This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. Aequitas: SK Hynix US$26.5bn ADR Trading – Where to from Here? Samsung -Ve, Micron +ve Influence
- SK Hynix (000660 KS) (SKH), a leading global memory producer, raised around US$26.5bn via an ADR listing.
- We have looked at the past performance and other deal dynamics in our previous notes.
- In this note, we talk about the recent updates and trading dynamics.
2. StubWorld: Stay Long Digital Garage (4819 JP)
- Digital Garage (4819 JP) is comfortably worth 50% more. Even doubling from here is achievable.
- Preceding my comments on Digital Garage and Kakaku.com Inc (2371 JP) are the current setup/unwind tables for Asia-Pacific Holdcos.
- Hese relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.
3. Merger Arb Mondays (06 Jul) – Kakaku, Taiyo, Shinko Shoji, Arclands, Qoria, Steadfast, Dida
- I summarise the latest spreads and newsflow for the merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, the Philippines, Thailand, and Chinese ADRs.
- Highest spreads: Skyworth (751 HK), Changhong Jiahua (3991 HK), Qoria (QOR AU), Atlantic Lithium (A11 AU), Continental Aerospace Technologies (232 HK), Cygnus Metals (CY5 AU), European Lithium (EUR AU).
- Lowest spreads: Accent Group (AX1 AU), Taiyo Holdings (4626 JP), Kakaku.com Inc (2371 JP), Shinko Shoji (8141 JP), Atlas Arteria (ALX AU), Avarga (AVARGA SP).
4. [Japan M&A] Kakaku Governance A Shining Example; Bain+LY and EQT+DG May Fight Longer
- I wrote about Bain/LY having shown their cards on Kakaku.com Inc (2371 JP) on 2 July. Just before I published (but after it went to compliance), Kakaku responded.
- Kakaku’s response was an exercise in good governance. It was an anti-FujiSoft situation. It was very welcome. Investors should appreciate this and learn from it.
- EQT+DG Consortium has bid ¥3,300 unofficially but that’s about ¥3,415 equivalent. My bet is they will go higher. And Bain+LY will too (theirs is equivalent ¥3,640 if DG gives up).
5. China Shengmu (1432 HK): Touch and Go
- On 30 June, the IFA opined that China Modern Dairy (1117 HK)’s mandatory conditional cash offer for China Shengmu Organic Milk (1432 HK) at HK$0.35 was fair and reasonable.
- However, the independent directors’ recommendation was not unanimous, with Mr Wang Liyan (Independent non-executive director) dissenting. The first closing date is 21 July.
- While meeting the 50% minimum acceptance condition has been aided by the significant derating of peers over the last month, it remains challenging.
6. Dida (2559 HK): Tongcheng (780 HK)’s VGO and Special Dividend
- On 29 June, Dida (2559 HK) announced two transactions: Tongcheng Travel (780 HK)‘s voluntary conditional offer at HK$1.3875 per share and a special dividend of HK$1.1745 per share.
- The total consideration of HK$2.5620 is a 108.3% premium to the undisturbed price. The key condition is a minimum acceptance of 50%, which will be satisfied by the irrevocables.
- This is a low-risk deal as the offer does not require PRC regulatory approvals. Despite being below the 52-week high, the total offer is attractive.
7. Genesis Crashes Regis & Vault’s Party With Superior Terms
- Back on the 5th May, West Aussie gold miners Regis Resources (RRL AU) and Vault Minerals Ltd (VAU AU) announced a A$11bn scrip merger, by way of a Scheme.
- What appeared to be another straightforward, albeit, large gold merger, has unravelled after Genesis Minerals (GMD AU) pitched a “superior” cash/scrip Offer yesterday morning.
- Post merger, Genesis shareholders would own ~59.8% of the combined company, and Vault ~40.2%; versus 51%/49% under Regis’ terms. Regis has until the 13th July to match Genesis’ terms.
8. Strategy (MSTR US)’s “Strategy” Unravels. What A Surprise. Not
- Strategy (MSTR US) has conditioned shareholders that everything is groovy; provided its market cap exceeds its bitcoin holdings. That’s no longer valid.
- The board’s narrative has now shifted from “never sell BTC, reserves alone will cover us“, to an explicit formalised capital framework treating bitcoin as a monetisable backstop for dividend/interest obligations.
- Tellingly (ominously?), Strategy sold 3,588 bitcoins late June/early July, its largest sale ever, at a weighted average of $60,197/bitcoin, below its $75,476/bitcoin average in-cost.
9. Yamada-Edion: The ¥2.5 Trillion Merger that Was Always Coming but Where Are the Benefits?
- Yamada and Edion may finally be tying the knot, creating a ¥2.5 trillion electronics behemoth that could dominate a shrinking market – although Edion shareholder, Nitori, might oppose the deal.
- But previous talks failed, and the initial announcement, while positive, doesn’t say a lot about how the new company will grow.
- What it does demonstrate is just how fashionable M&A has become across all formats and sectors to shore up share in a fast-consolidating retail market.
10. Buy CR Power (836 HK) As CRNE (More Than) Doubles On Debut
- Priced at RM10.11/share, China Resources New Energy (001248 CH) (CRNE) appeared fairly priced on a trailing P/B; to possibly “cheap” on a trailing PER metric, depending on your forecast viewpoint.
- However, at ~700x oversubscribed, and given CRNE is part of the vast SOE China Resources Holdings, a pop on debut was a safe bet. CRNE is now up 109%.
- China Resources Power (836 HK)‘s 81.8% stake in CRNE accounts for 307% of its market cap. And places the discount to NAV at ~74%, That’s not sustainable.
