopener">Toa Oil (5008) Tender Offer Updated Update - STILL Looks Bumpity</a>), the share price of Toa Oil was trading at ¥2800 which was just off a two-plus year high, and lead shareholder Cornwall Capital had reported upping their stake to 22.98% the day before. The change in annual forecast required a change in the Opinion Statement of the Target Company and that required a change in the Tender Offer Registration statement by Idemitsu, which required them to extend the Tender Offer Closing Date by 8 days to 15 February. In my last piece, I mooted the possibility that Idemitsu could announce a change in price at the time of its earnings on 9 February. It did not. I also put forth the problem of The Dog Catching The Car. If the dog chases the car, it's all fun. If the car stops and the driver gets out, the dog has to figure out what to do.Thinking Dogs can read on.

At the end of January 2021 when Toa Oil Co Ltd (5008 JP) announced its Q3 results and very big full-year forecast revision (discussed in Toa Oil (5008) Tender Offer Updated Update - STILL Looks Bumpity), the share price of Toa Oil was trading at ¥2800 which was just off a two-plus year high, and lead shareholder Cornwall Capital had reported upping their stake to 22.98% the day before. The change in annual forecast required a change in the Opinion Statement of the Target Company and that required a change in the Tender Offer Registration statement by Idemitsu, which required them to extend the Tender Offer Closing Date by 8 days to 15 February. In my last piece, I mooted the possibility that Idemitsu could announce a change in price at the time of its earnings on 9 February. It did not. I also put forth the problem of The Dog Catching The Car. If the dog chases the car, it's all fun. If the car stops and the driver gets out, the dog has to figure out what to do.Thinking Dogs can read on.

Toa Oil (5008) Tender - Has the Dog Caught the Car?

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On the 26th of January 2021, after two+ months of trading through the original, entirely inadequate, ¥600/share terms, and two weeks after it became clear that renowned Japanese activist Yoshiaki Murakami might launch a counter Tender Offer at ¥840/share, the original bidder consortium re-arranged their finances to come in and bid double - ¥1,200/share.
<a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a> originally wrote about this deal on 5 November asking <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 obvious answer was yes because a) it was too cheap, and b) the substantial debt meant that buying it one turn of EBITDA higher meant a 40% bump in share price, and c) it wasn't going to be that easy to get to the minimum because the acquirers did not have that many friendly shareholders on the register).
I followed up with <a href="https://www.smartkarma.com/insights/murakami-fund-s-tender-for-jag-3751-may-be-rangebound-near-term" target="_blank" data-smartkarma-citation="insights:47158" rel="noopener">Murakami Fund's Tender for JAG (3751):  May Be Rangebound Near-Term</a> which did NOT expect the overbid soon (because Murakami-san's tender offer still needed regulatory approval) and <a href="https://www.smartkarma.com/insights/japan-asia-group-3751-murakami-wins-the-mother-of-all-bumps-100" target="_blank" data-smartkarma-citation="insights:47437" rel="noopener">Japan Asia Group (3751): Murakami Wins the Mother Of All Bumps +100%</a> when the bidders overbid themselves. 
I called the overbid "patently offensive" - not because the bid itself was offensively priced but because the independent directors were willing to support the first one. I believed that Murakami-san, by shedding light on the money being left on the table, had effectively "shamed" chairman Yamashita-san into paying somewhere near the right price. I concluded this was probably a knock-out bid, but that if a bidder was willing to change his bid from ¥600 to ¥1,200/share, he'd probably be willing to pay more, and I'd be willing to buy tight to terms.
Quasi-miraculously, on the 28th of January when the shares traded freely again, they traded below terms for about an hour. And then went higher. 
<section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/186/775/original/Screenshot+2021-02-04+at+8.49.28+PM.png?1612442985" class="editor-image img-responsive" data-smartkarma-image-id="186775"></figure></section></section>
<h3>The NEW News</h3>
Today we have new news (<a href="https://www.japanasiagroup.jp/wordpress/wp-content/uploads/2021-2-4.pdf" target="_blank" rel="noopener">announcement</a> (Japanese-only) that the Murakami-affiliated bidder City Index Eleventh has launched an overbid at ¥1,210/share. 
The explanation is an eye-opener, and the strategy is very well done.
More below the fold.

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On the 26th of January 2021, after two+ months of trading through the original, entirely inadequate, ¥600/share terms, and two weeks after it became clear that renowned Japanese activist Yoshiaki Murakami might launch a counter Tender Offer at ¥840/share, the original bidder consortium re-arranged their finances to come in and bid double - ¥1,200/share.
Janaghan Jeyakumar, CFA originally wrote about this deal on 5 November asking Japan Asia (3751 JP) Management Buyout: Should There Be a BUMP? (where the obvious answer was yes because a) it was too cheap, and b) the substantial debt meant that buying it one turn of EBITDA higher meant a 40% bump in share price, and c) it wasn't going to be that easy to get to the minimum because the acquirers did not have that many friendly shareholders on the register).
I followed up with Murakami Fund's Tender for JAG (3751):  May Be Rangebound Near-Term which did NOT expect the overbid soon (because Murakami-san's tender offer still needed regulatory approval) and Japan Asia Group (3751): Murakami Wins the Mother Of All Bumps +100% when the bidders overbid themselves. 
I called the overbid "patently offensive" - not because the bid itself was offensively priced but because the independent directors were willing to support the first one. I believed that Murakami-san, by shedding light on the money being left on the table, had effectively "shamed" chairman Yamashita-san into paying somewhere near the right price. I concluded this was probably a knock-out bid, but that if a bidder was willing to change his bid from ¥600 to ¥1,200/share, he'd probably be willing to pay more, and I'd be willing to buy tight to terms.
Quasi-miraculously, on the 28th of January when the shares traded freely again, they traded below terms for about an hour. And then went higher. 

The NEW News
Today we have new news (announcement (Japanese-only) that the Murakami-affiliated bidder City Index Eleventh has launched an overbid at ¥1,210/share. 
The explanation is an eye-opener, and the strategy is very well done.
More below the fold.



Overbid: JAG Special Committee Plays Stupid so Murakami Plays Hardball

Two days ago, real estate firm <a href="https://www.smartkarma.com/entities/hoosiers-holdings" target="_blank" data-smartkarma-citation="entities:9163:1" rel="noopener">Hoosiers Holdings (3284 JP)</a> announced an increase in their <a href="https://pdf.irpocket.com/C3284/HTFv/flrZ/POPX.pdf" target="_blank" rel="noopener">forecast</a> for OP, and net income in the year to 31 March 2021. Revenue was expected unchanged from the previous forecast at ¥80bn, OP is up 20% to ¥4.2bn, and net income is forecast to be ¥2.4bn, up one-third. They also increased a forecast dividend increase. lifting the H2 dividend from ¥7/share to ¥11/share. The stock opened up 6% the next day, but fell during the day and then fell some more today so the stock is only 1.5% higher than that news.Today after the close, the company released a revised Shareholder Returns Policy (<a href="https://pdf.irpocket.com/C3284/HTFv/lQzd/kIav.pdf" target="_blank" rel="noopener">Japanese</a>), which lifts the payout ratio to 40%, or more, and the Distribution of Equity rate to 4%, or more, per year. There is a longer <a href="https://pdf.irpocket.com/C3284/HTFv/lQzd/Llxd.pdf" target="_blank" rel="noopener">presentation</a> explaining the policy, including a large buyback. The company also <a href="https://pdf.irpocket.com/C3284/HTFv/lQzd/o1s4.pdf" target="_blank" rel="noopener">finalised</a> plans to get out of the biomass renewable energy operations.The company also released a big picture <a href="https://pdf.irpocket.com/C3284/HTFv/lQzd/CCy7.pdf" target="_blank" rel="noopener">summary</a> of its next Mid Term Management Plan which goes from April 1 to March 2026, including plans to lift revenues about 15% but to improve profitability by 150-200%, depending on the measure.<div class="content-highlight">
The company also <a href="https://pdf.irpocket.com/C3284/HTFv/lQzd/niZK.pdf" target="_blank" rel="noopener">announced</a> a plan to conduct a buyback of 21,637,500 of its own shares (37.6% of shares out) in a tender offer at ¥684/share, with the intention to cancel ~95% of the shares it buys back. 
This is big news.
</div>Not coincidentally, this is quite similar to the size of the position held by entities controlled by activist Yoshiaki Murakami, which was 21,570,200 shares as of most recently according to the announcement. Nota Bene: for most investors, you won't want to consider this a partial put option. There's a reason for that.More below.

Two days ago, real estate firm Hoosiers Holdings (3284 JP) announced an increase in their forecast for OP, and net income in the year to 31 March 2021. Revenue was expected unchanged from the previous forecast at ¥80bn, OP is up 20% to ¥4.2bn, and net income is forecast to be ¥2.4bn, up one-third. They also increased a forecast dividend increase. lifting the H2 dividend from ¥7/share to ¥11/share. The stock opened up 6% the next day, but fell during the day and then fell some more today so the stock is only 1.5% higher than that news.Today after the close, the company released a revised Shareholder Returns Policy (Japanese), which lifts the payout ratio to 40%, or more, and the Distribution of Equity rate to 4%, or more, per year. There is a longer presentation explaining the policy, including a large buyback. The company also finalised plans to get out of the biomass renewable energy operations.The company also released a big picture summary of its next Mid Term Management Plan which goes from April 1 to March 2026, including plans to lift revenues about 15% but to improve profitability by 150-200%, depending on the measure.
The company also announced a plan to conduct a buyback of 21,637,500 of its own shares (37.6% of shares out) in a tender offer at ¥684/share, with the intention to cancel ~95% of the shares it buys back. 
This is big news.
Not coincidentally, this is quite similar to the size of the position held by entities controlled by activist Yoshiaki Murakami, which was 21,570,200 shares as of most recently according to the announcement. Nota Bene: for most investors, you won't want to consider this a partial put option. There's a reason for that.More below.

Hoosiers (3284) Tender Offer Buyback To Buy Out Activist Murakami

Kudos to <a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a> who wrote about this deal on 5 November asking the question <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 obvious answer was yes because a) it was too cheap, and b) the substantial debt meant that buying it one turn of EBITDA higher meant a 40% bump in share price, and c) it wasn't going to be that easy to get to the minimum because the acquirers did not have that many friendly shareholders on the register. 
Renowned Japanese activist Yoshiaki Murakami agreed with the idea it was cheap, bought 5%, then bought more, and earlier this month had accumulated more than 20%. He met with them, and finally decided to launch his own tender offer at +40% after the chairman refused to raise the price and Carlyle could not provide a "rational solution" (the letter by Murakami is definitely worth reading). Today, we have new news. The bid by the Chairman and Carlyle is now doubled, from ¥600/share to ¥1,200/share. 
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There are, to be sure, a few small tweaks to the deal behind the scenes, and more money is good for shareholders, but all the tweaks involve moving around assets between the parties who buy the company from shareholders and only does it AFTER the deal is done. It does not involve anything but the agreement of who gets what after the deal is done.
This is literally just one party being shamed into not getting a free $150mm+ at the expense of the shareholders. 
But the chairman - supported by the directors and independent directors - decided that it was OK for the shareholders to be given ¥600/share in the first place instead of ¥1,200/share. Then they supported the deal when questioned, and when someone prominent had built up a 20% stake making their life difficult, they couldn't be bothered to come to the table in any real manner. 
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When a Private Equity Fund and a Chairman decide to buy a company from its shareholders, independent directors need to get better advice. They need to listen to shareholders or people who speak to or for shareholders. Theoretically, that's their job but in Japan they seem particularly bad at doing so. But the shareholders are the ones who make a deal successful or not.
It should also be a wake-up call for Real Investors.
If you make noise on a deal, rather than accept it "because there is nothing I can do is there" then you encourage others to do so too. As I argued in <a href="https://www.smartkarma.com/insights/japan-needs-more-cowbell" target="_blank" data-smartkarma-citation="insights:41191" rel="noopener">Japan Needs More Cowbell</a> and in an FT Alphaville <a href="https://www.ft.com/content/dd680521-a9cc-4b1c-922d-4787d2a314f6" target="_blank" rel="noopener">Opinion</a> a year ago, Japan's investors need to take their opinions and needs to the wider market. If you own it and you 
Murakami-san is getting a 75% return on his 3-month investment in <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> because of his efforts, and his diligence in pointing out the deficiencies of the bid. He bought 20% of the company and he had at it.
That's good for Murakami-san. And it could be good for the market. But investors have to make use of this. Active shareholders should be active, not passive. 
More below the fold.

Kudos to Janaghan Jeyakumar, CFA who wrote about this deal on 5 November asking the question Japan Asia (3751 JP) Management Buyout: Should There Be a BUMP? where the obvious answer was yes because a) it was too cheap, and b) the substantial debt meant that buying it one turn of EBITDA higher meant a 40% bump in share price, and c) it wasn't going to be that easy to get to the minimum because the acquirers did not have that many friendly shareholders on the register. 
Renowned Japanese activist Yoshiaki Murakami agreed with the idea it was cheap, bought 5%, then bought more, and earlier this month had accumulated more than 20%. He met with them, and finally decided to launch his own tender offer at +40% after the chairman refused to raise the price and Carlyle could not provide a "rational solution" (the letter by Murakami is definitely worth reading).  Today, we have new news. The bid by the Chairman and Carlyle is now doubled, from ¥600/share to ¥1,200/share. 



There are, to be sure, a few small tweaks to the deal behind the scenes, and more money is good for shareholders, but all the tweaks involve moving around assets between the parties who buy the company from shareholders and only does it AFTER the deal is done. It does not involve anything but the agreement of who gets what after the deal is done.
This is literally just one party being shamed into not getting a free $150mm+ at the expense of the shareholders. 
But the chairman - supported by the directors and independent directors - decided that it was OK for the shareholders to be given ¥600/share in the first place instead of ¥1,200/share. Then they supported the deal when questioned, and when someone prominent had built up a 20% stake making their life difficult, they couldn't be bothered to come to the table in any real manner. 




When a Private Equity Fund and a Chairman decide to buy a company from its shareholders, independent directors need to get better advice. They need to listen to shareholders or people who speak to or for shareholders. Theoretically, that's their job but in Japan they seem particularly bad at doing so. But the shareholders are the ones who make a deal successful or not.
It should also be a wake-up call for Real Investors.
If you make noise on a deal, rather than accept it "because there is nothing I can do is there" then you encourage others to do so too. As I argued in Japan Needs More Cowbell and in an FT Alphaville Opinion a year ago, Japan's investors need to take their opinions and needs to the wider market. If you own it and you 
Murakami-san is getting a 75% return on his 3-month investment in Japan Asia (3751 JP) because of his efforts, and his diligence in pointing out the deficiencies of the bid. He bought 20% of the company and he had at it.
That's good for Murakami-san. And it could be good for the market. But investors have to make use of this. Active shareholders should be active, not passive. 
More below the fold. 

Japan Asia Group (3751): Murakami Wins the Mother Of All Bumps +100%

Just over two months ago, <a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a> wrote on the MBO of <a href="https://www.smartkarma.com/entities/japan-asia-group-ltd" target="_blank" data-smartkarma-citation="entities:12428:1" rel="noopener">Japan Asia Group (3751 JP)</a> launched at JPY 600/share, asking the question <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> 
The leading question had an obvious answer. Yes. 
Renowned Japan activist Yoshiaki Murakami and the various entities from which he and his crew deploy capital thought the price too low, as soon became obvious. 
Last week, after accumulating near 20%, they announced their intention to conduct a competing Tender Offer at a 40% premium to Carlyle's, which was extended. 
There are still a few hurdles, but the price of the shares has long eclipsed the Carlyle bid. Now shares are trading above the indicative JPY 840/share bid. 
There are interesting things afoot here.

Just over two months ago, Janaghan Jeyakumar, CFA wrote on the MBO of Japan Asia Group (3751 JP) launched at JPY 600/share, asking the question Japan Asia (3751 JP) Management Buyout: Should There Be a BUMP? 
The leading question had an obvious answer. Yes. 
Renowned Japan activist Yoshiaki Murakami and the various entities from which he and his crew deploy capital thought the price too low, as soon became obvious. 
Last week, after accumulating near 20%, they announced their intention to conduct a competing Tender Offer at a 40% premium to Carlyle's, which was extended. 
There are still a few hurdles, but the price of the shares has long eclipsed the Carlyle bid. Now shares are trading above the indicative JPY 840/share bid. 
There are interesting things afoot here. 

Murakami Fund's Tender for JAG (3751):  May Be Rangebound Near-Term

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)

Toa Oil (5008) Tender - Has the Dog Caught the Car?

Idemitsu has big restructuring goals, and Toa Oil plays a part, but is faced with a big bump to get their Toa deal done. If The Dog Catches The...

Travis Lundy

Overbid: JAG Special Committee Plays Stupid so Murakami Plays Hardball

The Chairman overbid last week. Murakami-san tested the waters. The Special Committee played stupid, so Murakami-san has overbid by ¥10/share. This...

Travis Lundy

Hoosiers (3284) Tender Offer Buyback To Buy Out Activist Murakami

Hoosiers (3284) buying back 37% of shares out in an own-share tender offer. This is Murakami-san getting out of a stock he quasi-controls. At last....

Travis Lundy

Japan Asia Group (3751): Murakami Wins the Mother Of All Bumps +100%

JAG (3751 JP) shareholders hit the jackpot. The Chairman ups his investment 40-fold-plus and decides company actually belongs to shareholders. The...

Travis Lundy

Murakami Fund's Tender for JAG (3751): May Be Rangebound Near-Term

President Yamashita + Carlyle arranged a TOB which was too low-priced. Janaghan said it needed a bump. Famed activist Murakami-san agreed. He has...

Travis Lundy

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