Smartkarma Daily Briefs

• The possibility/likelihood of a “¥50bn MBO” for Snow Peak Inc (7816 JP) was leaked in a Nikkei article last Friday. It went limit up two days in a row. 
• That TOB price is more than 70% off its three-year high. That will certainly disappoint some. Separately, the price seems a bit low given growth. 
• The family and friends own ~42% so if someone gets upset, or uppity, there could be a challenge. Just because an MBO exists doesn’t mean people have to tender in.

• Snow Peak Inc (7816 JP) has recommended a Bain Capital-sponsored MBO tender offer at JPY1,250 per share, a 58.0% premium to the undisturbed price (15 February). 
• The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 38.13% ownership ratio.
• Based on the irrevocables, the minimum acceptance condition requires a 52.8% minority acceptance rate. While not a knockout offer, the acceptance condition is achievable.  

• Pal Group’s founder retired last month after 50 years at the helm. 
• Since 2001, the fashion to variety store business has grown from ¥10 billion to a forecast ¥184 billion this year.
• There remains growth potential in the variety store chain, 3Coins, as well as a revival in the fashion side.

Dentsu’s FY23 net revenue was a touch above guidance at Q3, with a better-than-expected operating margin reflecting a good Q4 in Japan, further boosted by a short delay in an IT project pushed out to Q124. The results were accompanied by the news of a change in global CFO, with the role reverting to Yushin Soga, who held the role until January 2023. As anticipated, net revenue outside Japan declined, although there was some trading improvement in the US in Q4. A thorough business review is now in progress, with the next mid-term plan due early in H2. In the meantime, the balance sheet is strong, with leverage reduced to 0.6x EBITDA, and share buybacks will be resumed. We regard the rating as undemanding.

• Otsuka Holdings (4578 JP) ended 2023 on a mixed note. Both revenue and business profit were ahead of guidance. However, operating and net profits missed guidance, dragged by impairment loss.
• Four global pharmaceutical products as well as the nutraceuticals business led the business performance. Even after excluding the impact of foreign exchange, the business remained above plan.
• The company has guided for 6% YoY growth in 2024 revenue and business profit to ¥2,140B and ¥330B, respectively. 2024 net profit is expected to jump 106% YoY to ¥250B.

• Hotel demand ahead of expectations – Q1-3 FY3/2024 results were driven by strong underlying demand for hotel operations.
• The domestic business was boosted by a robust market environment where visitor numbers for domestic and overseas customers exceeded pre-pandemic levels, helping drive Q3 FY3/2024 RevPAR by 43.5% YoY.
• Despite a high run rate versus company guidance for sales and exceeding recurring profit and net income, there has been no revision from the company, indicating a potential for an overshoot in our view. We believe inbound and domestic demand will be sustained.

• SENKO Group Holdings Co., Ltd. (9069 JP) today announced large financial institutional cross-holders would sell shares in a Secondary Offering. There’s a buyback on the back end.
• Cross-Holding unwinding is the subject of the moment. It will continue to be so. It will involve selldowns, and buybacks. Study the model of what companies must do what. 
• In this case, Senko has a LOT of cross-holders and minimal excess cash. So investors buy more shares. But there is a buyback and index demand to come.

• Outsourcing Inc (2427 JP) delayed its earnings from 14 February to 19 February on tardiness in calculating impairment losses. That caused a short sharp shock in share price.
• An article came out suggesting it was a small number, and domestic biz EAS-related. Results today do not suggest EAS-related, and half is overseas. But no suggestion of precondition breach.
• For that, I think this probably goes through, and the EC FSR review period should end on 20 Feb so a deal announcement by Friday is eminently possible.

• Heiwado Co Ltd (8276 JP) today announced a Secondary Offering sell-down by cross-holders, combined with a buyback post-offering to mitigate some of the effects of overhang.
• Banks and insurers are selling, and that will leave the stock with a lot of cross-holders left, but investors should look at the model given he zeitgeist. 
• Companies with lots of cross-holders have to be “fair” to them. Those without copious cash have to spread it around so this transaction model looks likely to be continued.

• Outsourcing Inc (2427 JP) has disclosed a weak 4Q materially below guidance due to cost overruns and JPY6,875 million in impairments. The results did not provide an update on Bain’s tender.
• The weak 4Q has raised concerns that Bain would reconsider terms. Our take is that the results will not warrant a change in the DCF valuation or breach a pre-condition. 
• Bain is likely to consider the results a reflection of near-term industry weakness rather than company-specific issues. The annualised spread for a March-end completion is 9.8%.

• Nintendo’s share price fell ~6% on rumours of Switch 2 delay, wiping around $4 billion of the market cap
• We do not believe that a one quarter delay will have any impact on the console’s long-term sell-through or the stock’s valuation
• With Sony’s PS5 faltering, Nintendo is launching at an opportune time. We turn bullish on the stock with ~25% upside from here

• Trial Holdings (5882 JP) (TH) is now looking to raise around US$234m in its Japan IPO, after having canceled its prior listing attempt last year.
• TH operates a network of retail stores that offer one-stop shopping under its everyday low price model, across a variety of daily necessities, food items and other products.
• We have looked at the past performance in our previous notes. In this note, we talk about the updates from its recent filings.

• There was modest improvements in corporate governance in 2023, without any Code revisions. About two thirds of companies showed little improvement in their corporate governance practices over the past year.
• However, the increase in % Woman Board Members, a touchstone for measuring the improvement attitude of some companies that have shown improvement, gives us hope for the future.
• Companies with Metrical CG scores rising below 2.5 points and those with declines have challenges with their use of cash, along with their stock repurchase and dividend policies.

• Mercard, the credit card launched by Mercari in late 2022, is a success, helping the the CtoC platform grow its user base and help add to Mercari’s financial services business.
• The rate of growth in online flea markets has slowed and competition has increased so relying on the CtoC platform alone won’t deliver sufficient growth.
• Mercari will introduce a new gig-work service this Spring to further differentiate its business from the likes of Rakuma and Yahoo Flea Market.