Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

One year, one week, and one day after the Nikkei reported Hitachi was looking to sell Hitachi Kokusai, we have a Tender Offer on the table. The original deal at ¥2503 was announced at the end of April after almost 7 months of speculation had brought the price to ¥2600+. The stock traded down close to terms, then traded up as people considered the deal price a "put option" and further gains in the then-ebullient SPE space appeared possible. By early August, the stock had reached ¥2900/share and when it came time for KKR to launch its Tender Offer, the support from the Independent Committee had dissolved. My original piece <a href="https://www.smartkarma.com/insights/hitachi-kokusai-tob-minorities-are-asked-to-take-it-or-leave-it" target="_blank" data-smartkarma-citation="insights:10275">Hitachi Kokusai TOB - Minorities Are Asked To Take It Or Leave It</a> in April suggested possible minority shareholder complaints because of the low-balled forecasts. Indeed, the forecasts were later changed and this was one reason for why the Independent Committee changed its support stance. Yesterday, the company revised its forecasts further (OP forecast had been lowered to ¥17.5bn for the original announcement, then lifted back to ¥22.5bn), lifting revenue estimates for the year 7.5%, OP estimates 28.9% to ¥29bn, and NP forecasts 37.2% to ¥19.9bn. The new Net Profit forecast for the year is 13.7% higher than the original OP forecast. But my follow-on piece <a href="https://www.smartkarma.com/insights/hitachi-kokusai-tob-curbing-my-enthusiasm" target="_blank" data-smartkarma-citation="insights:12721">Hitachi Kokusai TOB - Curbing My Enthusiasm</a> when the stock closed at ¥2894 suggested there wasn't much upside. There was ¥6. The reason was that Hitachi was already effectively financing the bid through its back end sale of shares at a lower price and uptake of the video &amp; comms solutions business.The new Offer, and the timing underlying the back end trades, is slightly different as regards the relationship between Hitachi Kokusai, <a href="https://www.smartkarma.com/entities/7797" target="_blank" data-smartkarma-citation="entities:7797:1">Hitachi Ltd (6501 JP)</a>, and KKR, but for minorities it is effectively the same, at a price 15.8% higher than the old price. KKR has set the minimum tender threshold at 24,815,899 shares, which is a majority of the minority after Hitachi's shares and the treasury share holdings are eliminated. They could have gained complete control and squeezed out everybody just by purchasing 34% of the minority, so they are "playing fair" even if minorities don't think the price is that great. And Hitachi Kokusai's board has recommended. So once again, minorities are asked to take it or leave it. Is it the right price? It depends on your view of the cycle. It is 15x EPS on newly revised forecasts, which is more expensive than say <a href="https://www.smartkarma.com/entities/1116" target="_blank" data-smartkarma-citation="entities:1116:1">Lam Research Corp (LRCX US)</a>'s forecast PER, but... if you think there is room to run on the thin film depo business, then something could probably be done to get this done at a higher level. Eventually.

One year, one week, and one day after the Nikkei reported Hitachi was looking to sell Hitachi Kokusai, we have a Tender Offer on the table. The original deal at ¥2503 was announced at the end of April after almost 7 months of speculation had brought the price to ¥2600+. The stock traded down close to terms, then traded up as people considered the deal price a "put option" and further gains in the then-ebullient SPE space appeared possible. By early August, the stock had reached ¥2900/share and when it came time for KKR to launch its Tender Offer, the support from the Independent Committee had dissolved. My original piece Hitachi Kokusai TOB - Minorities Are Asked To Take It Or Leave It in April suggested possible minority shareholder complaints because of the low-balled forecasts. Indeed, the forecasts were later changed and this was one reason for why the Independent Committee changed its support stance. Yesterday, the company revised its forecasts further (OP forecast had been lowered to ¥17.5bn for the original announcement, then lifted back to ¥22.5bn), lifting revenue estimates for the year 7.5%, OP estimates 28.9% to ¥29bn, and NP forecasts 37.2% to ¥19.9bn. The new Net Profit forecast for the year is 13.7% higher than the original OP forecast. But my follow-on piece Hitachi Kokusai TOB - Curbing My Enthusiasm when the stock closed at ¥2894 suggested there wasn't much upside. There was ¥6. The reason was that Hitachi was already effectively financing the bid through its back end sale of shares at a lower price and uptake of the video &amp; comms solutions business.The new Offer, and the timing underlying the back end trades, is slightly different as regards the relationship between Hitachi Kokusai, Hitachi Ltd (6501 JP), and KKR, but for minorities it is effectively the same, at a price 15.8% higher than the old price. KKR has set the minimum tender threshold at 24,815,899 shares, which is a majority of the minority after Hitachi's shares and the treasury share holdings are eliminated. They could have gained complete control and squeezed out everybody just by purchasing 34% of the minority, so they are "playing fair" even if minorities don't think the price is that great. And Hitachi Kokusai's board has recommended. So once again, minorities are asked to take it or leave it. Is it the right price? It depends on your view of the cycle. It is 15x EPS on newly revised forecasts, which is more expensive than say Lam Research Corp (LRCX US)'s forecast PER, but... if you think there is room to run on the thin film depo business, then something could probably be done to get this done at a higher level. Eventually.

KKR TOB for Hitachi Kokusai at ¥2900 - Again a Matter of Take It Or Leave It

Japan

SCREEN Holdings Co Ltd.  manufactures and sell semiconductors, FPD devices, commercial printing and printed circuit boards(PCB). The company also provides additional services for its products.

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SCREEN Holdings (7735 JP)

KKR TOB for Hitachi Kokusai at ¥2900 - Again a Matter of Take It Or Leave It

One year, one week, and one day after the Nikkei reported Hitachi was looking to sell Hitachi Kokusai, we have a Tender Offer on the table. The...

Travis Lundy

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