Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>In late November 2020, the Chairman and a senior executive of <a href="https://www.smartkarma.com/entities/joban-kaihatsu-co-ltd" target="_blank" data-smartkarma-citation="entities:14588:1" rel="noopener">Joban Kaihatsu (1782 JP)</a>  - a smallcap regional construction company with lots of government contracts - announced a Tender Offer to buy out the company. This happens all the time. </p><p>While it happens less often - though still with disturbing regularity - the more disturbing part of this is that he essentially tried to do it for free. </p><p>As discussed in <a href="https://www.smartkarma.com/insights/smallcap-joban-kaihatsu-founder-tries-a-free-mbo" target="_blank" data-smartkarma-citation="insights:45515" rel="noopener">SmallCap Joban Kaihatsu Founder Tries a Free MBO</a>, the Tender Offer Price of ¥7,800/share was less than the value of the net cash + securities positions as of end-September 2020 (the most recent accounting period pre-Tender Offer). The value of net cash + securities was ¥8,933/share. Tangible Book Value per share was ¥12,233/share. </p><p>The "management forecast" on which the "fair value" DCF was built was for higher revenues in the years ahead compared to years past, but also a reduction in profitability of 70%, which would continue for seven years. Even then, the average EBITDA (very little actual depreciation or amortization) for the next seven years was about US$8mm a year (so much lower FCF effectively hides future expensing of capital goods) and so.. obviously... the DCF of that EBITDA was worth... less than zero. </p><p>Shareholders weren't having it. Shares started trading above terms, and haven't traded lower than terms since they started trading in the auction market (after two days of limit up (and the second day was above terms too)).</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/184/185/original/Screenshot+2021-01-23+at+11.45.31+AM.png?1611373555" class="editor-image img-responsive" data-smartkarma-image-id="184185"></figure></section><p>Now we have new news. </p><p>Just before the close yesterday, the bidder raised its bid to ¥9,000/share, and extended the Tender Offer another 11 days to 9 February (they extended it in December from 28 Dec to 25 Jan). </p><p>I think the answer here is still going to be... we'll see.</p><div class="content-remarks"><p><em>[yes, the title is a semi-oblique reference to a large owner of the shares who has purchased its stake since the Tender Offer was launched, but I have no understanding of their intentions.]</em></p></div>

In late November 2020, the Chairman and a senior executive of Joban Kaihatsu (1782 JP)  - a smallcap regional construction company with lots of government contracts - announced a Tender Offer to buy out the company. This happens all the time. While it happens less often - though still with disturbing regularity - the more disturbing part of this is that he essentially tried to do it for free. As discussed in SmallCap Joban Kaihatsu Founder Tries a Free MBO, the Tender Offer Price of ¥7,800/share was less than the value of the net cash + securities positions as of end-September 2020 (the most recent accounting period pre-Tender Offer). The value of net cash + securities was ¥8,933/share. Tangible Book Value per share was ¥12,233/share. The "management forecast" on which the "fair value" DCF was built was for higher revenues in the years ahead compared to years past, but also a reduction in profitability of 70%, which would continue for seven years. Even then, the average EBITDA (very little actual depreciation or amortization) for the next seven years was about US$8mm a year (so much lower FCF effectively hides future expensing of capital goods) and so.. obviously... the DCF of that EBITDA was worth... less than zero. Shareholders weren't having it. Shares started trading above terms, and haven't traded lower than terms since they started trading in the auction market (after two days of limit up (and the second day was above terms too)).Now we have new news. Just before the close yesterday, the bidder raised its bid to ¥9,000/share, and extended the Tender Offer another 11 days to 9 February (they extended it in December from 28 Dec to 25 Jan). I think the answer here is still going to be... we'll see.[yes, the title is a semi-oblique reference to a large owner of the shares who has purchased its stake since the Tender Offer was launched, but I have no understanding of their intentions.]

Joban Kaihatsu MBO Price Bumped, Tender Extended: Still Not Rolling In Clover

<p><a href="https://www.smartkarma.com/entities/owari-precise-products" target="_blank" data-smartkarma-citation="entities:7242:1" rel="noopener">Owari Precise Products (7249 JP)</a> known as <em>Owari Seiki</em> in Japanese makes precision-forged metal parts for the automotive (synchronizer rings for transmissions), aircraft (fasteners), and bicycle (cranks, etc) manufacturing industries. </p><p>The largest corporate shareholders are <a href="https://www.smartkarma.com/entities/hitachi-metals-ltd" target="_blank" data-smartkarma-citation="entities:8561:1" rel="noopener">Hitachi Metals (5486 JP)</a>, <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a>, <a href="https://www.smartkarma.com/entities/aisin-seiki-co-ltd" target="_blank" data-smartkarma-citation="entities:11809:1" rel="noopener">Aisin Seiki (7259 JP)</a>, and there are several financial crossholders. </p><p>Today it was announced that a fund called Rising Japan Equity Fund 2 would launch a takeover of the company. RJE describes itself as having been founded in 2010 as "5 core members" who have markets experience along with SMBC and Mitsui Sumitomo Trust. </p><p><strong>So... the company which is owned by cross-holders to the level of 57-60% is selling itself to a fund sponsored by one of those cross-holders for.... checks notes... </strong></p><h3>...0.34x Book Value Per Share and 1.9x 5yr EBITDA?</h3><h3> </h3><p>And if you take out the securities and the net receivables (67 days of A/R, 30 days of A/P), it is 0.3x 5yr average EBITDA. </p><p>And the company appears to have net surplus assets connected to its pension benefit obligations which would take that to below zero. And that does not count the fact that it has another 75% of its market cap in &lt;3 months of inventory, where near 40% of sales goes to relatively large and stable customers like Aishin AW, Toyota, and Mazda) on long-term supply contracts. </p><h3>So the purchase price is below net cash, securities, and high-quality receivables. </h3><p></p><p>This is going too cheap. </p><p>And there is probably not much you can do about it except complain.</p><p>Or launch a competing bid.</p><hr><p>Some corporate and financial crossholders should really be ashamed of themselves for allowing this to happen at this price. If a company needs cash, they can sell securities holdings, factor receivables, get some of their customers to pay more quickly, push back payables, sell and lease back real estate, etc. This is being done for virtually free, and the forecast the "fair" value is based on expects to make JPY 500mm a year of OP two years out. </p>

Owari Precise Products (7249 JP) known as Owari Seiki in Japanese makes precision-forged metal parts for the automotive (synchronizer rings for transmissions), aircraft (fasteners), and bicycle (cranks, etc) manufacturing industries. The largest corporate shareholders are Hitachi Metals (5486 JP), Toyota Motor (7203 JP), Aisin Seiki (7259 JP), and there are several financial crossholders. Today it was announced that a fund called Rising Japan Equity Fund 2 would launch a takeover of the company. RJE describes itself as having been founded in 2010 as "5 core members" who have markets experience along with SMBC and Mitsui Sumitomo Trust. So... the company which is owned by cross-holders to the level of 57-60% is selling itself to a fund sponsored by one of those cross-holders for.... checks notes... ...0.34x Book Value Per Share and 1.9x 5yr EBITDA? And if you take out the securities and the net receivables (67 days of A/R, 30 days of A/P), it is 0.3x 5yr average EBITDA. And the company appears to have net surplus assets connected to its pension benefit obligations which would take that to below zero. And that does not count the fact that it has another 75% of its market cap in &lt;3 months of inventory, where near 40% of sales goes to relatively large and stable customers like Aishin AW, Toyota, and Mazda) on long-term supply contracts. So the purchase price is below net cash, securities, and high-quality receivables. This is going too cheap. And there is probably not much you can do about it except complain.Or launch a competing bid.Some corporate and financial crossholders should really be ashamed of themselves for allowing this to happen at this price. If a company needs cash, they can sell securities holdings, factor receivables, get some of their customers to pay more quickly, push back payables, sell and lease back real estate, etc. This is being done for virtually free, and the forecast the "fair" value is based on expects to make JPY 500mm a year of OP two years out. 

Owari Precise Products - Another Tiny Cap Takeover at <0.5 Book

Japan

Owari Precise Products Co., Ltd. manufactures precision forged parts for automobiles.  The Company's products include screws, bolts, pistons, flanges, and synchronizer rings. Owari Precise Products also produces aircraft parts.

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Owari Precise Products (7249 JP)

Joban Kaihatsu MBO Price Bumped, Tender Extended: Still Not Rolling In Clover

The Joban Kaihatsu Chairman raises the TOB price but below where the stock has traded every day for eight weeks. It is now at basically an...

Travis Lundy

Owari Precise Products - Another Tiny Cap Takeover at <0.5 Book

A largely cross-held microcap gets a Tender Offer proposal at a 34% premium which takes the company out at 0.34x book, and 0.0-2.0x EV/EBITDA...

Travis Lundy

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