Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

On Wednesday May 9th, Australia-listed online classifieds specialist <a href="https://www.smartkarma.com/entities/23761" target="_blank" data-smartkarma-citation="entities:23761:1">Mitula Group Ltd (MUA AU)</a> <a href="https://www.asx.com.au/asxpdf/20180509/pdf/43tx7bx6jz5c37.pdf" target="_blank">announced</a> it had entered into a binding Scheme Implementation Deed with <a href="https://www.smartkarma.com/entities/13749" target="_blank" data-smartkarma-citation="entities:13749:1">LIFULL Co Ltd (2120 JP)</a> of Japan. Lifull, for its part, produced an <a href="https://www.asx.com.au/asxpdf/20180510/pdf/43txkf4cbf92kg.pdf" target="_blank">announcement</a> on the TSE website. The two companies, once merged, will be a significant player in online classifieds across the world with operations in 63 countries covering 170 million visits a month. <div class="content-highlight">The deal is interesting, and highly unusual, and the spread is likely to remain wide-ish because of its cross-border nature, the volatility of the hedge, the short-gamma positioning involved, and low float involved on all sides.Therein lies opportunity. The structure, while not overly difficult, is strange enough that many in Asia will not have seen it, and most Asian risk arb traders will not have traded this kind of deal before.</div>The initial terms are that Mitula Group shareholders will receive 0.0753 LIFULL shares for each Mitula share they hold (which was equivalent to A$0.85 at the time of announcement). That is an 88.9% premium to the May 8th closing price. Mitula shareholders can choose to receive A$0.80 in cash for the first 20,000 shares that they own or receive only shares.If an Australian investing public getting a mix of Australian dollar cash and Japanese-yen and Japan-listed shares were not exotic enough, the terms also have a slope to Mitula investors from the next 12% of combined downside from weakness in the yen, or in LIFULL's share price. In addition, Mitula shareholders can enjoy an upside of up to 8% in the AUD-equivalent price of LIFULL shares, up to a value-equivalent of A$0.918/share. Above that and the exchange ratio is lowered to cap the delivery value at A$0.918/share. These terms deserve a closer look. The initial terms of A$0.85/share are already obsolete. On the first day.There are other complications as well (such as holding the Japanese shares received in a pooled account), especially as concerns individual or unsophisticated shareholders in Australia. Institutional funds and hedge funds should be fine.<h2>The Announcements</h2><div><table class="table table-striped"><tbody><tr><td style="width: 425px;">Announcement</td><td style="text-align: center; width: 219px;">Language</td><td style="text-align: center; width: 139px;">Source</td></tr><tr><td style="width: 425px;">ASX Announcement of binding Scheme Implementation signed</td><td style="text-align: center; width: 219px;"><a href="https://www.asx.com.au/asxpdf/20180509/pdf/43tx7bx6jz5c37.pdf" target="_blank">English</a></td><td style="text-align: center; width: 139px;">Mitula/ASX</td></tr><tr><td style="width: 425px;">TSE Announcement of deal by Lifull</td><td style="text-align: center; width: 219px;"><a href="https://www.asx.com.au/asxpdf/20180510/pdf/43txkf4cbf92kg.pdf" target="_blank">English</a></td><td style="text-align: center; width: 139px;">Lifull/ASX</td></tr><tr><td style="width: 425px;">Lifull press release of deal</td><td style="text-align: center; width: 219px;">English / <a href="https://lifull.com/news/11449/" target="_blank">Japanese</a></td><td style="text-align: center; width: 139px;">Lifull/website</td></tr><tr><td style="width: 425px;">Lifull announcement of deal (full)</td><td style="text-align: center; width: 219px;"><a href="https://lifull.com/wp-content/uploads/2018/05/release_20180509en.pdf" target="_blank">English</a> / <a href="https://lifull.com/wp-content/uploads/2018/05/release_20180509.pdf" target="_blank">Japanese</a></td><td style="text-align: center; width: 139px;">Lifull/website</td></tr><tr><td style="width: 425px;">Lifull Presentation of deal (full)</td><td style="text-align: center; width: 219px;"><a href="https://lifull.com/wp-content/uploads/2018/05/Mitula-Group-Limited-100percent-Acquisition.pdf" target="_blank">English</a> / <a href="https://lifull.com/wp-content/uploads/2018/05/release_20180509_2.pdf" target="_blank">Japanese</a></td><td style="text-align: center; width: 139px;">Lifull/website</td></tr><tr><td style="width: 425px;">Lifull Changes to Mit-Term Plan (due to Change in FY)</td><td style="text-align: center; width: 219px;"><a href="https://lifull.com/wp-content/uploads/2018/05/Amendments-to-Mid-Term-Plan-due-to-Change-in-Fiscal-Year.pdf" target="_blank">English</a> / <a href="https://lifull.com/wp-content/uploads/2018/05/r_MD_BusinessPlan2020_180509.pdf" target="_blank">Japanese</a></td><td style="text-align: center; width: 139px;">Lifull/website</td></tr><tr><td colspan="3" style="text-align: center; width: 425px;"></td></tr><tr><td style="width: 425px;">Company IR Pages</td><td colspan="2" style="text-align: center; width: 219px;"><a href="https://lifull.com/en/ir/" target="_blank">Lifull</a> / <a href="https://www.mitulagroup.com/investors" target="_blank">Mitula</a></td></tr></tbody></table></div><h2>Basic Deal Details</h2><div><table class="table table-striped"><tbody><tr><td style="width: 259px;">Datapoint</td><td style="width: 589px;">Data in the Data Point</td></tr><tr><td style="width: 259px;">Initial Terms of Consideration</td><td style="width: 589px;">IF no election is made,           Cash Consideration of A$0.80/share for first 20,000 Scheme Shares           Scrip Consideration* of A$0.85/share for all additional Scheme Shares IF an election is made           Scrip Consideration* of A$0.85/share for ALL Scheme Shares held</td></tr><tr><td style="width: 259px;">*Initial Scrip Consideration</td><td style="width: 589px;">A$0.85/share of value, defined as 0.0753 shares of Lifull</td></tr><tr><td style="width: 259px;">Initial Bidder Share Price</td><td style="width: 589px;">A$11.29/share    [¥925 share at A$/¥ 81.930912]</td></tr><tr><td colspan="2" style="width: 848px;"></td></tr><tr><td style="width: 259px;">Scheme Downside Price  Protection Mechanism Scrip Consideration (clause 4.6)</td><td style="width: 589px;">Applies IF Final Bidder Share Price &lt; Initial Bidder Share Price 0.0753 Lifull shares x Initial Bidder Share Price (A$11.29) / Final Bidder Share Price           where Final Bidder Share Price is determined by Bidder VWAP           Bidder VWAP = VWAP during 10 Trading Days up to/including Record Date Note:  Maximum Scrip Consideration under Clause 4.6 is 0.084336 Lifull Shares</td></tr><tr><td style="width: 259px;">Upside Participation Cap Scrip Consideration (clause 4.8-4.9)</td><td style="width: 589px;">Applies IF Final Bidder Share Price is &gt; 8% higher than  Initial Bidder Share Price (i.e. &gt; A$12.1932) </td></tr><tr><td colspan="2" style="width: 848px;"></td></tr><tr><td style="width: 259px;">Conditions Precedent</td><td style="width: 589px;">Scheme: 75% of shares and 50% of target shareholders must approve. Other Conditions are outlined in the Mitula Announcement (link below) p15 and onward. Note that there is a measure on share-splitting due to the fact that small-lot shareholders could receive all-cash if a 39,000 share position were "split" twice.</td></tr><tr><td colspan="2" style="width: 259px;"></td></tr><tr><td colspan="2" style="width: 848px;">All deal details are in the <a href="https://www.asx.com.au/asxpdf/20180509/pdf/43tx7bx6jz5c37.pdf" target="_blank">Mitula Announcement</a> or the <a href="https://lifull.com/wp-content/uploads/2018/05/release_20180509en.pdf" target="_blank">Lifull announcement</a></td></tr></tbody></table></div><h2>Tentative Schedule</h2><table class="table table-striped"><tbody><tr><td>Event</td><td>Expected Date as Per Document</td><td>Smartkarma Timeline*</td></tr><tr><td>Announcement of Deal</td><td>9-May-18</td><td></td></tr><tr><td>Lifull - Record Date of EGN for Lifull</td><td>14-May-18</td><td></td></tr><tr><td>Lifull - Special Shareholders Meeting for Lifull</td><td>28-Jun-18</td><td></td></tr><tr><td>Mitula - Explanatory Booklet Dispatch</td><td>Jul-18</td><td></td></tr><tr><td>Mitula - Scheme - First Hearing in Court</td><td>July 2018 (est)</td><td></td></tr><tr><td>Mitula - Scheme Meeting for Shareholders</td><td>August 2018 (est)</td><td>13 August</td></tr><tr><td>Mitula - Election Date (for Consideration choice)</td><td>7pm on date of Second Court Date</td><td>20 August</td></tr><tr><td>Mitula - Second Hearing and Scheme Approval (Court) </td><td>7-14 days after Shareholder Mtg</td><td>20 August</td></tr><tr><td>Mitula - Final Shareholder Record Date</td><td>3 business days after Approval Date</td><td>23 August</td></tr><tr><td>Mitula - Implementation Date</td><td>8 bd after Final Record Date</td><td>31 August</td></tr><tr><td>Mitula - Completion/Settlement Date</td><td>7 bd after Implementation Date</td><td>6 September</td></tr><tr><td>End Date (Long Stop)</td><td>30 November 2018</td><td></td></tr><tr><td colspan="3" style="text-align: right;">* data based on 90 precedent Schemes in Australia in the past 5+ years.</td></tr></tbody></table>There are a lot of interesting moving parts here. Read on for more discussion.

On Wednesday May 9th, Australia-listed online classifieds specialist Mitula Group Ltd (MUA AU) announced it had entered into a binding Scheme Implementation Deed with LIFULL Co Ltd (2120 JP) of Japan. Lifull, for its part, produced an announcement on the TSE website. The two companies, once merged, will be a significant player in online classifieds across the world with operations in 63 countries covering 170 million visits a month. The deal is interesting, and highly unusual, and the spread is likely to remain wide-ish because of its cross-border nature, the volatility of the hedge, the short-gamma positioning involved, and low float involved on all sides.Therein lies opportunity. The structure, while not overly difficult, is strange enough that many in Asia will not have seen it, and most Asian risk arb traders will not have traded this kind of deal before.The initial terms are that Mitula Group shareholders will receive 0.0753 LIFULL shares for each Mitula share they hold (which was equivalent to A$0.85 at the time of announcement). That is an 88.9% premium to the May 8th closing price. Mitula shareholders can choose to receive A$0.80 in cash for the first 20,000 shares that they own or receive only shares.If an Australian investing public getting a mix of Australian dollar cash and Japanese-yen and Japan-listed shares were not exotic enough, the terms also have a slope to Mitula investors from the next 12% of combined downside from weakness in the yen, or in LIFULL's share price. In addition, Mitula shareholders can enjoy an upside of up to 8% in the AUD-equivalent price of LIFULL shares, up to a value-equivalent of A$0.918/share. Above that and the exchange ratio is lowered to cap the delivery value at A$0.918/share. These terms deserve a closer look. The initial terms of A$0.85/share are already obsolete. On the first day.There are other complications as well (such as holding the Japanese shares received in a pooled account), especially as concerns individual or unsophisticated shareholders in Australia. Institutional funds and hedge funds should be fine.The AnnouncementsAnnouncementLanguageSourceASX Announcement of binding Scheme Implementation signedEnglishMitula/ASXTSE Announcement of deal by LifullEnglishLifull/ASXLifull press release of dealEnglish / JapaneseLifull/websiteLifull announcement of deal (full)English / JapaneseLifull/websiteLifull Presentation of deal (full)English / JapaneseLifull/websiteLifull Changes to Mit-Term Plan (due to Change in FY)English / JapaneseLifull/websiteCompany IR PagesLifull / MitulaBasic Deal DetailsDatapointData in the Data PointInitial Terms of ConsiderationIF no election is made,           Cash Consideration of A$0.80/share for first 20,000 Scheme Shares           Scrip Consideration* of A$0.85/share for all additional Scheme Shares  IF an election is made           Scrip Consideration* of A$0.85/share for ALL Scheme Shares held*Initial Scrip ConsiderationA$0.85/share of value, defined as 0.0753 shares of LifullInitial Bidder Share PriceA$11.29/share    [¥925 share at A$/¥ 81.930912]Scheme Downside Price  Protection Mechanism Scrip Consideration (clause 4.6)Applies IF Final Bidder Share Price &lt; Initial Bidder Share Price  0.0753 Lifull shares x Initial Bidder Share Price (A$11.29) / Final Bidder Share Price           where Final Bidder Share Price is determined by Bidder VWAP           Bidder VWAP = VWAP during 10 Trading Days up to/including Record Date  Note:  Maximum Scrip Consideration under Clause 4.6 is 0.084336 Lifull SharesUpside Participation Cap Scrip Consideration (clause 4.8-4.9)Applies IF Final Bidder Share Price is &gt; 8% higher than  Initial Bidder Share Price (i.e. &gt; A$12.1932)   Conditions PrecedentScheme: 75% of shares and 50% of target shareholders must approve.  Other Conditions are outlined in the Mitula Announcement (link below) p15 and onward. Note that there is a measure on share-splitting due to the fact that small-lot shareholders could receive all-cash if a 39,000 share position were "split" twice.All deal details are in the Mitula Announcement or the Lifull announcementTentative ScheduleEventExpected Date as Per DocumentSmartkarma Timeline*Announcement of Deal9-May-18Lifull - Record Date of EGN for Lifull14-May-18Lifull - Special Shareholders Meeting for Lifull28-Jun-18Mitula - Explanatory Booklet DispatchJul-18Mitula - Scheme - First Hearing in CourtJuly 2018 (est)Mitula - Scheme Meeting for ShareholdersAugust 2018 (est)13 AugustMitula - Election Date (for Consideration choice)7pm on date of Second Court Date20 AugustMitula - Second Hearing and Scheme Approval (Court) 7-14 days after Shareholder Mtg20 AugustMitula - Final Shareholder Record Date3 business days after Approval Date23 AugustMitula - Implementation Date8 bd after Final Record Date31 AugustMitula - Completion/Settlement Date7 bd after Implementation Date6 SeptemberEnd Date (Long Stop)30 November 2018* data based on 90 precedent Schemes in Australia in the past 5+ years.There are a lot of interesting moving parts here. Read on for more discussion.

LIFULL and Mitula - A Really Interesting Little Deal

Director, Pearl Hill Advisors

Nicholas Tanner

Director

Pearl Hill Advisors

Equity Bottom-Up

<ul>
<li>Next Co is a real estate internet company operating a website called “Homes” <a href="http://www.homes.co.jp/" target="_blank">http://www.homes.co.jp/</a> . It is similar to Rightmove (UK), Zoopla (UK) or Zillow (US). It essentially amalgamates real estate broker offerings into one site and takes a fee. It is the largest such operator in Japan and set up its internet site in 1997 by the President (owns 30%) who initially worked as a condominium salesman.</li>
<li>There are some 50m houses in Japan. Some 2.5m households relocate annually, either to rent or to…</li>
</ul>


Next Co is a real estate internet company operating a website called “Homes” http://www.homes.co.jp/ . It is similar to Rightmove (UK), Zoopla (UK) or Zillow (US). It essentially amalgamates real estate broker offerings into one site and takes a fee. It is the largest such operator in Japan and set up its internet site in 1997 by the President (owns 30%) who initially worked as a condominium salesman.
There are some 50m houses in Japan. Some 2.5m households relocate annually, either to rent or to…


Japan's "Rightmove" Should Continue to See Strong Growth.

Japan

LIFULL Co., Ltd. offers real estate information services. The Company provides house rental information, house sale information, and more. LIFULL also operates internet advertising businesses.

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LIFULL (2120 JP)

LIFULL and Mitula - A Really Interesting Little Deal

On Wednesday May 9th, Australia-listed online classifieds specialist Mitula Group Ltd (MUA AU) announced it had entered into a binding Scheme...

Travis Lundy

Japan's "Rightmove" Should Continue to See Strong Growth.

Next Co is a real estate internet company operating a website called “Homes” http://www.homes.co.jp/ . It is similar to Rightmove (UK), Zoopla...

Pearl Hill Advisors

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