Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Total Access Communication / Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/total-access-communication" target="_blank" data-smartkarma-citation="entities:948:1" rel="noopener">Total Access Communication (DTAC TB)</a> and <a href="https://www.smartkarma.com/entities/true-corp-pcl" target="_blank" data-smartkarma-citation="entities:8:1" rel="noopener">True Corp Pcl (TRUE TB)</a> are exploring a merger of equals at a swap ratio of 1:10.221. NBTC approval could be the biggest hurdle.</li>
<li>Both stocks are trading lower than their Voluntary Tender Offer prices. The spread is between 5.5-6.5% and that could close over the next couple of months.</li>
<li>We prefer a long <a href="https://www.smartkarma.com/entities/total-access-communication" target="_blank" data-smartkarma-citation="entities:948:1" rel="noopener">Total Access Communication (DTAC TB)</a> / short <a href="https://www.smartkarma.com/entities/true-corp-pcl" target="_blank" data-smartkarma-citation="entities:8:1" rel="noopener">True Corp Pcl (TRUE TB)</a> trade as the downside is protected in case of a deal break.</li>
</ul>



Total Access Communication (DTAC TB) and True Corp Pcl (TRUE TB) are exploring a merger of equals at a swap ratio of 1:10.221. NBTC approval could be the biggest hurdle.
Both stocks are trading lower than their Voluntary Tender Offer prices. The spread is between 5.5-6.5% and that could close over the next couple of months.
We prefer a long Total Access Communication (DTAC TB) / short True Corp Pcl (TRUE TB) trade as the downside is protected in case of a deal break.


DTAC/TRUE Merger: Details and Index Implications

European Event-Driven Analyst

Jesus Rodriguez Aguilar

<p>At the awaited auction for <a href="https://www.smartkarma.com/entities/wm-morrison-supermarkets-plc" target="_blank" data-smartkarma-citation="entities:22052:1" rel="noopener">Wm Morrison Supermarkets (MRW LN)</a>, CD&amp;R increased its bid to <strong>287p</strong> against a bid of 286p made by Fortress. CD&amp;R took its prey. Fortress, which had preemptively struck (<a href="https://www.smartkarma.com/insights/fortress-morrisons-272p-pre-emptive-strike" target="_blank" data-smartkarma-citation="insights:55791" rel="noopener">Fortress/Morrisons: 272p Pre-Emptive Strike</a>) saved face and CD&amp;R won by increasing its stretched offer by just 0.7% (c. £48 mn). Fortress could have withdrawn just as Carlyle did in the tussle with Philip Morris for <a href="https://www.smartkarma.com/entities/vectura-group-plc" target="_blank" data-smartkarma-citation="entities:22201:1" rel="noopener">Vectura (VEC LN)</a>, but preferred to make its rival pay a bit extra.</p>
<p>The consideration represents an <strong>implied equity value</strong> of <strong>£7,032 mn</strong> and an implied EV of £10,113 mn. This also represents <strong>9.1x EV/Fwd EBITDA</strong> and <strong>20.4 Fwd P/E</strong>.</p>
<p>The 61% premium vs. closing price prior to commencement of the offer period highlights the extreme lengths PE firms are willing to go to spend its dry powder, amid a global deal frenzy.</p>
<p>The only approvals required by CD&amp;R are the approval by the requisite majority of scheme shareholders at the Court Meeting and Morrisons shareholders at the General Meeting and sanction of the Scheme by the Court.</p>
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<p>According to my calculations, the winning bid should achieve an <strong>11.8% IRR by year 8</strong>. Assumptions are an exit multiple of 8.5x (this would be a substantial re-rating vs. the previously considered 7.9x), cutting capex by a fifth, an EBITDA margin improvement to 6.3% (a c. 20 bps gain vs. Capital IQ consensus forecasts, with the necessary caveat that such a move may drive customers out of the stores and therefore lead to a loss of market share). </p>
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<p><strong>Gross spread</strong> is <strong>0.5%</strong>. The deal will complete. Time to surrender the shares.</p>

At the awaited auction for Wm Morrison Supermarkets (MRW LN), CD&amp;R increased its bid to 287p against a bid of 286p made by Fortress. CD&amp;R took its prey. Fortress, which had preemptively struck (Fortress/Morrisons: 272p Pre-Emptive Strike) saved face and CD&amp;R won by increasing its stretched offer by just 0.7% (c. £48 mn). Fortress could have withdrawn just as Carlyle did in the tussle with Philip Morris for Vectura (VEC LN), but preferred to make its rival pay a bit extra.
The consideration represents an implied equity value of £7,032 mn and an implied EV of £10,113 mn. This also represents 9.1x EV/Fwd EBITDA and 20.4 Fwd P/E.
The 61% premium vs. closing price prior to commencement of the offer period highlights the extreme lengths PE firms are willing to go to spend its dry powder, amid a global deal frenzy.
The only approvals required by CD&amp;R are the approval by the requisite majority of scheme shareholders at the Court Meeting and Morrisons shareholders at the General Meeting and sanction of the Scheme by the Court.






According to my calculations, the winning bid should achieve an 11.8% IRR by year 8. Assumptions are an exit multiple of 8.5x (this would be a substantial re-rating vs. the previously considered 7.9x), cutting capex by a fifth, an EBITDA margin improvement to 6.3% (a c. 20 bps gain vs. Capital IQ consensus forecasts, with the necessary caveat that such a move may drive customers out of the stores and therefore lead to a loss of market share). 






Gross spread is 0.5%. The deal will complete. Time to surrender the shares.

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/metro-ag" target="_blank" data-smartkarma-citation="entities:21673:1" rel="noopener">METRO AG (MEO GR)</a> will close its Japan operations at the end of October. It follows <a href="https://www.smartkarma.com/entities/carrefour-sa" target="_blank" data-smartkarma-citation="entities:21409:1" rel="noopener">Carrefour SA (CA FP)</a>, <a href="https://www.smartkarma.com/entities/tesco-plc" target="_blank" data-smartkarma-citation="entities:22187:1" rel="noopener">Tesco PLC (TSCO LN)</a> and <a href="https://www.smartkarma.com/entities/walmart-inc" target="_blank" data-smartkarma-citation="entities:11134:1" rel="noopener">Walmart (WMT US)</a> as the latest major international player to try and fail in the Japanese market and leaves Costco as the only international chain retailer – but a clearly successful one at least. </p>

METRO AG (MEO GR) will close its Japan operations at the end of October. It follows Carrefour SA (CA FP), Tesco PLC (TSCO LN) and Walmart (WMT US) as the latest major international player to try and fail in the Japanese market and leaves Costco as the only international chain retailer – but a clearly successful one at least. 

Index Rebalance

<p>In my last insight about <a href="https://www.smartkarma.com/entities/wm-morrison-supermarkets-plc" target="_blank" data-smartkarma-citation="entities:22052:1" rel="noopener">Wm Morrison Supermarkets (MRW LN)</a> (see <a href="https://www.smartkarma.com/insights/fortress-morrisons-272p-pre-emptive-strike" target="_blank" data-smartkarma-citation="insights:55791" rel="noopener">Fortress/Morrisons: 272p Pre-Emptive Strike</a> ), <strong>I mentioned that a bid from CD&amp;R could come at 285p</strong>. The bid came, recommended, at 285p and the shares closed at 291p on 20 August.</p>
<p>Now shares are trading at around 291p,  on expectations of a raised offer by Fortress and  expectations that Morrisons may enter the FTSE 100, which should support the shares and drive them higher, as per per fellow insight provider Brian Freitas (see <a href="https://www.smartkarma.com/insights/ftse100-index-rebalance-preview-takeover-names-in-focus" target="_blank" data-smartkarma-citation="insights:56622" rel="noopener">FTSE100 Index Rebalance Preview: Takeover Names in Focus</a>). Brian recommends buying the stock at 285p or slightly higher.</p>
<div>
<p>Unsurprisingly, private equity has first directed its raid towards Morrisons, because it can take higher debt than competitors:</p>
<ul>
<li>It has the highest ownership of its properties at 87% vs. c. 57% for <a href="https://www.smartkarma.com/entities/j-sainsbury-plc" target="_blank" data-smartkarma-citation="entities:22130:1" rel="noopener">J Sainsbury PLC (SBRY LN)</a>  and c. 58% for <a href="https://www.smartkarma.com/entities/tesco-plc" target="_blank" data-smartkarma-citation="entities:22187:1" rel="noopener">Tesco PLC (TSCO LN)</a>.</li>
<li>Its FY2023e gearing of 2.3x including operating leases, is the lowest in the industry and it has a £682 million pension surplus.</li>
<li>Its 2023e FCF will reach c. £447 mn (Capital IQ consensus).</li>
</ul>
<p>As already mentioned, the 285p counteroffer by CD&amp;R would achieve and IRR of 12%, and would rely on a high exit multiple of 8.5x (this would mean a substantial re-rating vs. the previously considered 7.9x), cutting in Capex by a fifth, an EBITDA margin improvement to 6.3% (a c. 20 bps gain vs. Capital IQ consensus forecasts, with the necessary caveat that such a move may drive customers out of the stores and therefore loss of market share). Obtaining a higher IRR would involve substantial sale&amp;leaseback.</p>
</div>
<p><strong>None of the bidding parties has declared its offer as final and another bid could come from Fortress</strong>. If that happened, I believe the Panel would set up an orderly auction process. I change my recommendation to <strong>long MRW LN</strong>. Downside is limited to 2.1%.</p>
<p>The focus will turn now to <a href="https://www.smartkarma.com/entities/j-sainsbury-plc" target="_blank" data-smartkarma-citation="entities:22130:1" rel="noopener">J Sainsbury PLC (SBRY LN)</a>.</p>

In my last insight about Wm Morrison Supermarkets (MRW LN) (see Fortress/Morrisons: 272p Pre-Emptive Strike ), I mentioned that a bid from CD&amp;R could come at 285p. The bid came, recommended, at 285p and the shares closed at 291p on 20 August.
Now shares are trading at around 291p,  on expectations of a raised offer by Fortress and  expectations that Morrisons may enter the FTSE 100, which should support the shares and drive them higher, as per per fellow insight provider Brian Freitas (see FTSE100 Index Rebalance Preview: Takeover Names in Focus). Brian recommends buying the stock at 285p or slightly higher.

Unsurprisingly, private equity has first directed its raid towards Morrisons, because it can take higher debt than competitors:

It has the highest ownership of its properties at 87% vs. c. 57% for J Sainsbury PLC (SBRY LN)  and c. 58% for Tesco PLC (TSCO LN).
Its FY2023e gearing of 2.3x including operating leases, is the lowest in the industry and it has a £682 million pension surplus.
Its 2023e FCF will reach c. £447 mn (Capital IQ consensus).

As already mentioned, the 285p counteroffer by CD&amp;R would achieve and IRR of 12%, and would rely on a high exit multiple of 8.5x (this would mean a substantial re-rating vs. the previously considered 7.9x), cutting in Capex by a fifth, an EBITDA margin improvement to 6.3% (a c. 20 bps gain vs. Capital IQ consensus forecasts, with the necessary caveat that such a move may drive customers out of the stores and therefore loss of market share). Obtaining a higher IRR would involve substantial sale&amp;leaseback.

None of the bidding parties has declared its offer as final and another bid could come from Fortress. If that happened, I believe the Panel would set up an orderly auction process. I change my recommendation to long MRW LN. Downside is limited to 2.1%.
The focus will turn now to J Sainsbury PLC (SBRY LN).

CD&R Leading the Bid War for Morrisons with a Recommended Offer

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

<div>
<p><a href="https://www.smartkarma.com/entities/dingdong-maicia" target="_blank" data-smartkarma-citation="entities:33461:1" rel="noopener">Dingdong Maicia (DDL US) </a>(DM), a groceries on-demand e-commerce company, aims to raise up to US$500m via a US listing. It is backed by Tiger Global, General Atlantic and Softbank.</p>
<p>Dingdong Maicai is an on-demand e-commerce company in China which provides users and households with fresh produce, meat and seafood and other daily necessities via its self-operated frontline fulfillment grid. As of 1Q21, DM had 6.9m monthly transacting users, who had placed 69.7m orders during the quarter. Its FY20 gross merchandise value was RMB13bn, representing a 10%+ market share for the on-demand ecommerce fresh groceries and daily necessities market.</p>
</div><div><p>In our earlier notes, we have looked at the background and performance the company:</p></div><div><ul style="list-style-type: disc;">
<li dir="ltr" aria-level="1"><p><a href="https://www.smartkarma.com/insights/dingdong-maicai-pre-ipo-increasing-market-share-fast-growth-but-no-signs-of-profit" target="_blank" rel="noopener">Dingdong Maicai Pre-IPO - Increasing market share, fast growth but no signs of profit</a></p></li>
<li dir="ltr" aria-level="1"><a href="https://www.smartkarma.com/insights/dingdong-maicai-vs-miss-fresh-pre-ipo-one-clear-winner" target="_blank" rel="noopener">Dingdong Maicai Vs Miss Fresh Pre-IPO - One Clear Winner</a></li>
<li dir="ltr" aria-level="1"><a href="https://www.smartkarma.com/insights/dingdong-fresh-food-competition-in-and-outside-of-frontline-warehouse" target="_blank" rel="noopener">Dingdong (叮咚买菜): Fresh Food Competition in and Outside of Frontline Warehouse</a></li>
</ul></div><div><p>In this note we will provide our earnings forecast and talk about valuations.</p></div>


Dingdong Maicia (DDL US) (DM), a groceries on-demand e-commerce company, aims to raise up to US$500m via a US listing. It is backed by Tiger Global, General Atlantic and Softbank.
Dingdong Maicai is an on-demand e-commerce company in China which provides users and households with fresh produce, meat and seafood and other daily necessities via its self-operated frontline fulfillment grid. As of 1Q21, DM had 6.9m monthly transacting users, who had placed 69.7m orders during the quarter. Its FY20 gross merchandise value was RMB13bn, representing a 10%+ market share for the on-demand ecommerce fresh groceries and daily necessities market.
In our earlier notes, we have looked at the background and performance the company:
Dingdong Maicai Pre-IPO - Increasing market share, fast growth but no signs of profit
Dingdong Maicai Vs Miss Fresh Pre-IPO - One Clear Winner
Dingdong (叮咚买菜): Fresh Food Competition in and Outside of Frontline Warehouse
In this note we will provide our earnings forecast and talk about valuations.

Dingdong Maicai Pre-IPO - Thoughts on Valuation

United Kingdom

Tesco PLC is a British multinational retailer specializing in groceries and general merchandise. It operates various store formats, including hypermarkets, supermarkets, and convenience shops, alongside an extensive online marketplace. The company also offers banking, insurance, and telecommunications services. Tesco is headquartered in Welwyn Garden City, UK, and was founded in 1919.

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Tesco (TSCO LN)

DTAC/TRUE Merger: Details and Index Implications

DTAC and TRUE are exploring a merger of equals. The biggest hurdle could be regulatory approval since the merged entity would have a market share >...

Brian Freitas

CD&R/Morrisons: Final Offer and Spread

The winning bid should achieve an 11.8% IRR by year 8 (leverage of 4.1x net debt/EBITDA). Gross spread is 0.5%. The deal will complete. Time to...

Jesus Rodriguez Aguilar

Metro Cash and Carry to Exit Japan

One of the few foreign players in Japan's food market has confirmed it will quit the market. Only Costco remains although Amazon is expanding its...

Michael Causton

CD&R Leading the Bid War for Morrisons with a Recommended Offer

None of the bidders has declared its offer final. Another bid could come from Fortress and the Panel would set up an orderly auction. Further...

Jesus Rodriguez Aguilar

Dingdong Maicai Pre-IPO - Thoughts on Valuation

Dingdong Maicia (DDL US), a groceries on-demand e-commerce company, aims to raise up to US$500m via a US listing. It is backed by Tiger Global,...

Sumeet Singh

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