Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Friday morning, the Nikkei said there was a deal in the offing where Mitsui Fudosan would bid for <a href="https://www.smartkarma.com/entities/tokyo-dome-corp" target="_blank" data-smartkarma-citation="entities:6421:1" rel="noopener">Tokyo Dome Corp (9681 JP)</a>.  As someone concerned with the governance weakness shown too many times in Japanese takeover situations, I am almost automatically disappointed to see such headlines. It leads me to expect that later the same day I will be mumbling words at my monitor that I should not say aloud. 
I did Friday.
My constant question is HOW can independent directors of companies with unique and valuable assets deign to sell them at such inexpensive prices? Often those unique and valuable assets are uniquely valuable items such as cash, portfolios of listed securities, and land and property assets with an easily external valuation. 
Sometimes cash and securities get tossed into a DCF as being assets which need to be discounted 9-11% a year on their ability to throw off cash, never mind the fact that the equity holdings are purchased at cash flow yields of 2-3% and bonds are bought with yields of 0-1%. Real estate holdings are usually purchased at yields of 4-6%. So automatically, anything of any real value and inherently low cash-flow yield gets marked down for the friendly buyer. Extra cash is almost never dividended out, and there is never (with the one exception of the takeover of <a href="https://www.smartkarma.com/entities/asatsu-dk-inc" target="_blank" data-smartkarma-citation="entities:8715:1" rel="noopener">Asatsu Dk Inc (9747 JP)</a> a few years ago) any tally of what the non-operating assets are worth to create an Adjusted Enterprise Value. 
This time is no different. 
This is a big fat piece of land in central Tokyo, and a fair number of unique, quite unreplaceable assets and businesses which should command a moat. And earnings have been penalized for years by a total lack of effective maintenance and stewardship by management. 
Oasis proposed buying the company at ¥1300/share in January but said the stock was worth well over ¥2000/share in its public <a href="https://static1.squarespace.com/static/5dd62b05f226644911c6d4e1/t/5efabd9b2d98f71482b79156/1593490878125/OASIS+-+A+Better+Tokyo+Dome+Presentation.pdf" target="_blank" rel="noopener">presentation</a> at the same time. Mitsui Fudosan - a professional strategic owner of prime property assets - bid ¥1200/share earlier this month before being asked to bid ¥1350/share. They bid ¥1300/share.
I am not sure the conversation ends there.
My analysis continues below.

Friday morning, the Nikkei said there was a deal in the offing where Mitsui Fudosan would bid for Tokyo Dome Corp (9681 JP).  As someone concerned with the governance weakness shown too many times in Japanese takeover situations, I am almost automatically disappointed to see such headlines. It leads me to expect that later the same day I will be mumbling words at my monitor that I should not say aloud. 
I did Friday.
My constant question is HOW can independent directors of companies with unique and valuable assets deign to sell them at such inexpensive prices? Often those unique and valuable assets are uniquely valuable items such as cash, portfolios of listed securities, and land and property assets with an easily external valuation. 
Sometimes cash and securities get tossed into a DCF as being assets which need to be discounted 9-11% a year on their ability to throw off cash, never mind the fact that the equity holdings are purchased at cash flow yields of 2-3% and bonds are bought with yields of 0-1%. Real estate holdings are usually purchased at yields of 4-6%. So automatically, anything of any real value and inherently low cash-flow yield gets marked down for the friendly buyer. Extra cash is almost never dividended out, and there is never (with the one exception of the takeover of Asatsu Dk Inc (9747 JP) a few years ago) any tally of what the non-operating assets are worth to create an Adjusted Enterprise Value. 
This time is no different. 
This is a big fat piece of land in central Tokyo, and a fair number of unique, quite unreplaceable assets and businesses which should command a moat. And earnings have been penalized for years by a total lack of effective maintenance and stewardship by management. 
Oasis proposed buying the company at ¥1300/share in January but said the stock was worth well over ¥2000/share in its public presentation at the same time. Mitsui Fudosan - a professional strategic owner of prime property assets - bid ¥1200/share earlier this month before being asked to bid ¥1350/share. They bid ¥1300/share.
I am not sure the conversation ends there.
My analysis continues below.

Tokyo Dome Sells Itself For the Wrong Price

David Blennerhassett

Last Week in Event SPACE: Tokyo Dome, ESR/Sabana, NTT Docomo, Evergrande, LG Corp, China Resources

The Nikkei Asia <a href="https://asia.nikkei.com/Business/Business-deals/1bn-bid-for-Tokyo-Dome-planned-by-developer-Mitsui-Fudosan" target="_blank" rel="noopener">reported</a> this morning (Japanese article link <a href="https://www.nikkei.com/article/DGXMZO66704090X21C20A1MM8000" target="_blank" rel="noopener">here</a>) that <a href="https://www.smartkarma.com/entities/mitsui-fudosan-co-ltd" target="_blank" data-smartkarma-citation="entities:565:1" rel="noopener">Mitsui Fudosan (8801 JP)</a> intended to partner with someone to launch a Tender Offer to take private <a href="https://www.smartkarma.com/entities/tokyo-dome-corp" target="_blank" data-smartkarma-citation="entities:6421:1" rel="noopener">Tokyo Dome Corp (9681 JP)</a>, spending "more than ¥100bn" (vs the ¥85.9bn of yesterday's close) based on the idea that there would be a premium to market price. The Tender Offer could start before 2020 ends.The bigger story here, of course, is that hedge fund Oasis Management has been on the case, urging Tokyo Dome management to do more to improve value for shareholders. Oasis said earlier this month they had been trying to engage with Tokyo Dome since 2018. They went over 5% in December 2019 and according to filings lifted their stake to 9.71% in January 2020. Covid-19 later hit Japan and as a result, the number of events and therefore visitor count at the various features and venues within Tokyo Dome have slowed, and the company is on its back foot. Early this year, Oasis set up a website with a fair bit of material for their case at <a href="https://www.abettertokyodome.com/" target="_blank" rel="noopener">abettertokyodome.com</a>. There main presentation is linked <a href="https://static1.squarespace.com/static/5dd62b05f226644911c6d4e1/t/5efabd9b2d98f71482b79156/1593490878125/OASIS+-+A+Better+Tokyo+Dome+Presentation.pdf" target="_blank" rel="noopener">here</a>. The claims are clear, and frankly, anyone who has been to Tokyo Dome recently will know exactly what Oasis is pointing at in terms of efforts which could make Tokyo Dome a better place to visit and a better company. Among the proposals by Oasis, there are substantially improved digital signage to improve ad revenue, a naming rights agreement like seen at other major Japan venues which could bring in ¥500mm a year or more, overhauled technology to match other world-class venues, substantially improved F&amp;B strategy, etc.  The deck was really an informative read when presented in January of this year and the opportunity seemed clear to me. The onset of covid-19 was a highly unfortunate development in the timeline, and this has disrupted what might have been a much more lively activist discussion. As it is, in October, Oasis called for a shareholder meeting for Tokyo Dome, asking to replace three directors including President Tsutomu Nagaoka. On 10 November, Tokyo Dome held a press conference which saw some floundering, and Oasis <a href="https://www.businesswire.com/news/home/20201111005501/en/Oasis-Key-Messages-for-Tokyo-Dome-Shareholders-Regarding-the-EGM-on-December-17-2020" target="_blank" rel="noopener">responded</a> the day after. The shareholder meeting is now set for 17 December. It is somehow not surprising that Corporate Japan is circling the wagons. Tokyo Dome is indicated limit up at ¥1047 now. The past 15+ years looks like the below.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/563/original/Screenshot%202020-11-27%20at%2010.27.27%20AM.png?1606444069" class="editor-image img-responsive" data-smartkarma-image-id="174563"></figure></section>As a reminder, the stock traded at ¥5000+ in the 1990s.The companies (<a href="https://www.mitsuifudosan.co.jp/corporate/ir/library/news/2020/pdf/news_201127.pdf" target="_blank" rel="noopener">Mitsui Fudosan</a>, <a href="https://contents.xj-storage.jp/xcontents/AS01950/1667e514/ffcc/4644/b6a6/6313ea0899ad/140120201127428865.pdf" target="_blank" rel="noopener">Tokyo Dome</a>) have both responded to the article first thing this morning saying that they will be holding board meetings to discuss this situation later today and will announce anything which needs to be announced as soon as possible thereafter.The old saying goes "Where there is smoke there is fire" but the question is whether it will be hot enough. As a pure tear-down project, the real estate and history of location/brand would likely be worth well more than ¥100bn. Word in the local press is that Mitsui's partner will be Yomiuri Shinbun, which is taking subsidiary/affiliate <a href="https://www.smartkarma.com/entities/yomiuri-land-co-ltd" target="_blank" data-smartkarma-citation="entities:12813:1" rel="noopener">Yomiuri Land (9671 JP)</a> private as discussed in <a href="https://www.smartkarma.com/insights/yomiuri-land-9671-takeover-probably-the-wrong-price-but-whaddya-gonna-do" target="_blank" data-smartkarma-citation="insights:45025" rel="noopener">Yomiuri Land (9671) Takeover - Probably The Wrong Price But Whaddya Gonna Do?</a>. Yomiuri Land is a cross-holder in Tokyo Dome.I expect I will be writing another episode of <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> shortly. It is depressing to me that one needs to write it so often, but needs, I expect, must.More on the situation and the potential valuation methodology/constraints below the fold.

The Nikkei Asia reported this morning (Japanese article link here) that Mitsui Fudosan (8801 JP) intended to partner with someone to launch a Tender Offer to take private Tokyo Dome Corp (9681 JP), spending "more than ¥100bn" (vs the ¥85.9bn of yesterday's close) based on the idea that there would be a premium to market price. The Tender Offer could start before 2020 ends.The bigger story here, of course, is that hedge fund Oasis Management has been on the case, urging Tokyo Dome management to do more to improve value for shareholders. Oasis said earlier this month they had been trying to engage with Tokyo Dome since 2018. They went over 5% in December 2019 and according to filings lifted their stake to 9.71% in January 2020. Covid-19 later hit Japan and as a result, the number of events and therefore visitor count at the various features and venues within Tokyo Dome have slowed, and the company is on its back foot. Early this year, Oasis set up a website with a fair bit of material for their case at abettertokyodome.com. There main presentation is linked here. The claims are clear, and frankly, anyone who has been to Tokyo Dome recently will know exactly what Oasis is pointing at in terms of efforts which could make Tokyo Dome a better place to visit and a better company. Among the proposals by Oasis, there are substantially improved digital signage to improve ad revenue, a naming rights agreement like seen at other major Japan venues which could bring in ¥500mm a year or more, overhauled technology to match other world-class venues, substantially improved F&amp;B strategy, etc.  The deck was really an informative read when presented in January of this year and the opportunity seemed clear to me. The onset of covid-19 was a highly unfortunate development in the timeline, and this has disrupted what might have been a much more lively activist discussion. As it is, in October, Oasis called for a shareholder meeting for Tokyo Dome, asking to replace three directors including President Tsutomu Nagaoka. On 10 November, Tokyo Dome held a press conference which saw some floundering, and Oasis responded the day after. The shareholder meeting is now set for 17 December. It is somehow not surprising that Corporate Japan is circling the wagons. Tokyo Dome is indicated limit up at ¥1047 now. The past 15+ years looks like the below.As a reminder, the stock traded at ¥5000+ in the 1990s.The companies (Mitsui Fudosan, Tokyo Dome) have both responded to the article first thing this morning saying that they will be holding board meetings to discuss this situation later today and will announce anything which needs to be announced as soon as possible thereafter.The old saying goes "Where there is smoke there is fire" but the question is whether it will be hot enough. As a pure tear-down project, the real estate and history of location/brand would likely be worth well more than ¥100bn. Word in the local press is that Mitsui's partner will be Yomiuri Shinbun, which is taking subsidiary/affiliate Yomiuri Land (9671 JP) private as discussed in Yomiuri Land (9671) Takeover - Probably The Wrong Price But Whaddya Gonna Do?. Yomiuri Land is a cross-holder in Tokyo Dome.I expect I will be writing another episode of Japan Needs More Cowbell shortly. It is depressing to me that one needs to write it so often, but needs, I expect, must.More on the situation and the potential valuation methodology/constraints below the fold.

Mitsui Fudosan Tender For Tokyo Dome (9681) Mooted

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Nippon Building Fund / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/nippon-building-fund-inc" target="_blank" data-smartkarma-citation="entities:1900:1" rel="noopener">Nippon Building Fund (8951 JP)</a> aims to raise around US$1.2bn (JPY127bn) in order to part fund its purchase of two assets.This will be one of the largest JREIT placement that we have seen over the past few years. In addition, the stock hasn't been doing too well this year.In this insight, I'll talk about the deal dynamics and run the deal through our ECM framework.

Nippon Building Fund (8951 JP) aims to raise around US$1.2bn (JPY127bn) in order to part fund its purchase of two assets.This will be one of the largest JREIT placement that we have seen over the past few years. In addition, the stock hasn't been doing too well this year.In this insight, I'll talk about the deal dynamics and run the deal through our ECM framework.

Nippon Building Fund Placement - Needs to Correct Some More Given the Weak Sentiment

Mitsui Fudosan Logistics Park Inc / Equity Capital Markets

Mitsui Fudosan Logistics Park Inc (3471 JP)

<div><a href="https://www.smartkarma.com/entities/24027" target="_blank" data-smartkarma-citation="entities:24027:1" rel="noopener">Mitsui Fudosan Logistics Park Inc (3471 JP)</a> (MFLP) is looking to raise about US$450m to partially fund the acquisition of two new assets. </div><div>This will be the second fund raising by the company this year. We covered the earlier deal in Jan 2020 in <a href="https://www.smartkarma.com/insights/mitsui-fudosan-logistics-park-placement-less-dilutive-and-more-accretive-than-the-previous-deal" target="_blank" rel="noopener">Mitsui Fudosan Logistics Park Placement - Less Dilutive and More Accretive than the Previous Deal</a>. We also covered the prior Jan 2019 raising in, <a href="https://www.smartkarma.com/insights/mitsui-fudosan-logistics-park-placement-accretive-and-well-flagged" target="_blank" rel="noopener">Mitsui Fudosan Logistics Park Placement - Accretive and Well-Flagged</a>.</div>

Mitsui Fudosan Logistics Park Inc (3471 JP) (MFLP) is looking to raise about US$450m to partially fund the acquisition of two new assets. This will be the second fund raising by the company this year. We covered the earlier deal in Jan 2020 in Mitsui Fudosan Logistics Park Placement - Less Dilutive and More Accretive than the Previous Deal. We also covered the prior Jan 2019 raising in, Mitsui Fudosan Logistics Park Placement - Accretive and Well-Flagged.

Mitsui Fudosan Logistics Park Placement - Large Deal but Minimal Accretion

Japan

Mitsui Fudosan Co., Ltd. provides overall real estate services such as leasing, subdivision, construction, sales, and maintenance of office buildings and residential houses.  The Company also manufactures building materials, operates commercial facilities including hotels and golf places, and provides financial services such as securitization of real estate properties.

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Mitsui Fudosan (8801 JP)

Tokyo Dome Sells Itself For the Wrong Price

Tokyo Dome is the subject of an activist effort to improve shareholder value for everyone with a stated target from improvements of 140+%. So Tokyo...

Travis Lundy

Last Week in Event SPACE: Tokyo Dome, ESR/Sabana, NTT Docomo, Evergrande, LG Corp, China Resources

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

Mitsui Fudosan Tender For Tokyo Dome (9681) Mooted

It appears Mitsui Fudosan and Yomiuri Land will be bidding for Tokyo Dome in order to fend off the activism of 9.7% holder Oasis. That's a pity....

Travis Lundy

Nippon Building Fund Placement - Needs to Correct Some More Given the Weak Sentiment

Nippon Building Fund (8951 JP) aims to raise over US$1.2bn in order to part fund its purchase of two office assets in Tokyo

Sumeet Singh

Mitsui Fudosan Logistics Park Placement - Large Deal but Minimal Accretion

Mitsui Fudosan Logistics Park Inc (3471 JP) (MFLP) is looking to raise about US$250m to partially fund the acquisition of two new assets and...

Sumeet Singh

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