Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>The AGM of <a href="https://www.smartkarma.com/entities/2704" target="_blank" data-smartkarma-citation="entities:2704:1">Alpine Electronics Inc (6816 JP)</a> is upcoming this week on the 21st of June. If you owned shares as of March 31st this year, you can vote. </p><p>This particular AGM is interesting because large (9.9% according to them) activist shareholder Oasis Management has proposed, in accordance with its rights under the Companies Law, AGM agenda items. Under law, if these are passed through a shareholder vote, the company is required to pass them. </p><p>In the medium-long-term view, the Alpine/Alps ratio is far below where it has been, despite the best relative economic performance by Alpine compared to Alps in years (the chart shows where the Alpine/Alps Share Price Ratio is trading compared to the 0.68x terms of integration - on Friday it closed at a 9.64% premium to terms)</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/055/311/original/68166770%2020180616%20Chart.PNG?1529216669" class="editor-image img-responsive" data-smartkarma-image-id="55311"></figure><div style="text-align: left;" class="content-caption">source: Bloomberg</div><p>In a shorter term, I would note that the last time the ratio traded below a 10% premium to terms was early March after Alpine had raised its forecasts for the year for the second time, decided the ratio did not need review, BUT had yet to beat the revised forecasts soundly, as it eventually did.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/055/312/original/68166770%2020180616%20Chart2%201yr.PNG?1529217148" class="editor-image img-responsive" data-smartkarma-image-id="55312"></figure><div style="text-align: left;" class="content-caption">source: Bloomberg</div><p>I would however, also point to the change in relative Alpine/Alps forecasts from the companies over the past year, as shown originally in <a href="https://www.smartkarma.com/insights/what-to-do-with-the-alpine-alps-ratio-part-i-this-one-went-to-11-and-beyond" target="_blank" data-smartkarma-citation="insights:19742">What To Do With The Alpine/Alps Ratio Part I:  This One Went To 11! And Beyond!</a>. Note that these are not sharecount-adjusted and are simply ratios of Alpine vs Alps-ex-Alpine-ex-Logistics Revenue and OP. Note also they are as of end-April. The lower chart shows that the Alpine/Alps OP ratio for 2018 doubled between setting the share exchange ratio and actual results for the year (rising 30+% only three months after the announcement). The forecast ratio for March 2019 is almost 40% higher than for 2018 (which itself doubled).</p><p>To say this more plainly, the Mar 2019 OP forecast provided by the companies now shows an Alpine vs Alps implied parent OP ratio of almost triple where it was at the time the merger ratio was "decided" and this is, according to Alpine, still not material, and is still fair. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/055/313/original/Alpine%20vs%20Alps%20Revenue%20and%20OP.png?1529217240" class="editor-image img-responsive" data-smartkarma-image-id="55313"></figure><div style="text-align: left;" class="content-caption">data sources: company filings, capIQ consensus estimates, mathematical magic...</div><p>Given that it was not fair at the outset, it has become less fair. See the comparisons last fall in <a href="https://www.smartkarma.com/insights/alpine-alps-earnings-revisions-moooar-value-for-alpine" target="_blank" data-smartkarma-citation="insights:14881">Alpine &amp; Alps Earnings Revisions - Moooar Value for Alpine</a> and more recently in <a href="https://www.smartkarma.com/insights/what-to-do-with-the-alpine-alps-ratio-part-i-this-one-went-to-11-and-beyond" target="_blank" data-smartkarma-citation="insights:19742">What To Do With The Alpine/Alps Ratio Part I:  This One Went To 11! And Beyond!</a> (with trading commentary in <a href="https://www.smartkarma.com/insights/what-to-do-with-the-alpine-alps-ratio-part-ii-where-to-from-here" target="_blank" data-smartkarma-citation="insights:19795">What To Do With The Alpine/Alps Ratio Part II:  Where To From Here?</a>).</p><p></p><h2>The New News - ISS Opines</h2><p>A week and change ago ISS came out with its guidance on how shareholders should vote. In there analysis, there are some doozies. Investors in Japan will not be surprised by the comment, but should be heartened that a proxy advisor is making it.</p><p>The ISS report noted results of interviews with Alpine management, analysis of the deal process, and the resulting merger ratio, and found major issue with all of the results. ISS also comes up with a very basic framework for analyzing the appropriate share exchange ratio, and points to a level which is basically 40% higher than the proposed ratio for merging Alpine and <a href="https://www.smartkarma.com/entities/12001" target="_blank" data-smartkarma-citation="entities:12001:1">Alps Electric Co Ltd (6770 JP)</a>, and this is without counting control premium necessary OR any synergies which might accrue.  ISS questions the strategic rationale, the board's ability to be independent, and the notes that the deal significantly undervalues Alpine relative to Alps, on a standalone basis, and relative to its peers.</p><p>The ISS report then goes on to suggest voting for the Oasis proposal to pay out a special dividend of JPY 325/share and to change the composition of the board because of its inability in its current form to work to protect the interests of minority shareholders. </p><p>Based on the contents of this report, it is almost impossible to imagine that ISS will recommend voting for the deal as it stands when the shareholder vote comes up in December. </p><div class="content-highlight"><p>It is also a scathing indictment of the processes of a major listed company ignoring its minority shareholders to favor its larger parent company. It is an almost explicit criticism of Alpine's stated compliance with the principles of the Corporate Governance Code.</p></div><p>Alpine <a href="http://www.alpine.com/e/investor/library/pdf/kessai/ja/2017r_en.pdf" target="_blank">responded</a> to the report on June 11th. That response is worth reading to understand how Alpine thinks, and why Alpine is unlikely to come to its senses to defend the value offered to minority shareholders. Its explanation of the fairness of the exchange ratio can be summarised the following way:</p><p><em>Alpine and Alps decided that ratio, and gave information to a third party, who assumes the information is true but makes no effort to confirm, and takes no responsibility, and applies arithmetic to justify the ratio, and because Alps and Alpine have not changed their stated forecast numbers to the advisor (despite trebling the relative numbers in their public forecasts), the advisor cannot change their mind until Alps and Alpine do. Alps has no interest to do so, and Alpine says it is fair, so it is fair. </em></p><p>This should not be the basis for corporate finance. Or good governance. And good stewards should not accept it.</p><p>I address the ISS statement, and dissect the Alpine statement below. </p><p><em>Background on the Alpine/Alps deal is available in the following insights and they are worth a read if you are looking at this activist/arbitrage/governance situation.</em></p><table class="table table-striped"><tbody><tr><td colspan="3"><h2>Some In-Depth Insights on Smartkarma About the Alpine/Alps Situation</h2></td></tr><tr><td><strong>Date</strong></td><td><strong>Author</strong></td><td><strong>Title</strong></td></tr><tr><td>30-Oct-2017</td><td><a href="https://www.smartkarma.com/profiles/840" target="_blank" data-smartkarma-citation="accounts:840">David Blennerhassett</a></td><td><a href="https://www.smartkarma.com/insights/alps-deal-for-alpine-not-fair-oasis-is-right" target="_blank" data-smartkarma-citation="insights:14832">Alps Deal for Alpine Not Fair - Oasis Is Right</a></td></tr><tr><td>31-Oct-2017</td><td><a href="https://www.smartkarma.com/profiles/840" target="_blank" data-smartkarma-citation="accounts:840">David Blennerhassett</a></td><td><a href="https://www.smartkarma.com/insights/alpine-alps-earnings-revisions-moooar-value-for-alpine" target="_blank" data-smartkarma-citation="insights:14881">Alpine &amp; Alps Earnings Revisions - Moooar Value for Alpine</a></td></tr><tr><td>21-Mar-2018</td><td><a href="https://www.smartkarma.com/profiles/1134" target="_blank" data-smartkarma-citation="accounts:1134">Scott Foster</a></td><td><a href="https://www.smartkarma.com/insights/alpine-6816-jp-don-t-hold-your-breath" target="_blank" data-smartkarma-citation="insights:18702">Alpine (6816 JP): Don't Hold Your Breath</a></td></tr><tr><td>29-Apr-2018</td><td><a href="https://www.smartkarma.com/profiles/25" target="_blank" data-smartkarma-citation="accounts:25">Travis Lundy</a></td><td><a href="https://www.smartkarma.com/insights/what-to-do-with-the-alpine-alps-ratio-part-i-this-one-went-to-11-and-beyond" target="_blank" data-smartkarma-citation="insights:19742">What To Do With The Alpine/Alps Ratio Part I:  This One Went To 11! And Beyond!</a></td></tr><tr><td>29-Apr-2018</td><td><a href="https://www.smartkarma.com/profiles/25" target="_blank" data-smartkarma-citation="accounts:25">Travis Lundy</a></td><td><a href="https://www.smartkarma.com/insights/what-to-do-with-the-alpine-alps-ratio-part-ii-where-to-from-here" target="_blank" data-smartkarma-citation="insights:19795">What To Do With The Alpine/Alps Ratio Part II:  Where To From Here?</a></td></tr></tbody></table>

The AGM of Alpine Electronics Inc (6816 JP) is upcoming this week on the 21st of June. If you owned shares as of March 31st this year, you can vote. This particular AGM is interesting because large (9.9% according to them) activist shareholder Oasis Management has proposed, in accordance with its rights under the Companies Law, AGM agenda items. Under law, if these are passed through a shareholder vote, the company is required to pass them. In the medium-long-term view, the Alpine/Alps ratio is far below where it has been, despite the best relative economic performance by Alpine compared to Alps in years (the chart shows where the Alpine/Alps Share Price Ratio is trading compared to the 0.68x terms of integration - on Friday it closed at a 9.64% premium to terms)source: BloombergIn a shorter term, I would note that the last time the ratio traded below a 10% premium to terms was early March after Alpine had raised its forecasts for the year for the second time, decided the ratio did not need review, BUT had yet to beat the revised forecasts soundly, as it eventually did.source: BloombergI would however, also point to the change in relative Alpine/Alps forecasts from the companies over the past year, as shown originally in What To Do With The Alpine/Alps Ratio Part I:  This One Went To 11! And Beyond!. Note that these are not sharecount-adjusted and are simply ratios of Alpine vs Alps-ex-Alpine-ex-Logistics Revenue and OP. Note also they are as of end-April. The lower chart shows that the Alpine/Alps OP ratio for 2018 doubled between setting the share exchange ratio and actual results for the year (rising 30+% only three months after the announcement). The forecast ratio for March 2019 is almost 40% higher than for 2018 (which itself doubled).To say this more plainly, the Mar 2019 OP forecast provided by the companies now shows an Alpine vs Alps implied parent OP ratio of almost triple where it was at the time the merger ratio was "decided" and this is, according to Alpine, still not material, and is still fair. data sources: company filings, capIQ consensus estimates, mathematical magic...Given that it was not fair at the outset, it has become less fair. See the comparisons last fall in Alpine &amp; Alps Earnings Revisions - Moooar Value for Alpine and more recently in What To Do With The Alpine/Alps Ratio Part I:  This One Went To 11! And Beyond! (with trading commentary in What To Do With The Alpine/Alps Ratio Part II:  Where To From Here?).The New News - ISS OpinesA week and change ago ISS came out with its guidance on how shareholders should vote. In there analysis, there are some doozies. Investors in Japan will not be surprised by the comment, but should be heartened that a proxy advisor is making it.The ISS report noted results of interviews with Alpine management, analysis of the deal process, and the resulting merger ratio, and found major issue with all of the results. ISS also comes up with a very basic framework for analyzing the appropriate share exchange ratio, and points to a level which is basically 40% higher than the proposed ratio for merging Alpine and Alps Electric Co Ltd (6770 JP), and this is without counting control premium necessary OR any synergies which might accrue.  ISS questions the strategic rationale, the board's ability to be independent, and the notes that the deal significantly undervalues Alpine relative to Alps, on a standalone basis, and relative to its peers.The ISS report then goes on to suggest voting for the Oasis proposal to pay out a special dividend of JPY 325/share and to change the composition of the board because of its inability in its current form to work to protect the interests of minority shareholders. Based on the contents of this report, it is almost impossible to imagine that ISS will recommend voting for the deal as it stands when the shareholder vote comes up in December. It is also a scathing indictment of the processes of a major listed company ignoring its minority shareholders to favor its larger parent company. It is an almost explicit criticism of Alpine's stated compliance with the principles of the Corporate Governance Code.Alpine responded to the report on June 11th. That response is worth reading to understand how Alpine thinks, and why Alpine is unlikely to come to its senses to defend the value offered to minority shareholders. Its explanation of the fairness of the exchange ratio can be summarised the following way:Alpine and Alps decided that ratio, and gave information to a third party, who assumes the information is true but makes no effort to confirm, and takes no responsibility, and applies arithmetic to justify the ratio, and because Alps and Alpine have not changed their stated forecast numbers to the advisor (despite trebling the relative numbers in their public forecasts), the advisor cannot change their mind until Alps and Alpine do. Alps has no interest to do so, and Alpine says it is fair, so it is fair. This should not be the basis for corporate finance. Or good governance. And good stewards should not accept it.I address the ISS statement, and dissect the Alpine statement below. Background on the Alpine/Alps deal is available in the following insights and they are worth a read if you are looking at this activist/arbitrage/governance situation.Some In-Depth Insights on Smartkarma About the Alpine/Alps SituationDateAuthorTitle30-Oct-2017David BlennerhassettAlps Deal for Alpine Not Fair - Oasis Is Right31-Oct-2017David BlennerhassettAlpine &amp; Alps Earnings Revisions - Moooar Value for Alpine21-Mar-2018Scott FosterAlpine (6816 JP): Don't Hold Your Breath29-Apr-2018Travis LundyWhat To Do With The Alpine/Alps Ratio Part I:  This One Went To 11! And Beyond!29-Apr-2018Travis LundyWhat To Do With The Alpine/Alps Ratio Part II:  Where To From Here?

Alpine AGM Upcoming - What To Do, How To Trade

Making sense of the Global Market, Euromonitor International Ltd.

Yu Mitsuhashi

Making sense of the Global Market

Euromonitor International Ltd.

We are a global market research company focused on industries, countries, economies and consumers worldwide. Our cross-country comparable research helps your organisation identify opportunities and develop growth strategies in countries and regions across the globe. With offices around the world, 1,200 analysts in 100 countries and market research on every key trend and driver, we give you powerful access to the real story behind consumer change.

Thematic (Sector/Industry)

<ul><li>Digital cameras see 10% retail volume decline to reach 3.2 million units in 2017.</li><li>Fixed lens cameras loses ground in digital cameras to SLR cameras and compact cistern cameras in 2017 as its volume share falls to 58%</li><li>Compact system cameras records strong positive growth in 2017 while fixed lens cameras loses ground despite the launch of new action cameras</li><li>Digital camcorders registers a 7% decline in retail volume sales in 2017 as sales fall to 921,000 units</li><li>Overall, imaging devices is set to register a -4% retail volume CAGR over the forecast period</li></ul>

Digital cameras see 10% retail volume decline to reach 3.2 million units in 2017.Fixed lens cameras loses ground in digital cameras to SLR cameras and compact cistern cameras in 2017 as its volume share falls to 58%Compact system cameras records strong positive growth in 2017 while fixed lens cameras loses ground despite the launch of new action camerasDigital camcorders registers a 7% decline in retail volume sales in 2017 as sales fall to 921,000 unitsOverall, imaging devices is set to register a -4% retail volume CAGR over the forecast period

Japan

JVC KENWOOD Corporation is a holding company established through a merger of JVC and KENWOOD. The group manufactures electric and electronic products such ascar electronics and home & mobile electronics.

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JVC KENWOOD (6632 JP)

Alpine AGM Upcoming - What To Do, How To Trade

The AGM of Alpine Electronics Inc (6816 JP) is upcoming this week on the 21st of June. If you owned shares as of March 31st this year, you can...

Travis Lundy

Sector Capsule: Imaging Devices in Japan

Digital cameras see 10% retail volume decline to reach 3.2 million units in 2017. Fixed lens cameras loses ground in digital cameras to SLR...

Euromonitor International Ltd.

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