Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

The <a href="https://www.smartkarma.com/entities/wh-group-ltd" target="_blank" data-smartkarma-citation="entities:13200:1" rel="noopener">WH Group (288 HK)</a> Partial Offer to buy back 13% of shares outstanding at HK$7.80/share (a 15.9% premium to yesterday's close) went Unconditional yesterday as yesterday's EGM <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0816/2021081601150.pdf" target="_blank" rel="noopener">passed</a> the proposal and the Whitewash Waiver. This deal is live, and closes on 30 August. Unlike other partial offers where one looks at spot price, potential participation/pro-ration, and prices a breakeven against peers, this deal also creates 15% EPS accretion compared to pre-deal. I'd note that despite the premium to the buyback, and the IFA saying fair value is lower, the Controlling Shareholders are not tendering anything.The unaudited <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0812/2021081201179.pdf" target="_blank" rel="noopener">results</a> of 70.3%-owned Chinese unit Henan Shuanghui were out 12 August.  OP was down in H1 to 30 June vs 2020 as live hog prices plummeted and the relative ratio of feed to pork was up, and other costs were down but not as much, and EPS was down 20.0% year-on-year in H1 2021. Unaudited <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0812/2021081200442.pdf" target="_blank" rel="noopener">results</a> of WH Group as a whole were out the same day. Sales volume of packaged meats and pork increased by 2.5% and 10.1% respectively; revenue was up by 6.8%. Operating Profit decreased by 0.5%. Profit attributable to owners of the Company, before biological fair value adjustments, decreased by 2.0%. After adjustments it was up, despite live hog prices falling. US cash prices continue to outpace futures (strong spot demand against weaker forward exports to China and increased supply on seasonal weight gain).We now come down to the wire. Investors should have a long, hard look at where they sit, and why. In the very big picture, WH Group does not look out of place given the 15% EPS accretion and diversified sources and sales markets. But near-term, one could be forgiven for thinking it is nearly priced in. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/224/264/original/Screenshot+2021-08-17+at+3.08.58+PM.png?1629184157" class="editor-image img-responsive" data-smartkarma-image-id="224264"></figure></section><section class="figure"><div class="content-highlight">With about ten days to make a decision, and onshore pork and hog prices perhaps reaching something of an inflection point, the relative merits are less easy than they were as the ratio of the WH Group Back End to its Asia Peer Basket is now at its highest in more than a year and it is only a little bit off its high vs its non-HK/CH Global Peer Basket.</div></section>Much more below the fold.<hr>The series of insights on this event are:<table class="table table-striped">
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<td style="text-align: center; width: 95pt;">Date</td>
<td style="width: 94pt;">Relative Direction</td>
<td style="width: 400pt;">Title</td>
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<td style="text-align: center;">2-Jun-21</td>
<td>Bullish</td>
<td><a href="https://www.smartkarma.com/insights/wh-group-288-hk-today-s-pig-is-tomorrow-s-bacon" target="_blank" rel="noopener">WH Group (288 HK): Today’s Pig Is Tomorrow’s Bacon?</a></td>
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<td style="text-align: center;">6-Jun-21</td>
<td>Bullish</td>
<td><a href="https://www.smartkarma.com/insights/wh-group-buyback-offer-announced-strong-accretion-creates-accretion-risk" target="_blank" rel="noopener">WH Group Buyback Offer Announced - Strong Accretion Creates Accretion Risk</a></td>
</tr>
<tr>
<td style="text-align: center;">20-Jun-21</td>
<td>Bullish</td>
<td><a href="https://www.smartkarma.com/insights/wh-group-vs-peers-too-many-piggies-going-to-market" target="_blank" rel="noopener">WH Group Vs Peers - Too Many Piggies Going to Market?</a></td>
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<tr>
<td style="text-align: center;">5-Jul-21</td>
<td>Bearish</td>
<td><a href="https://www.smartkarma.com/insights/wh-group-trading-opportunities-abound" target="_blank" rel="noopener">WH Group - Trading Opportunities Abound</a></td>
</tr>
<tr>
<td style="text-align: center;">10-Jul-21</td>
<td>Bullish</td>
<td><a href="https://www.smartkarma.com/insights/wh-group-long-only-fundamental-investors-can-take-advantage-too" target="_blank" rel="noopener">WH Group - Long-Only Fundamental Investors Can Take Advantage Too</a></td>
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<td style="text-align: center;">30-Jul-21</td>
<td>Bullish</td>
<td><a href="https://www.smartkarma.com/insights/wh-group-offer-doc-out-this-little-piggy-went-to-market" target="_blank" rel="noopener">WH Group Offer Doc Out - This Little Piggy Went To Market</a></td>
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The WH Group (288 HK) Partial Offer to buy back 13% of shares outstanding at HK$7.80/share (a 15.9% premium to yesterday's close) went Unconditional yesterday as yesterday's EGM passed the proposal and the Whitewash Waiver. This deal is live, and closes on 30 August. Unlike other partial offers where one looks at spot price, potential participation/pro-ration, and prices a breakeven against peers, this deal also creates 15% EPS accretion compared to pre-deal. I'd note that despite the premium to the buyback, and the IFA saying fair value is lower, the Controlling Shareholders are not tendering anything.The unaudited results of 70.3%-owned Chinese unit Henan Shuanghui were out 12 August.  OP was down in H1 to 30 June vs 2020 as live hog prices plummeted and the relative ratio of feed to pork was up, and other costs were down but not as much, and EPS was down 20.0% year-on-year in H1 2021. Unaudited results of WH Group as a whole were out the same day. Sales volume of packaged meats and pork increased by 2.5% and 10.1% respectively; revenue was up by 6.8%. Operating Profit decreased by 0.5%. Profit attributable to owners of the Company, before biological fair value adjustments, decreased by 2.0%. After adjustments it was up, despite live hog prices falling. US cash prices continue to outpace futures (strong spot demand against weaker forward exports to China and increased supply on seasonal weight gain).We now come down to the wire. Investors should have a long, hard look at where they sit, and why. In the very big picture, WH Group does not look out of place given the 15% EPS accretion and diversified sources and sales markets. But near-term, one could be forgiven for thinking it is nearly priced in. With about ten days to make a decision, and onshore pork and hog prices perhaps reaching something of an inflection point, the relative merits are less easy than they were as the ratio of the WH Group Back End to its Asia Peer Basket is now at its highest in more than a year and it is only a little bit off its high vs its non-HK/CH Global Peer Basket.Much more below the fold.The series of insights on this event are:







Date
Relative Direction
Title


2-Jun-21
Bullish
WH Group (288 HK): Today’s Pig Is Tomorrow’s Bacon?


6-Jun-21
Bullish
WH Group Buyback Offer Announced - Strong Accretion Creates Accretion Risk


20-Jun-21
Bullish
WH Group Vs Peers - Too Many Piggies Going to Market?


5-Jul-21
Bearish
WH Group - Trading Opportunities Abound


10-Jul-21
Bullish
WH Group - Long-Only Fundamental Investors Can Take Advantage Too


30-Jul-21
Bullish
WH Group Offer Doc Out - This Little Piggy Went To Market




WH Group Partial Buyback Offer Now Unconditional

On 6 June 2021, <a href="https://www.smartkarma.com/entities/wh-group-ltd" target="_blank" data-smartkarma-citation="entities:13200:1" rel="noopener">WH Group (288 HK)</a> announced a proposal for a Voluntary Buyback Offer. The company decided it had enough cash and excess capital given its investment requirements and decided to return the excess to shareholders by buying up to 13% of shares outstanding. The Controlling Group would not tender, so they would see their stake increase and the minimum pro-ration would reach nearly 20%. The shares popped, then fell. Then they kept on falling. Yesterday and today they hit the level which has been a low point in the oscillator cycle for the last few years at HK$6.00/share.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/221/069/original/Screenshot+2021-07-29+at+9.16.53+PM.png?1627564718" class="editor-image img-responsive" data-smartkarma-image-id="221069"></figure></section>I wrote about the situation that very day in <a href="https://www.smartkarma.com/insights/wh-group-buyback-offer-announced-strong-accretion-creates-accretion-risk" target="_blank" data-smartkarma-citation="insights:52613" rel="noopener">WH Group Buyback Offer Announced - Strong Accretion Creates Accretion Risk</a>. I wrote that based on then-current pricing, expectations, and the trading levels of its peers, it would not be considered expensive at prices higher than the previous close (which had, to be fair, seen a nice pop on news). But markets gonna market. The peers fell. DRAMATICALLY. The 7 names in a HK- or China-listed basket of peers have fallen 23% as live hog prices have fallen and the hog/feed ratio has also fallen, indicating hog producers are making even less than before (or, according to the NDRC, losing more than before).<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/221/072/original/Screenshot+2021-07-29+at+10.16.15+PM.png?1627568193" class="editor-image img-responsive" data-smartkarma-image-id="221072"></figure></section><hr><h2>The NEW News - The Offer Doc is Out</h2>Last night, late-ish, <a href="https://www.smartkarma.com/entities/wh-group-ltd" target="_blank" data-smartkarma-citation="entities:13200:1" rel="noopener">WH Group (288 HK)</a> released its <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0729/2021072901515.pdf" target="_blank" rel="noopener">Offer Document</a> whereby it launches the Conditional Voluntary Cash Offer for 13% of its own shares at HK$7.80/share. <ul>
<li>This will need to be approved by Shareholders - both the Offer and the Whitewash Waiver (the Executive has indicated its intention to approve the WW subject to 50+% of Independent Shareholder votes cast supporting the Offer and 75% of Independent Shareholder votes). </li>
<li>The Record Date for the EGM is 19 August 2021, the EGM is 16 August, and if approved, the Offer will become Unconditional on 16 August and will close on 30 August.</li>
<li>Cheques will be sent no later than 8 Sep. Shares not bought back will be returned no later than 9 Sep. </li>
<li>Minimum pro-ration is 19.7%. </li>
</ul><div class="content-highlight">
There are things to do here for hedge funds and arbitrageurs.
There are things to do here for long-only funds who love the stock. 
</div>This remains an interesting situation. Read on below.

On 6 June 2021, WH Group (288 HK) announced a proposal for a Voluntary Buyback Offer. The company decided it had enough cash and excess capital given its investment requirements and decided to return the excess to shareholders by buying up to 13% of shares outstanding. The Controlling Group would not tender, so they would see their stake increase and the minimum pro-ration would reach nearly 20%. The shares popped, then fell. Then they kept on falling. Yesterday and today they hit the level which has been a low point in the oscillator cycle for the last few years at HK$6.00/share.I wrote about the situation that very day in WH Group Buyback Offer Announced - Strong Accretion Creates Accretion Risk. I wrote that based on then-current pricing, expectations, and the trading levels of its peers, it would not be considered expensive at prices higher than the previous close (which had, to be fair, seen a nice pop on news). But markets gonna market. The peers fell. DRAMATICALLY. The 7 names in a HK- or China-listed basket of peers have fallen 23% as live hog prices have fallen and the hog/feed ratio has also fallen, indicating hog producers are making even less than before (or, according to the NDRC, losing more than before).The NEW News - The Offer Doc is OutLast night, late-ish, WH Group (288 HK) released its Offer Document whereby it launches the Conditional Voluntary Cash Offer for 13% of its own shares at HK$7.80/share. 
This will need to be approved by Shareholders - both the Offer and the Whitewash Waiver (the Executive has indicated its intention to approve the WW subject to 50+% of Independent Shareholder votes cast supporting the Offer and 75% of Independent Shareholder votes). 
The Record Date for the EGM is 19 August 2021, the EGM is 16 August, and if approved, the Offer will become Unconditional on 16 August and will close on 30 August.
Cheques will be sent no later than 8 Sep. Shares not bought back will be returned no later than 9 Sep. 
Minimum pro-ration is 19.7%. 

There are things to do here for hedge funds and arbitrageurs.
There are things to do here for long-only funds who love the stock. 
This remains an interesting situation. Read on below.

WH Group Offer Doc Out - This Little Piggy Went To Market

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/wh-group-ltd" target="_blank" data-smartkarma-citation="entities:13200:1" rel="noopener">WH Group (288 HK)</a> is currently in the pre-event stage of a proposed Buyback Tender Offer as discussed 6 June in <a href="https://www.smartkarma.com/insights/wh-group-buyback-offer-announced-strong-accretion-creates-accretion-risk" target="_blank" data-smartkarma-citation="insights:52613" rel="noopener">WH Group Buyback Offer Announced - Strong Accretion Creates Accretion Risk</a>.Two weeks later on 20 June, I wrote about the <a href="https://www.smartkarma.com/entities/wh-group-ltd" target="_blank" data-smartkarma-citation="entities:13200:1" rel="noopener">WH Group (288 HK)</a> arb bullishly in <a href="https://www.smartkarma.com/insights/wh-group-vs-peers-too-many-piggies-going-to-market" target="_blank" data-smartkarma-citation="insights:53217" rel="noopener">WH Group Vs Peers - Too Many Piggies Going to Market?</a>, noting that live hog prices had fallen sharply and if live hog prices rebounded as futures indicated they might, you'd want to be prepared to think about getting in as the HK-listed and CH-listed peer group rebounded. The Peer Baskets hit their lows on the 21st of January, and the CH/HK-listed Peer Basket of 7 names rebounded 8.7% in the next five days. During that period, WH Group's price hit an intraday price implying 90% shareholder participation in the tender. That was relatively cheap. A little less than a week ago, I wrote <a href="https://www.smartkarma.com/insights/wh-group-trading-opportunities-abound" target="_blank" data-smartkarma-citation="insights:54016" rel="noopener">WH Group - Trading Opportunities Abound</a> when WH Group hit a price implying 50% participation in the proposed Buyback Tender. That was too expensive.Four trading days later and we are at 80% implied participation against a Global Basket and high 70% implied participation rate against the HK-CH-listed Comp Basket. There is a way to think about Partial Offers. This one has the added quirk of being a buyback which affects the back end. <div class="content-highlight">
Both short-term and long-term investors should take special care to understand the options available to them. Those options are worth money.
 To both arbitrageurs and long-term investors. 
</div>

WH Group (288 HK) is currently in the pre-event stage of a proposed Buyback Tender Offer as discussed 6 June in WH Group Buyback Offer Announced - Strong Accretion Creates Accretion Risk.Two weeks later on 20 June, I wrote about the WH Group (288 HK) arb bullishly in WH Group Vs Peers - Too Many Piggies Going to Market?, noting that live hog prices had fallen sharply and if live hog prices rebounded as futures indicated they might, you'd want to be prepared to think about getting in as the HK-listed and CH-listed peer group rebounded. The Peer Baskets hit their lows on the 21st of January, and the CH/HK-listed Peer Basket of 7 names rebounded 8.7% in the next five days. During that period, WH Group's price hit an intraday price implying 90% shareholder participation in the tender. That was relatively cheap. A little less than a week ago, I wrote WH Group - Trading Opportunities Abound when WH Group hit a price implying 50% participation in the proposed Buyback Tender. That was too expensive.Four trading days later and we are at 80% implied participation against a Global Basket and high 70% implied participation rate against the HK-CH-listed Comp Basket. There is a way to think about Partial Offers. This one has the added quirk of being a buyback which affects the back end. 
Both short-term and long-term investors should take special care to understand the options available to them. Those options are worth money.
 To both arbitrageurs and long-term investors. 


WH Group - Long-Only Fundamental Investors Can Take Advantage Too

When <a href="https://www.smartkarma.com/entities/wh-group-ltd" target="_blank" data-smartkarma-citation="entities:13200:1" rel="noopener">WH Group (288 HK)</a> announced its intention to conduct a Partial Offer Buyback to buy back up to 13% of its shares outstanding, the shares popped, but not nearly as far as accretion would have dictated. The level of accretion and what it would mean for investors was discussed in <a href="https://www.smartkarma.com/insights/wh-group-buyback-offer-announced-strong-accretion-creates-accretion-risk" target="_blank" data-smartkarma-citation="insights:52613" rel="noopener">WH Group Buyback Offer Announced - Strong Accretion Creates Accretion Risk</a>.Then the shares fell. This was "not supposed to happen" but was actually utterly normal, as I discussed in <a href="https://www.smartkarma.com/insights/wh-group-vs-peers-too-many-piggies-going-to-market" target="_blank" data-smartkarma-citation="insights:53217" rel="noopener">WH Group Vs Peers - Too Many Piggies Going to Market?</a> It is important to recognise that partial tender trades are de-levered to the back-end. Early on one trades them slightly differently than later on.

When WH Group (288 HK) announced its intention to conduct a Partial Offer Buyback to buy back up to 13% of its shares outstanding, the shares popped, but not nearly as far as accretion would have dictated. The level of accretion and what it would mean for investors was discussed in WH Group Buyback Offer Announced - Strong Accretion Creates Accretion Risk.Then the shares fell. This was "not supposed to happen" but was actually utterly normal, as I discussed in WH Group Vs Peers - Too Many Piggies Going to Market? It is important to recognise that partial tender trades are de-levered to the back-end. Early on one trades them slightly differently than later on.

On 6 June, <a href="https://www.smartkarma.com/entities/wh-group-ltd" target="_blank" data-smartkarma-citation="entities:13200:1" rel="noopener">WH Group (288 HK)</a> announced a proposal for a Voluntary Buyback Offer. The shares popped, then fell. Then kept on falling. <section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/213/993/original/Screenshot+2021-06-19+at+5.37.52+PM.png?1624095490" class="editor-image img-responsive" data-smartkarma-image-id="213993"></figure></section></section>When the announcement was made, I wrote in <a href="https://www.smartkarma.com/insights/wh-group-buyback-offer-announced-strong-accretion-creates-accretion-risk" target="_blank" data-smartkarma-citation="insights:52613" rel="noopener">WH Group Buyback Offer Announced - Strong Accretion Creates Accretion Risk</a> that the shares would not be considered expensive at a price which was higher than the previous close. Since then, the shares have fallen to the low HK$7.00s and then, on Friday morning, below that level. WHAT IS GOING ON???That's easy. And it is part and parcel of this kind of situation. But there is another element. Too many piggies going to market.

On 6 June, WH Group (288 HK) announced a proposal for a Voluntary Buyback Offer. The shares popped, then fell. Then kept on falling. When the announcement was made, I wrote in WH Group Buyback Offer Announced - Strong Accretion Creates Accretion Risk that the shares would not be considered expensive at a price which was higher than the previous close. Since then, the shares have fallen to the low HK$7.00s and then, on Friday morning, below that level. WHAT IS GOING ON???That's easy. And it is part and parcel of this kind of situation. But there is another element. Too many piggies going to market. 

WH Group Vs Peers - Too Many Piggies Going to Market?

Hong Kong

WH Group is the world's largest pork company, operating across China, the US, and Europe. It integrates hog production, slaughtering, and the processing and distribution of packaged meats and fresh pork. The company's core business includes a wide range of packaged meat products and fresh pork. Headquartered in Hong Kong, the company traces its origins back to 1958.

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WH Group (288 HK)

WH Group Partial Buyback Offer Now Unconditional

WH Group has performed well against its peers, even on a post-deal breakeven basis. But it may still have room to go. That said, for arbs, one is...

Travis Lundy

WH Group Offer Doc Out - This Little Piggy Went To Market

WH Group Offer Doc is out. 26% upside to the Offer Price but pro-ration will be low and Peers have plummeted. Business mix is important. WH is not...

Travis Lundy

WH Group - Long-Only Fundamental Investors Can Take Advantage Too

WH Group has a buyback tender offer proposal in place which should receive approval. Fundamental investors should look at enlarging their position.

Travis Lundy

WH Group - Trading Opportunities Abound

WH Group is a partial offer situation. Partial offers are cool. They offer lots of trading opportunities early and bigger arb opportunities later....

Travis Lundy

WH Group Vs Peers - Too Many Piggies Going to Market?

WH Group is the subject of a possible partial offer buyback to buy 20% or more of your shares at a premium. A look at progress and inputs.

Travis Lundy

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