Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>OK Store had wanted to buy <a href="https://www.smartkarma.com/entities/kansai-super-market-ltd" target="_blank" data-smartkarma-citation="entities:15519:1" rel="noopener">Kansai Super Market (9919 JP)</a> and offered to conduct a TOB at a high premium</li>
<li>
<a href="https://www.smartkarma.com/entities/h2o-retailing-corp" target="_blank" data-smartkarma-citation="entities:17562:1" rel="noopener">H2 O Retailing (8242 JP)</a> arranged a merger between Kansai Super and a couple of its subs which was a backdoor takeover. The EGM was problematic. Really problematic.</li>
<li>OK has filed a preliminary injunction to halt the merger. Now it offers to launch a TOB if stopped. And there is another (invisible) long-term problem if it isn't halted.
</li>
</ul>


OK Store had wanted to buy Kansai Super Market (9919 JP) and offered to conduct a TOB at a high premium

H2 O Retailing (8242 JP) arranged a merger between Kansai Super and a couple of its subs which was a backdoor takeover. The EGM was problematic. Really problematic.
OK has filed a preliminary injunction to halt the merger. Now it offers to launch a TOB if stopped. And there is another (invisible) long-term problem if it isn't halted.



OK Store Reiterates Intention to Launch Kansai Super TOB But There Is Invisible Post-Merger Risk

A week ago in <a href="https://www.smartkarma.com/insights/kansai-super-9919-still-not-super-as-shareholders-agree-h2o-deal" target="_blank" data-smartkarma-citation="insights:59970" rel="noopener">Kansai Super (9919) Still Not Super as Shareholders Agree H2O Deal</a> I wrote that the merger between Kansai Super and two of H2O's unlisted units had passed the EGM on the 29th and the local comments had been that it had been close. That deal had been announced 31 August and is due to go into effect on 1 December. Something of a shotgun marriage.The EGM was going to be contested because the third largest shareholder OK Corp had, as discussed in <a href="https://www.smartkarma.com/insights/the-kansai-super-9919-conundrum" target="_blank" data-smartkarma-citation="insights:57564" rel="noopener">The Kansai Super (9919) Conundrum</a>, cried "Chotto Mattaaaa!" (the rough equivalent is "Now hold on a second!") and launched a public re-proposal of its proposal from the summer - three months before the announcement of the H2O deal - which would have, in addition to probably making more sense, meant a huge cash payout for shareholders. Kansai Super rejected it in favor of its long-time "parent" company, so we went to EGM without further deliberating the OK Corp deal. We later found out that the Mochikabukai (the Trading Partner Shareholding Association, which owned about 9% as second largest grouping, and is usually a sure ally for any management team) had had disagreements amongst the members, with several corporate shareholders being quite vocal. In the end the vote had been split rather than voted down the line. After the mochikabukai meeting, H2O and Kansai Super put the full court press on corporate and financial crossholder partners to get them to vote FOR.OK Corp petitioned the court to appoint an EGM Inspector General to make sure the EGM was conducted properly and investigate the procedure for calling the EGM, and when the votes were counted, the Chairman of the Kansai Super EGM said that the vote had passed as proposed. But there were no details. Details are often published on EDINET shortly after the meeting. This time they were published on the 4th - a full week later, and they were a shocker. The proposals for the merger needed two-thirds of the vote, and the major one (Item 1) got 66.68%. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/240/650/original/Screenshot+2021-11-09+at+8.41.26+PM.png?1636461711" class="editor-image img-responsive" data-smartkarma-image-id="240650"></figure></section>That is as tight as I have EVER seen a vote. The vote could not be assured by the time the meeting was held so they had to conduct "marksheet voting" on the spot for those who had attended (including those who had already mailed in a vote ballot). Then they counted and recounted, and just to be sure extended the final announcement. Apparently after 6 hours, the Chairman of the meeting went back into the meeting and said "the measures passed, just barely."With the result in, however close, the OK Corp President - cognisant that the EGM Inspector General had been on hand to oversee proceedings - said "We will accept the result."A day ago it became apparent there were problems with that vote.Serious problems. In fact it is an absolute shocker. It seemed to bother the EGM Inspector General enough that a report which normally takes 40 days to file with the court took only seven.The market took a look at the contents and decided it liked OK Corp's chances. The stock went limit up today.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/240/694/original/Screenshot+2021-11-09+at+10.38.15+PM.png?1636468773" class="editor-image img-responsive" data-smartkarma-image-id="240694"></figure></section>Today OK Corp said "Chotto Mattaaaa!" again.OK Corp filed a <a href="https://ok-corporation.jp/media/001/202111/%E9%96%A2%E8%A5%BF%E3%82%B9%E3%83%BC%E3%83%91%E6%A7%98%E3%81%AE%E6%A0%AA%E5%BC%8F%E4%BA%A4%E6%8F%9B%E3%81%AE%E5%B7%AE%E6%AD%A2%E3%82%81%E3%81%AE%E4%BB%AE%E5%87%A6%E5%88%86%E3%81%AE%E7%94%B3%E7%AB%8B%E3%81%A6%E3%81%AB%E3%81%A4%E3%81%84%E3%81%A6.pdf" target="_blank" rel="noopener">petition</a> with the Court for a preliminary injunction for the merger scheduled for 1 December based on improper procedure at the EGM.I've got popcorn.

A week ago in Kansai Super (9919) Still Not Super as Shareholders Agree H2O Deal I wrote that the merger between Kansai Super and two of H2O's unlisted units had passed the EGM on the 29th and the local comments had been that it had been close. That deal had been announced 31 August and is due to go into effect on 1 December. Something of a shotgun marriage.The EGM was going to be contested because the third largest shareholder OK Corp had, as discussed in The Kansai Super (9919) Conundrum, cried "Chotto Mattaaaa!" (the rough equivalent is "Now hold on a second!") and launched a public re-proposal of its proposal from the summer - three months before the announcement of the H2O deal - which would have, in addition to probably making more sense, meant a huge cash payout for shareholders. Kansai Super rejected it in favor of its long-time "parent" company, so we went to EGM without further deliberating the OK Corp deal. We later found out that the Mochikabukai (the Trading Partner Shareholding Association, which owned about 9% as second largest grouping, and is usually a sure ally for any management team) had had disagreements amongst the members, with several corporate shareholders being quite vocal. In the end the vote had been split rather than voted down the line. After the mochikabukai meeting, H2O and Kansai Super put the full court press on corporate and financial crossholder partners to get them to vote FOR.OK Corp petitioned the court to appoint an EGM Inspector General to make sure the EGM was conducted properly and investigate the procedure for calling the EGM, and when the votes were counted, the Chairman of the Kansai Super EGM said that the vote had passed as proposed. But there were no details. Details are often published on EDINET shortly after the meeting. This time they were published on the 4th - a full week later, and they were a shocker. The proposals for the merger needed two-thirds of the vote, and the major one (Item 1) got 66.68%. That is as tight as I have EVER seen a vote. The vote could not be assured by the time the meeting was held so they had to conduct "marksheet voting" on the spot for those who had attended (including those who had already mailed in a vote ballot). Then they counted and recounted, and just to be sure extended the final announcement. Apparently after 6 hours, the Chairman of the meeting went back into the meeting and said "the measures passed, just barely."With the result in, however close, the OK Corp President - cognisant that the EGM Inspector General had been on hand to oversee proceedings - said "We will accept the result."A day ago it became apparent there were problems with that vote.Serious problems. In fact it is an absolute shocker. It seemed to bother the EGM Inspector General enough that a report which normally takes 40 days to file with the court took only seven.The market took a look at the contents and decided it liked OK Corp's chances. The stock went limit up today.Today OK Corp said "Chotto Mattaaaa!" again.OK Corp filed a petition with the Court for a preliminary injunction for the merger scheduled for 1 December based on improper procedure at the EGM.I've got popcorn.

Shocking Shenanigans at the Kansai Super EGM and OK Says Chotto Mattaaaa!!!

As discussed in <a href="https://www.smartkarma.com/insights/the-kansai-super-9919-conundrum" target="_blank" data-smartkarma-citation="insights:57564" rel="noopener">The Kansai Super (9919) Conundrum</a> seven weeks ago, the fact that shareholders got excited about a possible OK Corporation alternate bid to the <a href="https://www.smartkarma.com/entities/kansai-super-market-ltd" target="_blank" data-smartkarma-citation="entities:15519:1" rel="noopener">Kansai Super Market (9919 JP)</a> deal with its top shareholder (10.02% of shares out) <a href="https://www.smartkarma.com/entities/h2o-retailing-corp" target="_blank" data-smartkarma-citation="entities:17562:1" rel="noopener">H2 O Retailing (8242 JP)</a> which would merge its Hankyu Oasis unit in return for control, it didn't mean that Kansai Super shareholders would get a good result.I recommended selling Kansai Super.  I had gone into some detail about the shareholder structure to suggest that defeating the EGM proposal for the merger was tougher than it looked.<ul>
<li>The Kansai Super/Hankyu Oasis deal meant Kansai Super gets bigger, gets more revenue, etc, and Hankyu/H2O gets more shares.</li>
<li>There were no explicit terms and/or opportunity for Kansai Super shareholders to sell into an H2O offer so they could not directly compare it to OK Super's proposed ¥2,250/share/share offer which meant that all shareholders could do is look at the market price. </li>
</ul>The shares traded at that price and just 5% below for the next 4+ weeks, then dipped slightly into the EGM date on 29 October. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/239/140/original/Screenshot+2021-11-02+at+11.25.22+AM.png?1635823538" class="editor-image img-responsive" data-smartkarma-image-id="239140"></figure></section>Retailing expert <a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" rel="noopener">Michael Causton</a>wrote about the situation in <a href="https://www.smartkarma.com/insights/h2o-retailing-and-ok-super-which-is-the-better-owner-of-kansai-supermarket" target="_blank" rel="noopener">H2O Retailing and OK Super: Which Is the Better Owner of Kansai Supermarket?</a> on 23 October, just a week before the EGM, noting that OK Super offered a better platform for growth. OK Super had come out with an interview touting its proposal on the 20th. OPK Super sounded much more friendly than it initially had. Kansai Super for its part came out with another FAQ on the situation. It did not colour the interactions the same way. On Friday, Kansai Super <a href="http://www.kansaisuper.co.jp/upimages/irinfo/irnews_651.pdf" target="_blank" rel="noopener">announced</a> (Japanese only) that the EGM had passed the Share Exchange proposal and all related proposals related to later absorption mergers and changes of director. The shares dropped 32% in two days to today's ¥1,258/share. Now what?

As discussed in The Kansai Super (9919) Conundrum seven weeks ago, the fact that shareholders got excited about a possible OK Corporation alternate bid to the Kansai Super Market (9919 JP) deal with its top shareholder (10.02% of shares out) H2 O Retailing (8242 JP) which would merge its Hankyu Oasis unit in return for control, it didn't mean that Kansai Super shareholders would get a good result.I recommended selling Kansai Super.  I had gone into some detail about the shareholder structure to suggest that defeating the EGM proposal for the merger was tougher than it looked.
The Kansai Super/Hankyu Oasis deal meant Kansai Super gets bigger, gets more revenue, etc, and Hankyu/H2O gets more shares.
There were no explicit terms and/or opportunity for Kansai Super shareholders to sell into an H2O offer so they could not directly compare it to OK Super's proposed ¥2,250/share/share offer which meant that all shareholders could do is look at the market price. 
The shares traded at that price and just 5% below for the next 4+ weeks, then dipped slightly into the EGM date on 29 October. Retailing expert Michael Caustonwrote about the situation in H2O Retailing and OK Super: Which Is the Better Owner of Kansai Supermarket? on 23 October, just a week before the EGM, noting that OK Super offered a better platform for growth. OK Super had come out with an interview touting its proposal on the 20th. OPK Super sounded much more friendly than it initially had. Kansai Super for its part came out with another FAQ on the situation. It did not colour the interactions the same way. On Friday, Kansai Super announced (Japanese only) that the EGM had passed the Share Exchange proposal and all related proposals related to later absorption mergers and changes of director. The shares dropped 32% in two days to today's ¥1,258/share. Now what?

Kansai Super (9919) Still Not Super as Shareholders Agree H2O Deal

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

<a href="https://www.smartkarma.com/entities/h2o-retailing-corp" target="_blank" data-smartkarma-citation="entities:17562:1" rel="noopener">H2 O Retailing (8242 JP)</a>, the biggest retail group in Kansai, announced in late August that it would expand its share in <a href="https://www.smartkarma.com/entities/kansai-super-market-ltd" target="_blank" data-smartkarma-citation="entities:15519:1" rel="noopener">Kansai Super Market (9919 JP)</a> to take a majority stake. As is usual, the announcement was made with full understanding and acceptance by Kansai Supermarket’s board and CEO, but things have not gone according to plan. We now face another situation where existing shareholders object to a cosy, pre-agreed takeover. In this case, the company objecting is OK Super, the perennially successful Tokyo-based discount supermarket.OK Super would, in our opinion, offer the best growth longer term given its operational excellence, low price positioning and massive pent-up Japanese consumer demand for lower prices. Last year, OK Super broke ¥508 billion in sales for the first time, making it a top four chain, and achieved operating profits of ¥37.8 billion. In contrast, Kansai Super sales were ¥130.9 billion, with operating profits of ¥2.7 billion.Whereas Kansai Super largely represents past supermarket success, OK is the present and future and the prospect of OK entering the Kansai market would represent a serious threat to existing chains, not least H2O’s own.

H2 O Retailing (8242 JP), the biggest retail group in Kansai, announced in late August that it would expand its share in Kansai Super Market (9919 JP) to take a majority stake. As is usual, the announcement was made with full understanding and acceptance by Kansai Supermarket’s board and CEO, but things have not gone according to plan. We now face another situation where existing shareholders object to a cosy, pre-agreed takeover. In this case, the company objecting is OK Super, the perennially successful Tokyo-based discount supermarket.OK Super would, in our opinion, offer the best growth longer term given its operational excellence, low price positioning and massive pent-up Japanese consumer demand for lower prices. Last year, OK Super broke ¥508 billion in sales for the first time, making it a top four chain, and achieved operating profits of ¥37.8 billion. In contrast, Kansai Super sales were ¥130.9 billion, with operating profits of ¥2.7 billion.Whereas Kansai Super largely represents past supermarket success, OK is the present and future and the prospect of OK entering the Kansai market would represent a serious threat to existing chains, not least H2O’s own.

H2O Retailing and OK Super: Which Is the Better Owner of Kansai Supermarket?

On 31 August, <a href="https://www.smartkarma.com/entities/kansai-super-market-ltd" target="_blank" data-smartkarma-citation="entities:15519:1" rel="noopener">Kansai Super Market (9919 JP)</a> and its top shareholder (10.02% of shares out) <a href="https://www.smartkarma.com/entities/h2o-retailing-corp" target="_blank" data-smartkarma-citation="entities:17562:1" rel="noopener">H2 O Retailing (8242 JP)</a> (the parent of Hanshin Department Store and related companies) <a href="https://data.swcms.net/file/h2o-retailing/ja/news/auto_20210830491858/pdfFile.pdf" target="_blank" rel="noopener">announced</a> a business merger whereby the H₂O would inject two supermarket businesses it owns - Izumiya and Hankyu Oasis - into a holding company with Kansai Super, receiving shares in a newly enlarged Kansai Super in exchange. H₂O would go from owning 10.66% to owning 58% of Kansai Super, and the 89.34% would own 42% of NEWCO. The merger was short-dated/accelerated, with the EGM to vote on this deal set for a Record Date on 15 September, the EGMs of all the related companies where an EGM was necessary (Kansai Super, Hankyu Oasis, and Izumiya (the latter two foregone conclusions because they are 100%-owned by H₂O) on 29 October, and the merger effective December 1st.The shares popped a bit, then fell back. At first glance, this seemed somewhat opportunistic for H₂O, and it meant that the 89.34% "minority" in Kansai Super would become a real minority without getting paid a premium or provided a chance to exit. Based on the net assets of the companies, it seemed like H₂O was getting a good deal. Based on the OP levels in the past year, it did not seem like H₂O was getting special treatment. A couple of days later, on 3 September, privately-held discount ("every day low price") supermarket chain OK Corp (primarily based in the Kanto area, but which had been aimed at expanding into the Kansai area), which was the second-largest single shareholder of Kansai Super (based originally in Osaka/Kansai) at 7.23%, stepped up and offered a <a href="https://ok-corporation.jp/media/001/202109/20210903_%E3%83%97%E3%83%AC%E3%82%B9%E3%83%AA%E3%83%AA%E3%83%BC%E3%82%B9.pdf" target="_blank" rel="noopener">press release</a> which said that it would vote against the merger and if the merger were not approved, it would be willing to launch a Tender Offer to buy the shares of Kansai Super at ¥2,250/share (the highest price since listing and nearly vs ¥1,374/share the day before, and more than double the market price of Kansai Super in June when the proposal was made). On 3 Sep OK complained about their treatment, and noted that from the perspective of shareholder interest, their bid should be considered, but OK also had no intention of launching a hostile bid.The shares popped, moving limit up. Then limit up another day, and then the shares traded at JPY 2,200/share in considerable volume before drifting lower.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/229/527/original/Screenshot+2021-09-13+at+8.10.54+PM.png?1631535065" class="editor-image img-responsive" data-smartkarma-image-id="229527"></figure></section>Today the shares fell back 7+% to just below JPY 2,000/share. There is some very long history between the founder of OK and Yuji Kitano the founder of Kansai Super, and they once worked together, with OK seconding employees to Kansai Super to learn the business of fresh grocery sales. Mr Kitano passed away in 2013, and OK Supermarket started buying shares in 2016, getting to just under 5%, then it peaked its head above and by the end of the fiscal year in February, owned 7.23%. Of course, that year in October (2016), Kansai Super entered into a business and capital alliance with H₂O Retailing, and H₂O bought about 10% of the shares out. Fast forward five years and it turns out that OK approached Kansai Super in April 2021, and proposed a capital and business alliance on 9 June, in writing. Kansai Super put this to an Independent Committee which then took its time, setting its first meeting with OK some 11 weeks later on 26 August. The Kansai Super <a href="http://www.kansaisuper.co.jp/upimages/irinfo/irnews_629.pdf" target="_blank" rel="noopener">release</a> (Japanese only) on 31 August suggests there was a "third party tender offer approach" but then doesn't discuss it much while saying that intense discussions and due diligence was afforded to H₂O Retailing in the same timeframe.Five days after the first interview with OK, Kansai Super and H₂O announced their deal. This is a complicated deal and it begs the question of whether shareholder interests matter and how shareholders decide. More discussion below.

On 31 August, Kansai Super Market (9919 JP) and its top shareholder (10.02% of shares out) H2 O Retailing (8242 JP) (the parent of Hanshin Department Store and related companies) announced a business merger whereby the H₂O would inject two supermarket businesses it owns - Izumiya and Hankyu Oasis - into a holding company with Kansai Super, receiving shares in a newly enlarged Kansai Super in exchange. H₂O would go from owning 10.66% to owning 58% of Kansai Super, and the 89.34% would own 42% of NEWCO. The merger was short-dated/accelerated, with the EGM to vote on this deal set for a Record Date on 15 September, the EGMs of all the related companies where an EGM was necessary (Kansai Super, Hankyu Oasis, and Izumiya (the latter two foregone conclusions because they are 100%-owned by H₂O) on 29 October, and the merger effective December 1st.The shares popped a bit, then fell back. At first glance, this seemed somewhat opportunistic for H₂O, and it meant that the 89.34% "minority" in Kansai Super would become a real minority without getting paid a premium or provided a chance to exit. Based on the net assets of the companies, it seemed like H₂O was getting a good deal. Based on the OP levels in the past year, it did not seem like H₂O was getting special treatment. A couple of days later, on 3 September, privately-held discount ("every day low price") supermarket chain OK Corp (primarily based in the Kanto area, but which had been aimed at expanding into the Kansai area), which was the second-largest single shareholder of Kansai Super (based originally in Osaka/Kansai) at 7.23%, stepped up and offered a press release which said that it would vote against the merger and if the merger were not approved, it would be willing to launch a Tender Offer to buy the shares of Kansai Super at ¥2,250/share (the highest price since listing and nearly vs ¥1,374/share the day before, and more than double the market price of Kansai Super in June when the proposal was made). On 3 Sep OK complained about their treatment, and noted that from the perspective of shareholder interest, their bid should be considered, but OK also had no intention of launching a hostile bid.The shares popped, moving limit up. Then limit up another day, and then the shares traded at JPY 2,200/share in considerable volume before drifting lower.Today the shares fell back 7+% to just below JPY 2,000/share. There is some very long history between the founder of OK and Yuji Kitano the founder of Kansai Super, and they once worked together, with OK seconding employees to Kansai Super to learn the business of fresh grocery sales. Mr Kitano passed away in 2013, and OK Supermarket started buying shares in 2016, getting to just under 5%, then it peaked its head above and by the end of the fiscal year in February, owned 7.23%. Of course, that year in October (2016), Kansai Super entered into a business and capital alliance with H₂O Retailing, and H₂O bought about 10% of the shares out. Fast forward five years and it turns out that OK approached Kansai Super in April 2021, and proposed a capital and business alliance on 9 June, in writing. Kansai Super put this to an Independent Committee which then took its time, setting its first meeting with OK some 11 weeks later on 26 August. The Kansai Super release (Japanese only) on 31 August suggests there was a "third party tender offer approach" but then doesn't discuss it much while saying that intense discussions and due diligence was afforded to H₂O Retailing in the same timeframe.Five days after the first interview with OK, Kansai Super and H₂O announced their deal. This is a complicated deal and it begs the question of whether shareholder interests matter and how shareholders decide. More discussion below. 

Japan

Kansai Food Market Ltd. operates as a food supermarket chain operator. The Company mainly deals in foodstuffs, daily products, and miscellaneous goods. Kansai Food Market markets products in Hyogo and Osaka areas.

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Kansai Food Market (9919 JP)

OK Store Reiterates Intention to Launch Kansai Super TOB But There Is Invisible Post-Merger Risk

OK Store will conduct a TOB at JPY 2250/shr if the Court decides to cancel the Kansai Super merger. Stock price direction is binary, and if the...

Travis Lundy

Shocking Shenanigans at the Kansai Super EGM and OK Says Chotto Mattaaaa!!!

Shocking Shenanigans at the Kansai Super EGM are what got the "approval" to 66.68%. OK Corp had accepted the result, but disclosed the details, and...

Travis Lundy

Kansai Super (9919) Still Not Super as Shareholders Agree H2O Deal

Kansai Super (9919) shareholders approve the H2O deal to merge with Hankyu Oasis and Izumiya in return for 58% dilution. Comparatively, a bad deal...

Travis Lundy

H2O Retailing and OK Super: Which Is the Better Owner of Kansai Supermarket?

Kansai Super is the prize in a bidding war between H2O Retailing and OK Super. While the former would use Kansai to consolidate market share, a...

Michael Causton

The Kansai Super (9919) Conundrum

Kansai Super has Two Suitors - H2O Retailing and Kansai Super have ironed out a deal, and OK Corp objects. This creates a conundrum. But solving it...

Travis Lundy

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