Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

A couple of minutes before the AM session close yesterday, the Nikkei Inc released a <a href="https://www.nikkei.com/article/DGXMZO48537880U9A810C1I00000/" target="_blank" rel="noopener">story</a> saying that the Special Committee formed to help <a href="https://www.smartkarma.com/entities/cocokara-fine-inc" target="_blank" data-smartkarma-citation="entities:15447:1" rel="noopener">cocokara Fine (3098 JP)</a> management decide whether to enter merger talks with <a href="https://www.smartkarma.com/entities/matsumotokiyoshi-holdings-co" target="_blank" data-smartkarma-citation="entities:2259:1" rel="noopener">Matsumotokiyoshi Holdings Co (3088 JP)</a> (commonly known as "MatsuKiyo") or with <a href="https://www.smartkarma.com/entities/sugi-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:9255:1" rel="noopener">Sugi Holdings (7649 JP)</a> has decided to go with MatsuKiyo. The cocokara Board of Directors looked at the same information and inputs, and they agreed with the panel that the synergy effect was greater if they joined with MatsumotoKiyoshi. cocokara shares immediately popped 9.5% before settling +6.9% at lunch. MatsuKiyo popped as well.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/696/original/Screenshot%202019-08-14%20at%205.16.51%20PM.png?1565774282" class="editor-image img-responsive" data-smartkarma-image-id="95696"></figure><div class="content-caption">source: tradingview.com, Quiddity</div>Over the lunch break, cocokara fine released a <a href="https://corp.cocokarafine.co.jp/news/pdf/20190814_TD01.pdf" target="_blank" rel="noopener">statement</a> (Japanese only for now; English will be in the Discussion Posts below if it comes) saying similar, and that they would enter exclusive negotiations with Matsumoto Kiyoshi on joining, with an eye to concluding a basic agreement, followed by a final agreement. When the market opened in the afternoon, both fell, then both slowly rose back into the end of the day. cocokara ended up 1.3%; Matsukiyo fell 2.2% on the day. The share price ratio closed at 1.689.The panel convened in mid-June to study the matter looked at product policy, store opening areas, the organizational structure of the two enterprises, and decided that the synergy effects with MatsuKiyo were significant. Apparently MatsuKiyo submitted two proposals - capital tie-up as first envisaged earlier in April and "management integration" (which means a full joining (merger or holdco)).On a pro-forma basis (using end-March numbers), the combination would run 3,008 stores and have almost ¥1 trillion in sales (¥976.4bn in FY18) against the current number one and number two <a href="https://www.smartkarma.com/entities/welcia-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20895:1" rel="noopener">Welcia Holdings (3141 JP)</a> and <a href="https://www.smartkarma.com/entities/tsuruha-holdings-inc" target="_blank" data-smartkarma-citation="entities:9536:1" rel="noopener">Tsuruha Holdings (3391 JP)</a> with ¥670-695 billion in segment sales each this past year. This comes as something of a surprise. I thought Sugi would end up being the preferred partner for reasons of culture, overlap (lack thereof), and Cocokara's desire to get into healthcare services, where Sugi already has a tie-up with <a href="https://www.smartkarma.com/entities/medpeer-inc" target="_blank" data-smartkarma-citation="entities:4090:1" rel="noopener">Medpeer Inc (6095 JP)</a>. I also figured Sugi might offer better terms. I would note that this is still not a done deal. Usually, two firms will talk informally, then the boards will decide management teams should talk formally after the ground has been broken. In this case the informal talks to understand synergy and culture appear not to have been completed before we got to the Independent Committee so in this case the parents have decided which potential spouse is better before the kids have done the speed dating.A full discussion is below the fold.<hr> For more on this subject, see my previous piece <a href="https://www.smartkarma.com/insights/cocokara-fine-cocokara" target="_blank" data-smartkarma-citation="insights:30197" rel="noopener">Cocokara Fine は Cocokara いいね*</a> and <a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415" rel="noopener">Michael Causton</a>'s excellent and informative pieces on the deal and the sector <a href="https://www.smartkarma.com/insights/matsukiyo-and-cocokara-fine-tie-to-shake-up-drugstore-sector" target="_blank" data-smartkarma-citation="insights:29890" rel="noopener">Matsukiyo and Cocokara Fine Tie to Shake up Drugstore Sector</a>, <a href="https://www.smartkarma.com/insights/japan-drugstores-set-to-expand-further" target="_blank" data-smartkarma-citation="insights:28119" rel="noopener">Japan Drugstores Set to Expand Further</a>, and <a href="https://www.smartkarma.com/insights/drug-fuelled-marriages-and-macho-shachos-in-japan" target="_blank" data-smartkarma-citation="insights:30346" rel="noopener">Drug-Fuelled Marriages and Macho Shachos* in Japan</a>. Furthermore, two of his recent big picture pieces <a href="https://www.smartkarma.com/insights/japanese-retailing-the-big-disruption-and-opportunity-in-the-next-5-years" target="_blank" data-smartkarma-citation="insights:30770" rel="noopener">Japanese Retailing: The Big Disruption – and Opportunity – in the Next 5 Years</a> and <a href="https://www.smartkarma.com/insights/winners-and-losers-in-japanese-retailing-in-the-next-5-10-years" target="_blank" data-smartkarma-citation="insights:30771" rel="noopener">Winners and Losers in Japanese Retailing in the Next 5-10 Years</a> are excellent backdrop, with the latter providing the SWOTs for the sector.For more information on Japanese Tender Offers and M&amp;A - how they work and how they unfold - please refer to the <a href="https://www.smartkarma.com/insights/quiddity-japan-m-a-guide-2019" target="_blank" rel="noopener">Quiddity Japan M&amp;A Guide</a>.

A couple of minutes before the AM session close yesterday, the Nikkei Inc released a story saying that the Special Committee formed to help cocokara Fine (3098 JP) management decide whether to enter merger talks with Matsumotokiyoshi Holdings Co (3088 JP) (commonly known as "MatsuKiyo") or with Sugi Holdings (7649 JP) has decided to go with MatsuKiyo. The cocokara Board of Directors looked at the same information and inputs, and they agreed with the panel that the synergy effect was greater if they joined with MatsumotoKiyoshi. cocokara shares immediately popped 9.5% before settling +6.9% at lunch. MatsuKiyo popped as well.  source: tradingview.com, QuiddityOver the lunch break, cocokara fine released a statement (Japanese only for now; English will be in the Discussion Posts below if it comes) saying similar, and that they would enter exclusive negotiations with Matsumoto Kiyoshi on joining, with an eye to concluding a basic agreement, followed by a final agreement. When the market opened in the afternoon, both fell, then both slowly rose back into the end of the day. cocokara ended up 1.3%; Matsukiyo fell 2.2% on the day. The share price ratio closed at 1.689.The panel convened in mid-June to study the matter looked at product policy, store opening areas, the organizational structure of the two enterprises, and decided that the synergy effects with MatsuKiyo were significant. Apparently MatsuKiyo submitted two proposals - capital tie-up as first envisaged earlier in April and "management integration" (which means a full joining (merger or holdco)).On a pro-forma basis (using end-March numbers), the combination would run 3,008 stores and have almost ¥1 trillion in sales (¥976.4bn in FY18) against the current number one and number two Welcia Holdings (3141 JP) and Tsuruha Holdings (3391 JP) with ¥670-695 billion in segment sales each this past year. This comes as something of a surprise. I thought Sugi would end up being the preferred partner for reasons of culture, overlap (lack thereof), and Cocokara's desire to get into healthcare services, where Sugi already has a tie-up with Medpeer Inc (6095 JP). I also figured Sugi might offer better terms. I would note that this is still not a done deal. Usually, two firms will talk informally, then the boards will decide management teams should talk formally after the ground has been broken. In this case the informal talks to understand synergy and culture appear not to have been completed before we got to the Independent Committee so in this case the parents have decided which potential spouse is better before the kids have done the speed dating.A full discussion is below the fold. For more on this subject, see my previous piece Cocokara Fine は Cocokara いいね* and Michael Causton's excellent and informative pieces on the deal and the sector Matsukiyo and Cocokara Fine Tie to Shake up Drugstore Sector, Japan Drugstores Set to Expand Further, and Drug-Fuelled Marriages and Macho Shachos* in Japan. Furthermore, two of his recent big picture pieces Japanese Retailing: The Big Disruption – and Opportunity – in the Next 5 Years and Winners and Losers in Japanese Retailing in the Next 5-10 Years are excellent backdrop, with the latter providing the SWOTs for the sector.For more information on Japanese Tender Offers and M&amp;A - how they work and how they unfold - please refer to the Quiddity Japan M&amp;A Guide.

Cocokara (3098) Going With MatsuKiyo (3088) But Ratio Overextended

Japan

Pharmarise Holdings Corporation operates dispensing pharmacies that utilize computerized medical bill verification system.  The Company also sells prescription data analysis reports through its affiliated company.

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Pharmarise Holdings (2796 JP)

Cocokara (3098) Going With MatsuKiyo (3088) But Ratio Overextended

A couple of minutes before the AM session close yesterday, the Nikkei Inc released a story saying that the Special Committee formed to help...

Travis Lundy

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