Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>There is an interesting <a href="https://www.zaikai.jp/articles/detail/1046" target="_blank" rel="noopener">article</a> out in Zaikai Online (財界オンライン zaikai.jp) today which talks about the possibility of how the FSA might vote in the <a href="https://www.smartkarma.com/entities/shinsei-bank-ltd" target="_blank" data-smartkarma-citation="entities:16897:1" rel="noopener">Shinsei Bank (8303 JP)</a> EGM which comes in just under three weeks.</p>
<p>The two government entities which own the stock are the Resolution &amp; Collection Corporation (RCC) which owns 26.912mm shares, and the Deposit Insurance Corporation of Japan (DICJ), which owns 20.00mm shares. Together their 46.912mm shares are worth about 22.31% of voting rights, which is a bit more than the total owned by <a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">SBI Holdings (8473 JP)</a> which is opposing the poison pill to be voted on at the EGM. </p>
<p>The FSA will be the decision-maker on the vote as the DICJ is an FSA entity and the RCC is a subsidiary of a subsidiary of the DICJ. </p>
<p>I discussed the possible outcomes for tendering by the government entities in <em><a href="https://www.smartkarma.com/insights/sbi-8473-launches-a-hostile-tender-offer-on-shinsei-bank-8303" target="_blank" data-smartkarma-citation="insights:57426" rel="noopener">SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)!</a></em> and I discussed the possibilities of how they might vote for a poison pill in <em><a href="https://www.smartkarma.com/insights/shinsei-looks-to-a-poison-pill-but-probably-not-really" target="_blank" data-smartkarma-citation="insights:57630" rel="noopener">Shinsei Looks To A Poison Pill, But Probably Not Really</a></em>. </p>
<p>The tone of the article linked above is interesting. I think worth taking another look. </p>
<p>Late today, Japanese news agency Jiji reported that US-based international proxy advisor Glass Lewis came out in support of the Poison Pill at the Shinsei EGM. This surprised the market and shares - which had been trading in the ¥1,860-1,870/share range after last week's large TOPIX and JPX Nikkei 400 index down-weight fell sharply - ending the day down more than 3% - a big move for a risk arb situation.</p>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/239/850/original/Screenshot+2021-11-05+at+2.27.43+PM.png?1636093720" class="editor-image img-responsive" data-smartkarma-image-id="239850"></figure>
<p>While the Glass Lewis and ISS voting guidelines suggest that they generally vote against Poison Pills, there are conditions under which they could support. They don't say they will endorse a poison pill if managements do meet those hurdles, just that they could not support if they don't. Shinsei's poison pill plan met all those hurdles as it proposed in its 21 October 2021 <a href="https://www.shinseibank.com/corporate/en/news/pdf/pdf2021/211021_announcement1_e.pdf" target="_blank" rel="noopener">document</a> (p27-28) where it came out against the SBI Tender Offer, officially. </p>
<p>I had not expected Glass Lewis or ISS to endorse the Poison Pill but it was not a slam dunk they would knock it back. IF the proxy advisors knocked it back, it was a high probability event that the Poison Pill would get voted down.</p>
<p>The result of the EGM might be less assured now that Glass Lewis has supported. But it is complicated. The result of the EGM could have effects on future buybacks, future index events, and profitability, and the way the shares move prior to the EGM could affect how people vote at the EGM. The shares at ¥1650 might trigger a different decision than the shares at ¥1,900.</p>
<p>Much more discussion below the fold. </p>
<p></p>
</section>

There is an interesting article out in Zaikai Online (財界オンライン zaikai.jp) today which talks about the possibility of how the FSA might vote in the Shinsei Bank (8303 JP) EGM which comes in just under three weeks.
The two government entities which own the stock are the Resolution &amp; Collection Corporation (RCC) which owns 26.912mm shares, and the Deposit Insurance Corporation of Japan (DICJ), which owns 20.00mm shares. Together their 46.912mm shares are worth about 22.31% of voting rights, which is a bit more than the total owned by SBI Holdings (8473 JP) which is opposing the poison pill to be voted on at the EGM. 
The FSA will be the decision-maker on the vote as the DICJ is an FSA entity and the RCC is a subsidiary of a subsidiary of the DICJ. 
I discussed the possible outcomes for tendering by the government entities in SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)! and I discussed the possibilities of how they might vote for a poison pill in Shinsei Looks To A Poison Pill, But Probably Not Really. 
The tone of the article linked above is interesting. I think worth taking another look. 
Late today, Japanese news agency Jiji reported that US-based international proxy advisor Glass Lewis came out in support of the Poison Pill at the Shinsei EGM. This surprised the market and shares - which had been trading in the ¥1,860-1,870/share range after last week's large TOPIX and JPX Nikkei 400 index down-weight fell sharply - ending the day down more than 3% - a big move for a risk arb situation.


While the Glass Lewis and ISS voting guidelines suggest that they generally vote against Poison Pills, there are conditions under which they could support. They don't say they will endorse a poison pill if managements do meet those hurdles, just that they could not support if they don't. Shinsei's poison pill plan met all those hurdles as it proposed in its 21 October 2021 document (p27-28) where it came out against the SBI Tender Offer, officially. 
I had not expected Glass Lewis or ISS to endorse the Poison Pill but it was not a slam dunk they would knock it back. IF the proxy advisors knocked it back, it was a high probability event that the Poison Pill would get voted down.
The result of the EGM might be less assured now that Glass Lewis has supported. But it is complicated. The result of the EGM could have effects on future buybacks, future index events, and profitability, and the way the shares move prior to the EGM could affect how people vote at the EGM. The shares at ¥1650 might trigger a different decision than the shares at ¥1,900.
Much more discussion below the fold. 



Further Shinsei Complications: Glass Lewis Endorses the Poison Pill. Will the FSA Vote?

<p><a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">SBI Holdings (8473 JP)</a> reported earnings after the close of 28 October. Earnings were high, and ROE achieved a record high. There was considerable good news in the results, but results were largely as expected and the stock price didn't do much. </p>
<p>Most notable, I thought, in the analyst meeting afterwards was a barrage of comments about <a href="https://www.smartkarma.com/entities/shinsei-bank-ltd" target="_blank" data-smartkarma-citation="entities:16897:1" rel="noopener">Shinsei Bank (8303 JP)</a> seemingly meant to embarrass and disparage Shinsei senior management, and possibly the entire Shinsei management layer.</p>
<p>He likened the fact that Shinsei had not repaid public monies this long after the injection/conversion to "theft" and spent considerable time comparing apples to bananas.</p>
<p>It was not encouraging. Furthermore, he also said that he was "overpaying" at ¥2,000 and had no intention of raising his price. </p>
<p>The entire call was interesting, and aggressive, and you can find the call and transcript  on Smartkarma <a href="https://www.smartkarma.com/entities/sbi-holdings-inc/events?item=7805" target="_blank" rel="noopener">here</a>. </p>
<p>More below the fold. </p>

SBI Holdings (8473 JP) reported earnings after the close of 28 October. Earnings were high, and ROE achieved a record high. There was considerable good news in the results, but results were largely as expected and the stock price didn't do much. 
Most notable, I thought, in the analyst meeting afterwards was a barrage of comments about Shinsei Bank (8303 JP) seemingly meant to embarrass and disparage Shinsei senior management, and possibly the entire Shinsei management layer.
He likened the fact that Shinsei had not repaid public monies this long after the injection/conversion to "theft" and spent considerable time comparing apples to bananas.
It was not encouraging. Furthermore, he also said that he was "overpaying" at ¥2,000 and had no intention of raising his price. 
The entire call was interesting, and aggressive, and you can find the call and transcript  on Smartkarma here. 
More below the fold. 

Aggressive Commentary by SBI About Shinsei at Earnings

Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<p>There was a time when the number of companies introducing takeover defense provisions increased considerably, but in recent years the number of listed companies introducing such provisions has decreased considerably. Many companies eliminated the takeover defense provisions due to the strong opposition from foreign shareholders. Anti-takeover measures do not seem to be a major subject of discussion in the Corporate Governance Code, which is currently under consideration for revision. The following table shows the status of 3,755 companies listed on the Tokyo Stock Exchange as of October 2021 that have adopted takeover defense measures and those that have not. As shown in the table below, the number of companies that have adopted takeover defense measures is 269 out of all listed companies, which is 7.2% of all listed companies. Against this backdrop, takeover defense measures are once again in the spotlight, as Shinsei Bank (8303) recently countered SBI Holdings (8473)'s TOB by resolving to issue stock acquisition rights. In this article, I would like to consider takeover defense measures.</p>

There was a time when the number of companies introducing takeover defense provisions increased considerably, but in recent years the number of listed companies introducing such provisions has decreased considerably. Many companies eliminated the takeover defense provisions due to the strong opposition from foreign shareholders. Anti-takeover measures do not seem to be a major subject of discussion in the Corporate Governance Code, which is currently under consideration for revision. The following table shows the status of 3,755 companies listed on the Tokyo Stock Exchange as of October 2021 that have adopted takeover defense measures and those that have not. As shown in the table below, the number of companies that have adopted takeover defense measures is 269 out of all listed companies, which is 7.2% of all listed companies. Against this backdrop, takeover defense measures are once again in the spotlight, as Shinsei Bank (8303) recently countered SBI Holdings (8473)'s TOB by resolving to issue stock acquisition rights. In this article, I would like to consider takeover defense measures.

Japan's Governance: Takeover Defense Provisions

David Blennerhassett

<div>
<p>This insight provides a quick summary of gross/annualised (where possible) spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and how those spreads have changed over the last week; plus the next hard events over the coming weeks.</p>
</div>
<div>
<p>I number 46, mostly firm, deals around the region.</p>
</div>
<div>
<p>More below the fold.</p>
</div>


This insight provides a quick summary of gross/annualised (where possible) spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and how those spreads have changed over the last week; plus the next hard events over the coming weeks.


I number 46, mostly firm, deals around the region.


More below the fold.


Asia-Pac Weekly Risk Arb Summary: Singapore Press, Ausnutria, Shinsei, Golden Throat, Over The Wire

<p>Two-plus years ago, <a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">SBI Holdings (8473 JP)</a> built up a stake in <a href="https://www.smartkarma.com/entities/shinsei-bank-ltd" target="_blank" data-smartkarma-citation="entities:16897:1" rel="noopener">Shinsei Bank (8303 JP)</a> and tried to negotiate a partnership. Earlier this year when Shinsei decided to partner with a competing online broker for its own securities business, media reports suggest SBI head Kitao-san was beside himself, and from January to end-March, he ended up buying 8% of the voting rights, getting SBI to just under 20% of Shinsei voting rights by March-end. </p><p>On 9 September, SBI launched a Tender Offer to attempt to take its ownership from 20.32% to 48.00% in a Partial Tender Offer at ¥2,000/share, which was a 30+% premium to the then-traded price, but a much smaller premium to the highest price paid by SBI in the previous 6 months. It is also "only" 0.45x book, and 48% would likely gain AGM control because attendance is rarely much above 90%. </p><p>The stock jumped. Then fell back a bit. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/237/739/original/Screenshot+2021-10-27+at+1.57.33+PM.png?1635314281" class="editor-image img-responsive" data-smartkarma-image-id="237739"></figure><p></p></section><p>Shinsei took exception, but has been quite reasoned - in the end - about their opposition. They have proposed a Poison Pill as a form of "Shareholder Approval" of the takeover - a kind of referendum if you will - and in its Target Opinion opposing the deal last week, Shinsei's Board said it could recommend the deal if a) SBI raised its price to a fair price (0.45x book and high single digit forward PER is deemed low by the Board), and b) removed the cap limiting the number of shares shareholders may sell. </p><p>Both of those are utterly reasonable requests - or should be seen that way by shareholders - but SBI lambasted them, refusing to do either. </p><p>This history is described in the extensive coverage on the Shinsei opportunity and the deal so far. </p><table class="table table-striped">
<colgroup>
<col>
<col>
</colgroup>
<tbody>
<tr><td colspan="2" style="text-align: left; width: 481pt;"><h3><a href="https://www.smartkarma.com/entities/shinsei-bank-ltd" target="_blank" rel="noopener">The Recent History of Shinsei Bank (8303 JP)  Insights</a></h3></td></tr>
<tr>
<td>Date</td>
<td>Title</td>
</tr>
<tr>
<td>22-Dec-20</td>
<td><a href="https://www.smartkarma.com/insights/2021-high-conviction-shinsei-bank" target="_blank" data-smartkarma-citation="insights:46544" rel="noopener">2021 High Conviction - Shinsei Bank </a></td>
</tr>
<tr>
<td>10-Mar-21</td>
<td><a href="https://www.smartkarma.com/insights/2021-high-conviction-update-shinsei-bank-float-squeeze-to-mitigate-near-term" target="_blank" data-smartkarma-citation="insights:48989" rel="noopener">2021 High Conviction Update - Shinsei Bank Float Squeeze to Mitigate Near-Term </a></td>
</tr>
<tr>
<td>23-Mar-21</td>
<td><a href="https://www.smartkarma.com/insights/jih-sun-tender-offer-successful-now-the-squeezeout" target="_blank" data-smartkarma-citation="insights:49544" rel="noopener">Jih Sun Tender Offer Successful - Now the Squeezeout </a></td>
</tr>
<tr>
<td>26-Apr-21</td>
<td><a href="https://www.smartkarma.com/insights/shinsei-bank-8303-jp-update-the-pause-that-refreshed-may-end-soon" target="_blank" data-smartkarma-citation="insights:50711" rel="noopener">Shinsei Bank (8303 JP) Update - The Pause That Refreshed May End Soon </a></td>
</tr>
<tr>
<td>13-May-21</td>
<td><a href="https://www.smartkarma.com/insights/shinsei-reports-results-what-looks-bad-isn-t-so-bad-but-it-isn-t-fantastic" target="_blank" data-smartkarma-citation="insights:51424" rel="noopener">Shinsei Reports Results - What Looks Bad Isn't So Bad, But It Isn't Fantastic </a></td>
</tr>
<tr><td colspan="2" style="text-align: center;"></td></tr>
<tr><td colspan="2" style="text-align: left;"><h3>The Tender Offer</h3></td></tr>
<tr>
<td>9-Sep-21</td>
<td><a href="https://www.smartkarma.com/insights/sbi-8473-launches-a-hostile-tender-offer-on-shinsei-bank-8303" target="_blank" data-smartkarma-citation="insights:57426" rel="noopener">SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)! </a></td>
</tr>
<tr>
<td>14-Sep-21</td>
<td><a href="https://www.smartkarma.com/insights/shinsei-looks-to-a-poison-pill-but-probably-not-really" target="_blank" data-smartkarma-citation="insights:57630" rel="noopener">Shinsei Looks To A Poison Pill, But Probably Not Really </a></td>
</tr>
<tr>
<td>20-Sep-21</td>
<td><a href="https://www.smartkarma.com/insights/shinsei-to-launch-a-poison-pill-sbi-plays-coy-so-we-wait" target="_blank" data-smartkarma-citation="insights:57824" rel="noopener">Shinsei To Launch a Poison Pill; SBI Plays Coy, So We Wait </a></td>
</tr>
<tr>
<td>29-Sep-21</td>
<td><a href="https://www.smartkarma.com/insights/sbi-shinsei-talking-past-each-other" target="_blank" data-smartkarma-citation="insights:58250" rel="noopener">SBI &amp; Shinsei Talking Past Each Other </a></td>
</tr>
<tr>
<td>21-Oct-21</td>
<td><a href="https://www.smartkarma.com/insights/shinsei-objects-to-sbi-tender-offers-requirements-to-approve" target="_blank" data-smartkarma-citation="insights:59298" rel="noopener">Shinsei Objects to SBI Tender - Offers "Requirements" To Approve </a></td>
</tr>
</tbody>
</table><hr><h2>Games People Play</h2><p>There is a fair bit of gamesmanship involved in positioning for a partial tender offer. One is presented with an opportunity to buy (or sell) shares now, before the tender, then faced with a choice to tender or not tender shares at a price above market and above undisturbed, with the idea that one might not sell everything and instead one would own a residual, which might trade at a different price. </p><p>One can look at that as a "breakeven" trade. If you bought shares today at the closing price of ¥1,915/share, you are implicitly making the bet that IF the Tender Offer goes through on the terms announced, the post-Tender market price will trade in the ¥1,670-1,715 range, give or take, compared to the pre-announcement undisturbed price of ¥1,453/share, if 90-95% of likely-eligible-to-tender shareholders tender. That's 17% higher than pre-announcement while the TOPIX Banks Index is roughly unchanged. </p><p>However, if fewer than 80% of <em>likely-eligible-to-tender</em> shareholders tender, then the breakeven is about where the pre-announcement level was. </p><p>So investors have to think about a bunch of things... But in this case, investors also have to think about... </p><ul>
<li>What happens if shareholders decide to approve the Poison Pill defence at the shareholder meeting, or...</li>
<li>What changes will be wrought by SBI if they get to 48% which would warrant seeing a back end price different than the undisturbed price? </li>
<li>Or how the shareholder structure would change post-Tender. </li>
</ul><p><em><strong>Below the fold we look at...</strong></em></p><ul>
<li>Are there big flows pre-Tender?</li>
<li>Is there Dilution Risk Buying Before the EGM?</li>
<li>What are the drivers which could prompt a bump?</li>
<li>Is there room to own a chunk of shares post-Tender?</li>
<li>What are the drivers and flows post-Tender which matter?</li>
</ul><p><em>And we look at the Serious Game Of Chicken which could be played.</em></p>

Two-plus years ago, SBI Holdings (8473 JP) built up a stake in Shinsei Bank (8303 JP) and tried to negotiate a partnership. Earlier this year when Shinsei decided to partner with a competing online broker for its own securities business, media reports suggest SBI head Kitao-san was beside himself, and from January to end-March, he ended up buying 8% of the voting rights, getting SBI to just under 20% of Shinsei voting rights by March-end. On 9 September, SBI launched a Tender Offer to attempt to take its ownership from 20.32% to 48.00% in a Partial Tender Offer at ¥2,000/share, which was a 30+% premium to the then-traded price, but a much smaller premium to the highest price paid by SBI in the previous 6 months. It is also "only" 0.45x book, and 48% would likely gain AGM control because attendance is rarely much above 90%. The stock jumped. Then fell back a bit. Shinsei took exception, but has been quite reasoned - in the end - about their opposition. They have proposed a Poison Pill as a form of "Shareholder Approval" of the takeover - a kind of referendum if you will - and in its Target Opinion opposing the deal last week, Shinsei's Board said it could recommend the deal if a) SBI raised its price to a fair price (0.45x book and high single digit forward PER is deemed low by the Board), and b) removed the cap limiting the number of shares shareholders may sell. Both of those are utterly reasonable requests - or should be seen that way by shareholders - but SBI lambasted them, refusing to do either. This history is described in the extensive coverage on the Shinsei opportunity and the deal so far. 





The Recent History of Shinsei Bank (8303 JP)  Insights

Date
Title


22-Dec-20
2021 High Conviction - Shinsei Bank 


10-Mar-21
2021 High Conviction Update - Shinsei Bank Float Squeeze to Mitigate Near-Term 


23-Mar-21
Jih Sun Tender Offer Successful - Now the Squeezeout 


26-Apr-21
Shinsei Bank (8303 JP) Update - The Pause That Refreshed May End Soon 


13-May-21
Shinsei Reports Results - What Looks Bad Isn't So Bad, But It Isn't Fantastic 


The Tender Offer

9-Sep-21
SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)! 


14-Sep-21
Shinsei Looks To A Poison Pill, But Probably Not Really 


20-Sep-21
Shinsei To Launch a Poison Pill; SBI Plays Coy, So We Wait 


29-Sep-21
SBI &amp; Shinsei Talking Past Each Other 


21-Oct-21
Shinsei Objects to SBI Tender - Offers "Requirements" To Approve 


Games People PlayThere is a fair bit of gamesmanship involved in positioning for a partial tender offer. One is presented with an opportunity to buy (or sell) shares now, before the tender, then faced with a choice to tender or not tender shares at a price above market and above undisturbed, with the idea that one might not sell everything and instead one would own a residual, which might trade at a different price. One can look at that as a "breakeven" trade. If you bought shares today at the closing price of ¥1,915/share, you are implicitly making the bet that IF the Tender Offer goes through on the terms announced, the post-Tender market price will trade in the ¥1,670-1,715 range, give or take, compared to the pre-announcement undisturbed price of ¥1,453/share, if 90-95% of likely-eligible-to-tender shareholders tender. That's 17% higher than pre-announcement while the TOPIX Banks Index is roughly unchanged. However, if fewer than 80% of likely-eligible-to-tender shareholders tender, then the breakeven is about where the pre-announcement level was. So investors have to think about a bunch of things... But in this case, investors also have to think about... 
What happens if shareholders decide to approve the Poison Pill defence at the shareholder meeting, or...
What changes will be wrought by SBI if they get to 48% which would warrant seeing a back end price different than the undisturbed price? 
Or how the shareholder structure would change post-Tender. 
Below the fold we look at...
Are there big flows pre-Tender?
Is there Dilution Risk Buying Before the EGM?
What are the drivers which could prompt a bump?
Is there room to own a chunk of shares post-Tender?
What are the drivers and flows post-Tender which matter?
And we look at the Serious Game Of Chicken which could be played.

Shinsei TOB: A Complicated Game of 🐓 Nobody Has Thought About?

Japan

SBI Shinsei Bank, Ltd. provides banking services including deposits, loans, and foreign exchange transaction, as well as investment trust service and issuance of long-term bonds.

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SBI Shinsei Bank (8303 JP)

Further Shinsei Complications: Glass Lewis Endorses the Poison Pill. Will the FSA Vote?

Things are getting complicated further. The FSA is mulling how to vote and Glass Lewis has decided to support the poison pill. Where to price the...

Travis Lundy

Aggressive Commentary by SBI About Shinsei at Earnings

SBI reported on Oct28. CEO Kitao-san hosted the call, aggressively disparaging Shinsei mgmt, comparing Shinsei to comps negatively (mostly apples...

Travis Lundy

Japan's Governance: Takeover Defense Provisions

Recently, anti-takeover measures have been in the spotlight again as Shinsei Bank countered TOB of SBI Holdings by resolving to issue stock...

Metrical Inc

Asia-Pac Weekly Risk Arb Summary: Singapore Press, Ausnutria, Shinsei, Golden Throat, Over The Wire

This insight provides a summary of gross/annualised spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and...

David Blennerhassett

Shinsei TOB: A Complicated Game of 🐓 Nobody Has Thought About?

The Shinsei TOB situation is more complicated than people think. An activist might not cause a bump. But Shinsei could. Or they could tank the...

Travis Lundy

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