Category

Event-Driven

May 13
0

Event-Driven: MR D.I.Y. Group, Link Net, Microstrategy Inc Cl A, Tabcorp Ltd, SK Telecom and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • MSCI May 2022 Index Rebalance: In-Line With a Few Surprises
  • Link Net (LINK IJ): Axiata To Vote On The 26 May. Timeline Intact
  • MicroStrategy (MSTR US): Money From Nothing Is Worth?
  • Tabcorp’s Demerger Approved Paving the Way to Unlock Value
  • MSCI Korea Standard: May SAIR Results

MSCI May 2022 Index Rebalance: In-Line With a Few Surprises

By Brian Freitas

Link Net (LINK IJ): Axiata To Vote On The 26 May. Timeline Intact

By David Blennerhassett

  • Axiata Group (AXIATA MK) has convened an EGM on the 26 May to vote on its proposed acquisition of Indonesian broadband play Link Net (LINK IJ).
  • The vote, which for all intent and purposes is a rubber stamp, is one of the SPA conditions to acquire 66.03% of LINK. 
  • Trading at a gross/annualised spread of 7.1%/22.3%. Get involved here.

MicroStrategy (MSTR US): Money From Nothing Is Worth?

By David Blennerhassett

  • MicroStrategy Inc Cl A (MSTR US) is now trading at a ~26% discount to NAV as the bitcoin barbeque continues.  
  • Bitcoin is down ~40% YTD. If it falls another 24%, this will trigger a margin call on one of its loans.
  • Should bitcoin decline to US$17.5k, MSTR’s crypto bet falls short of its debt obligation; debt that its software ops are not sufficiently profitable enough to service. 

Tabcorp’s Demerger Approved Paving the Way to Unlock Value

By Arun George

  • Tabcorp Ltd (TAH AU)’s demerger to create two standalone companies listed on the ASX, The Lottery Corporation and New Tabcorp, was approved today.
  • Subject to the scheme approved by the Court, the Lottery Corporation will trade on a deferred settlement basis on 24 May and a normal settlement basis on 2 June.
  • Peer derating due to the market sell-off results in a lower SoTP valuation of A$5.62 per share, which is still a 13% upside to the last close.

MSCI Korea Standard: May SAIR Results

By Sanghyun Park

  • As expected, we have one addition, which is Hyundai Heavy Industries. But deletions are a bit surprising. The MSCI said that Korea has no deletion this time.
  • The MSCI decided to keep SK Telecom. However, even before the next IR, the possibility of special deletion due to foreign room exhaustion cannot be excluded.
  • The number of constituents in this SAIR increased by one more than the last IR, so Seegene and Green Cross got to stay in the Index.

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May 12
0

Event-Driven: Link Administration Holdings, Woodside Petroleum, Ricoh Company Ltd, Chukyo Bank, Beijing Enterprises Urban Resources, SinoPac Holdings, Meritz Fire & Marine Insurance, Link Net, Ichigo Inc and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Now Link Admin Takes A Bath – Time To Buy
  • Woodside/BHP And the Timing Of The Trade Flows Vs Peers
  • Link’s Shares Collapse as Worries of Buyer’s Remorse Sets In
  • Ricoh (7752) Buyback – Big, But Not. But Not Small.
  • Chukyo (8530) + Aichi (8527) Bank to Create Aichi Fin’l Group – Interesting Structure Adds Value
  • BEW Bumps Effective Stake In BEURG (3718 HK)
  • FTSE TWSE Taiwan 50 Index Rebalance Preview: Sinopac Holdings Could Replace Momo.com
  • KOSPI 200 Rebalancing: Shorting Event for Additions
  • Axiata’s EGM in Relation to the Link Net MTO Set for 26 May
  • FTSE EPRA Nareit Developed Asia Preview: Two Adds Near the Inclusion Threshold

Now Link Admin Takes A Bath – Time To Buy

By David Blennerhassett

  • Link Administration Holdings (LNK AU) cratered this morning ahead of a pause in trading. 
  • Link said it is unaware of the reason for the decline; however, the unfortunate timing of the ACCC delay and the MAC disconnect between Offeror and Target are not helping. 
  • Break price fair value has emerged. Separately, Link is coming up “cheap” versus its holding in PEXA Group (PXA AU).

Woodside/BHP And the Timing Of The Trade Flows Vs Peers

By Travis Lundy

  • BHP Group Ltd (BHP AU) and Woodside Petroleum (WPL AU) announced a merger of BHP Petroleum with Woodside late last year, to be implemented in Q2 2022
  • The vote is in a week, and BHP is expected to trade ex- WPL share spinoff on 24 May 2022, with delivery a week later. 
  • The trade so far has worked well, and there has been a slight additive flow pattern in the last several days. It is worth thinking closely about timing.

Link’s Shares Collapse as Worries of Buyer’s Remorse Sets In

By Arun George

  • Link Administration Holdings (LNK AU) claims to be not aware of any reason for today’s -15% share collapse. The market seems nervy that DND will exhibit buyer’s remorse. 
  • The scheme consideration is now 2.6x DND’s market cap. The ACCC delayed review and the contract renewal MAC clause could be DND’s get-out-of-jail-free card for a lower price/walk-away. 
  • Our “deal-break” SoTP valuation suggests a valuation of A$4.24 per share, which is broadly in line with the last close price. The next catalyst is DND’s results tomorrow.

Ricoh (7752) Buyback – Big, But Not. But Not Small.

By Travis Lundy

  • Ricoh Company Ltd (7752 JP) announced earnings disappointed, but guidance is above forecast as some Q4 business was pushed back.
  • The company also announced a buyback. The headline at 7.5% of shares out is big. Reality is lower. 
  • This sets up a somewhat complex dynamic of flows in near space and far space, and relative to peers. But we look at it anyway.

Chukyo (8530) + Aichi (8527) Bank to Create Aichi Fin’l Group – Interesting Structure Adds Value

By Travis Lundy

  • Chukyo Bank (8530 JP) and Aichi Bank (8527 JP) have decided to join forces to become the largest regional lender in the Nagoya area. 
  • This is probably driven by MUFJ’s efforts to rid itself of non-core assets, but in doing so, it is allowing for an accretive structure for minorities.
  • This ends up being a cheap bank on a slightly complicated pro-forma basis.

BEW Bumps Effective Stake In BEURG (3718 HK)

By David Blennerhassett

  • Beijing Enterprises Water Group (371 HK) (BEW) has effectively increased its stake in Beijing Enterprises Urban Resources (3718 HK) (BEURG) after entering into Acting In Concert agreements (AIC). 
  • Parties to the AICs “irrevocably and unconditionally” undertake to vote in the same manner as BEW in BEURG shareholder meetings. 
  • There was no update on the timing of the MGO, which is expected to open for tendering on the 20 May. 

FTSE TWSE Taiwan 50 Index Rebalance Preview: Sinopac Holdings Could Replace Momo.com

By Brian Freitas

  • The next FTSE TWSE Taiwan 50 Index review will use data from 23 May. The changes will be announced on 3 June and implemented at the close on 17 June.
  • Momo.Com Inc (8454 TT) is a potential deletion from the index, while SinoPac Holdings (2890 TT) should be included as the highest ranked non-index constituent.
  • SinoPac Holdings (2890 TT) has over 3.5 days of ADV to buy from passive funds and trades cheaper than its peers. The stock could outperform over the next few weeks.

KOSPI 200 Rebalancing: Shorting Event for Additions

By Sanghyun Park

  • There is a clear correlation between the resumption of short selling and the overvaluation of stock prices, which was actively reflected when short selling resumed.
  • So, in this rebalancing as well, we need to target those who have seen a significant share price rise recently while looking at the increasing trend of the loan balance.
  • The stocks to watch are Meritz Fire and Hana Tour as their recent share price has been the most solid. In particular, Hana Tour is conducting a capital increase.

Axiata’s EGM in Relation to the Link Net MTO Set for 26 May

By Arun George

  • The Axiata Group (AXIATA MK) EGM to approve the ordinary resolution relating to the proposed acquisition of Link Net (LINK IJ) shares and the proposed MTO is on 26 May. 
  • The proposed acquisition is targeted to be complete by 2Q and the subsequent MTO at IDR4,800 per share will complete by 3Q.
  • At the last close, the gross and annualised spread to the MTO price for a 3Q completion is 7.1% and 11.7%, respectively.

FTSE EPRA Nareit Developed Asia Preview: Two Adds Near the Inclusion Threshold

By Brian Freitas

  • The next FTSE EPRA Nareit Index review will use data from 23 May. The changes will be announced on 1 June and implemented at the close on 17 June.
  • Potential inclusions at the review include Frasers Hospitality Trust (FHT SP) and Ichigo Inc (2337 JP), though both are very close to the basis point threshold for inclusion.
  • Digital Core REIT (DCREIT SP) has still not published an audited annual report in English and is unlikely to be included in the index at the June rebalance.

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May 11
0

Event-Driven: Nintendo Co Ltd, Sony Corp, Link Administration Holdings, Whitehaven Coal, Thai Beverage, AGL Energy Ltd, Poongsan Corp, LG Energy Solution, Comany Inc and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Nintendo (7974) – Earnings Forecasts⬇︎ Stock Split, Buyback, and HOW TO SELL WELL
  • Another BIG SONY (6758) Buyback, But…
  • Link Admin (LNK AU): 13 July Scheme Meeting As Dye & Durham Takes A Bath
  • S&P/​​​​ASX Indices: Quiddity Leaderboard for June 2022 Rebalance 2.0
  • Thai Bev: Holdco Discount Narrows as Thai Bev Prepares to Restart the Beer Unit IPO
  • MCB May Block the AGL De-Merger, But Think About the Alternative
  • Link’s Scheme Meeting on 13 July, High Spread Reflects Deal Risk
  • KOSPI 200 Rebalancing Last-Minute Change to Deletions: Poongsan Pushed Out for CJ CGV
  • FTSE All-World/​​​​All-Cap Index Rebalance Preview: Potential IPO Inclusions in June
  • Comany (7945) – Another Ridiculously Low-Priced MBO

Nintendo (7974) – Earnings Forecasts⬇︎ Stock Split, Buyback, and HOW TO SELL WELL

By Travis Lundy

  • Nintendo has announced in-line-ish results for March 2022, and quite disappointing forecasts for March 2023. Mio Kato called it on 30 March as a sell. Excellent timing. 
  • Nintendo has a buyback tomorrow and if you don’t like the guidance, you should DEFINITELY read on below.
  • But Nintendo also announced something truly extraordinary – a stock split. Everyone pooh-poohs the impact of a stock split but… in this case it is probably not nothing.

Another BIG SONY (6758) Buyback, But…

By Travis Lundy

  • A release showed up on TDNET last week that Sony Corp (6758 JP) had completed its ¥200bn 25mm share (2.02%) buyback program announced 28 April 2021. 
  • The details showed they had actually bought back 8.2mm shares spending only ¥97bn, despite the shares trading below T-1 Announcement Date Price for four months straight. 
  • Today, with earnings, SONY announced a NEW buyback. ¥200bn, 25mm shares, 2.02%. Same as last year. 

Link Admin (LNK AU): 13 July Scheme Meeting As Dye & Durham Takes A Bath

By David Blennerhassett

  • The Supreme Court of New South Wales today approved the convening of a Scheme Meeting for Link Administration Holdings (LNK AU) on the 13 July.  
  • The Explanatory Booklet has been registered with ASIC. The Independent Expert (Deloitte) has concluded that the A$5.50/share Scheme Consideration is fair and reasonable. 
  • Separately, the Offeror, Canada’s Dye & Durham, has seen its shares decline 57% since the release of its 2Q22 results.

S&P/​​​​ASX Indices: Quiddity Leaderboard for June 2022 Rebalance 2.0

By Janaghan Jeyakumar, CFA

  • The S&P/ASX Index family is a widely-tracked group of indices and sub-indices which represent the performance of ASX-listed companies. It rebalances four times a year.
  • In June 2022, Index rebalance events will take place for the S&P/ASX capitalization-weighted indices including ASX 200, 100, 50, and 20. There is likely to be an intra-quarter change too.
  • This is a follow-up insight to S&P/​​​ASX Indices: Quiddity Leaderboard for June 2022 Rebalance. with updated expectations for inclusions/changes in the various indices in the next 6 weeks. 

Thai Bev: Holdco Discount Narrows as Thai Bev Prepares to Restart the Beer Unit IPO

By Oshadhi Kumarasiri

  • In a regulatory filing last Thursday, Thai Beverage (THBEV SP) said that it had restarted its Beer Unit IPO at a much lower valuation than before.
  • Based on the current NAV discount of 13%, we think this is already priced-in Thai Bev’s share price.
  • Nonetheless, a 13% NAV discount could be too light in our opinion and there could be downside potential to the NAV discount following the completion of the Beer Unit IPO.

MCB May Block the AGL De-Merger, But Think About the Alternative

By Travis Lundy

  • AGL Energy Ltd (AGL AU) announced a de-merger of its power distribution and power generation segments on 30 March 2021 after a 1H21 results comment saying “conflicting dynamics necessitated a review.”
  • So for a year, AGL prepared its de-merger and talked about it every quarter. 11.5 months later, MCB/Brookfield put a lowball bid on the table. Then upped it. Both rejected.
  • MCB says the de-merger plan is bad, and some analysts now say it is “underwhelming.” Duh. Not much has changed in 12mos. But the alternative? Underwhelming too, but less independent.

Link’s Scheme Meeting on 13 July, High Spread Reflects Deal Risk

By Arun George

  • The Link Administration Holdings (LNK AU) scheme meeting is scheduled for 13 July. The independent expert has concluded that the Dye & Durham (DND) offer is fair and reasonable.
  • The offer faces significant risks which are ACCC review (findings delayed from the 26 May release date), a contract renewal potentially triggering the MAC clause and an ongoing FCA investigation.
  • At the last close, the gross spread to the base offer is 10.7%. We would be buyers up to A$5.20 per share (implies 75% deal probability).

KOSPI 200 Rebalancing Last-Minute Change to Deletions: Poongsan Pushed Out for CJ CGV

By Sanghyun Park

FTSE All-World/​​​​All-Cap Index Rebalance Preview: Potential IPO Inclusions in June

By Brian Freitas

Comany (7945) – Another Ridiculously Low-Priced MBO

By Travis Lundy

  • Comany Inc (7945 JP)‘s Chairman Tsukamoto is 71. Together with younger Tsukamoto family members he is conducting an MBO to buy out minorities at a 76% premium. 
  • This most likely gets done, and it is tough to trade anyway because it is horribly illiquid.
  • But it is another example of an MBO done at the wrong price. TOB PER is low. But the entire thing is financed by net receivables. Ex-receivables, EV is zero.

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May 10
0

Event-Driven: NTT (Nippon Telegraph & Telephone), SK Telecom Co Ltd (Adr), ioneer Ltd, AGL Energy Ltd, Mindtree Ltd, Canon Inc and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • NTT and NTT Data Reshuffle the Deckchairs and Everyone “Wins”
  • Trading Opportunity Coming on SK Telecom ADR Premium
  • MVIS Global Rare Earth/​​Strategic Metals Index Rebalance Preview: Potential Adds & Capping Flows
  • AGL Energy’s Demerger Booklet Provides an Underwhelming Justification
  • Mindtree-LTI: Merger Announced to Form India’s 5th Largest IT Services Player
  • Canon (7751) – Buyback Looks Small But Shareholder Structure Matters

NTT and NTT Data Reshuffle the Deckchairs and Everyone “Wins”

By Travis Lundy

  • NTT (Nippon Telegraph & Telephone) (9432 JP) and NTT Data Corp (9613 JP) this morning announced a 1pm joint presser. Imaginations ran wild and NTT went up 12+%.
  • The reality is more subdued (as it should have been for a during-market-hours-presser) and it involves a restructuring of a small NTT subsidiary which happens to own NTT Data shares.
  • But it is still positive. It is something of a win-win for both parties.

Trading Opportunity Coming on SK Telecom ADR Premium

By Sanghyun Park

  • ADRs are traded at a significant premium when the foreign room for underlying shares is exhausted. This is the pattern that KT showed in 2018.
  • SKT’s foreign room is currently 1.85%. That is, the burnout rate is 98.15%. Only about 2M shares need to be burned to hit bottom. This is 0.91% of SO.
  • The shortage of SKT ADRs is likely to intensify, which in turn suggests that the ADR premium may rise further.

MVIS Global Rare Earth/​​Strategic Metals Index Rebalance Preview: Potential Adds & Capping Flows

By Brian Freitas

  • Core Lithium Ltd (CXO AU) could be added to the MVIS Global Rare Earth/Strategic Metals Index in June. Lake Resources Nl (LKE AU) is the next highest ranked non-index constituent.
  • Irrespective of whether there are inclusions, there will be passive selling on ioneer Ltd (INR AU) and Australian Strategic Materials (ASM AU) due to capping changes to the index constituents.
  • Inclusions to the index jump post announcement. The review cutoff date is 31 May, so weakness in the potential inclusions could be used to pre-position (if they outperform index constituents).

AGL Energy’s Demerger Booklet Provides an Underwhelming Justification

By Arun George

  • The IFA supported the demerger by stating that “in the absence of a fully priced takeover offer from a third party, the demerger is the most attractive course of action.”
  • IFA concedes that “it is not possible to form a definitive view” if the demerger will generate higher shareholder returns. The report is light on qualitative analysis. 
  • Mike Cannon-Brookes continues to gain retail support for a NO vote at AGL Energy Ltd (AGL AU)‘s 15 June scheme meeting. Our SoTP points to upside absent a demerger.

Mindtree-LTI: Merger Announced to Form India’s 5th Largest IT Services Player

By Janaghan Jeyakumar, CFA

Canon (7751) – Buyback Looks Small But Shareholder Structure Matters

By Travis Lundy

  • Canon Inc (7751 JP) on Monday announced a share buyback programme.
  • It isn’t very big. But it bears consideration because of other things going on. 
  • Shareholder structure is of much more importance than many investors appreciate. Here even more so.

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May 09
0

Event-Driven: Mindtree Ltd, Jindal Steel & Power, Alliance Aviation Services, Bank Of Iwate and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Mindtree & L&T Infotech’s US$18bn Merger: Details and Index Implications
  • India: Preview of Stock Reclassification for Active Funds
  • Merger Arb Mondays (9 May) – Alliance Aviation, Ramsay Health, Yashili, VNET, Sezzle, Link
  • JAPAN ACTIVISM: Silchester Goes After Bk of Iwate – Cheaper Than Chips

Mindtree & L&T Infotech’s US$18bn Merger: Details and Index Implications

By Brian Freitas

India: Preview of Stock Reclassification for Active Funds

By Brian Freitas

  • Two-Thirds of the way through the review period, we see 7 stocks migrating from MidCap to LargeCap, 8 stocks from LargeCap to MidCap, and 1 new listing added to LargeCap.
  • Post listing, Life Insurance Corp of India (LIC) (1248Z IN) should be added to the LargeCap segment while Delhivery (1058656D IN) should be added to the MidCap segment.
  • On average, stocks expected to migrate from Mid Cap to Large Cap have outperformed. Stocks expected to migrate from the Large Cap to Mid Cap segment have performed the worst.

Merger Arb Mondays (9 May) – Alliance Aviation, Ramsay Health, Yashili, VNET, Sezzle, Link

By Arun George

JAPAN ACTIVISM: Silchester Goes After Bk of Iwate – Cheaper Than Chips

By Travis Lundy

  • Silchester has written letters to four Japanese regional banks where they hold large stakes asking for higher dividends and payout ratios. It has proposed a special div AGM agenda item.
  • Bank Of Iwate (8345 JP) is nearly 40% held by cross-holders and government-affiliated entities, and Real World Float is less than 50%. Winning at the AGM is tough.
  • The collection of banks is mixed. But this one is cheap. Cheap as chips. Or cheaper.

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May 08
0

Event-Driven: Yashili International Holdings, BHP Group Ltd, SenseTime Group, CJ CGV Co Ltd, Hitachi Transport System and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Yashili (1230 HK)’s Pre-Conditional Offer From Mengniu
  • Last Week in Event SPACE: Hitachi Transport, Shiga Bank, CP Food, AGL, Woodside/BHP, Yamada Denki
  • Index Rebalance & ETF Flow Recap: KOSPI200, KQ150, CSI300, STAR50, SET50, China A50, HSCI, SenseTime
  • Yashili’s HK$1.20 Privatisation Offer from Mengniu
  • KOSPI 200 Rebalancing: Trade Short Covering Event for Deletions
  • Asia-Pac Weekly Risk Arb Wrap: Alliance Aviation, AGL, Virtus, Yashili, Hitachi Transport

Yashili (1230 HK)’s Pre-Conditional Offer From Mengniu

By David Blennerhassett

Last Week in Event SPACE: Hitachi Transport, Shiga Bank, CP Food, AGL, Woodside/BHP, Yamada Denki

By David Blennerhassett

Index Rebalance & ETF Flow Recap: KOSPI200, KQ150, CSI300, STAR50, SET50, China A50, HSCI, SenseTime

By Brian Freitas

Yashili’s HK$1.20 Privatisation Offer from Mengniu

By Arun George

  • Danone SA (BN FP) will sell to China Mengniu Dairy Co (2319 HK) its 25% Yashili stake for HK$1.20 per share. Post-completion, Mengniu will launch a privatisation offer at HK$1.20.  
  • The privatisation is subject to several pre-conditions, which carry low risk in our view. The key conditions are the headcount test and rejections by <10% of all disinterested shareholders.
  • The offer for Yashili International Holdings (1230 HK) is attractive. At the last close, the gross spread to the offer is 30.4%. Buy up to HK$1.09 (implies an 85% deal probability).

KOSPI 200 Rebalancing: Trade Short Covering Event for Deletions

By Sanghyun Park

  • Short-Selling is not possible after being deleted from the KOSPI 200. So, active short-covering for deletions is witnessed before and after the rebalancing implementation.
  • CJ CGV (079160 KS) stands out the most at this point. Its short interest is 4.10% of SO, and the short interest has increased the most over the past month.
  • The short-covering/price movement started to be observed from the end of the prior month. So, I’d consider building positions from the third week of this month.

Asia-Pac Weekly Risk Arb Wrap: Alliance Aviation, AGL, Virtus, Yashili, Hitachi Transport

By David Blennerhassett

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May 07
0

Event-Driven: Delhivery, Yamada Denki, Virtus Health, Hitachi Metals and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Delhivery IPO: Offering Details & Index Inclusion Timeline
  • Yamada Denki – GINORMOUS Buyback To Dramatically Boost EPS and ROE
  • Shareholder Vote On 6 June For Virtus-Backed Offer From CapVest
  • Hitachi Metals – Nice Rebound Reduces Forward Reward/Risk Ratio

Delhivery IPO: Offering Details & Index Inclusion Timeline

By Brian Freitas

  • Delhivery (1058656D IN) is looking at raising INR 52,350m (US$685m) in its IPO by selling up to 113.3m shares at a range of INR 462-487/share.
  • At the mid point of the IPO range, Delhivery (1058656D IN) will be valued at INR 344.8bn (US$4.5bn) while the free float market cap will be much lower.
  • Delhivery (1058656D IN) could get entry to the FTSE All-World Index at the December QIR, while inclusion in the MSCI India Index could take place at the May 2023 SAIR.

Yamada Denki – GINORMOUS Buyback To Dramatically Boost EPS and ROE

By Travis Lundy

  • Yamada Denki (9831 JP) reported earnings (Revs -7.6% (slight beat), OP -28.6% (slight miss), NP -2.4% (slight miss)), and slightly upbeat forecasts to Mar-2023 (Revs +4.6%, OP +12.5%, NP +2.9%) 
  • They also announced an unchanged dividend at ¥18/share, and a VERY BIG BUYBACK. This is one of the largest, most aggressive, on-market buyback programs I have ever seen.
  • Previous buybacks have been duds. Yamada Denki is not playing around this time. This time it will be a buy.

Shareholder Vote On 6 June For Virtus-Backed Offer From CapVest

By David Blennerhassett

  • CapVest has a concurrent Scheme for Virtus Health (VRT AU) at $8.15/share and an off-market Takeover bid at $8.10/share (conditional on, among other things, the Scheme not proceeding).
  • The Transaction Booklet is now out. The Scheme Meeting will be held on the 6 June. If not approved, the Takeover closes on the 5 July – unless extended.
  • The Virtus Directors unanimously recommend shareholders vote in favour of the Scheme; and accept the CapVest Takeover should the Scheme not be approved.

Hitachi Metals – Nice Rebound Reduces Forward Reward/Risk Ratio

By Travis Lundy

  • Last week Hitachi Metals (5486 JP) reported decent earnings and strong forecasts against what is probably significantly stale consensus expectations. 
  • “The Consortium is not aware of any significant problems with procedures/responses under the Competition Act and will continue to strive to complete these procedures and responses as early as possible.”
  • That caused a jump, but that is the same language used in the 30 Nov 2021 release. Yes, I think this gets done, but Reward/Risk is smaller now.

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May 06
0

Event-Driven: Woodside Petroleum, Gree Electric Appliances, Alliance Aviation Services, Korean Air Lines, Rheinmetall AG, Virtus Health, Carvana Co, S IMMO AG and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Woodside / BHP Petroleum Merger – Thinking About Flows (Still a Flowback Sell)
  • FTSE China A50 Index Rebalance Preview: PetroChina, Gree Out Due to Ground Rule Change
  • Qantas Enters Scheme With Alliance Aviation
  • Korean Air Will Likely Face an HMM-Like CB Conversion Overhang Risk
  • Qantas Aims to Fully Acquire Alliance Aviation
  • DAX Index: Quiddity Leaderboard for June 2022 (2.0): Rheinmetall Looks Interesting
  • CapVest Scheme Meeting on 6 Jun, CapVest Takeover Offer Open 6 May to 5 July
  • Solvency Risk Short Candidates: Carvana, Life Time Group, Bed Bath & Beyond, Surgery Partners
  • CPI/S IMMO: Agreement Regarding EGM and Offer

Woodside / BHP Petroleum Merger – Thinking About Flows (Still a Flowback Sell)

By Travis Lundy

FTSE China A50 Index Rebalance Preview: PetroChina, Gree Out Due to Ground Rule Change

By Brian Freitas

Qantas Enters Scheme With Alliance Aviation

By David Blennerhassett

  • Qantas Airways (QAN AU) has entered into a Scheme to buy smaller airline Alliance Aviation Services (AQZ AU).
  • Alliance shareholders will receive $4.75 in Qantas shares or a 35% premium to last close. The consideration implies an equity value of A$764.5mn and an enterprise value of A$919.2mn.
  • The Scheme is subject to shareholder and ACCC approval. The ACCC recently cleared Qantas’19.9% stake in Alliance after a three-year investigation.

Korean Air Will Likely Face an HMM-Like CB Conversion Overhang Risk

By Sanghyun Park

  • Korean Air will request the KDB and the KEXIM for early repayment before the step-up kicks in. Then, the creditors  decide conversion using Korean Air’s claim as an excuse.
  • This is exactly the same as the case of HMM, whose stock price began to face corrections 7-10 trading days before the conversion announcement and peaked on the announcement date.
  • So, aiming at the possibility of a conversion announcement coming out in the third week of May, I recommend gradually building up short positions starting next week.

Qantas Aims to Fully Acquire Alliance Aviation

By Arun George

  • Alliance Aviation Services (AQZ AU) entered a SID with Qantas Airways (QAN AU). Shareholders will receive A$4.75 in Qantas shares for each Alliance share, 35.3% premium to 4 May close. 
  • The key risk is approval from the ACCC, which will start a public review. On 5 April, the ACCC closed an investigation into Qantas’ acquisition of its 19.9% Alliance stake. 
  • Alliance Aviation can pay an additional special cash dividend if ACCC approval takes time. The offer is attractive in the context of historical share prices and multiples.

DAX Index: Quiddity Leaderboard for June 2022 (2.0): Rheinmetall Looks Interesting

By Janaghan Jeyakumar, CFA

  • DAX is a German blue-chip index that tracks the 40 largest companies listed on the Regulated Market of the Frankfurt Stock Exchange. 
  • The DAX Index is reviewed on a quarterly basis in March, June, September, and December. 
  • In this insight, we take a look at the potential constituency changes for the June 2022 review. This is a follow-up insight to DAX Index: Quiddity Leaderboard for June 2022 

CapVest Scheme Meeting on 6 Jun, CapVest Takeover Offer Open 6 May to 5 July

By Arun George

  • The CapVest scheme meeting is scheduled for 6 June and the CapVest takeover offer runs from 6 May to 5 July. The BGH takeover is open and ends 20 May.
  • The independent expert has concluded that both CapVest and BGH’s proposals are fair and reasonable. Virtus Health (VRT AU) shares currently trade above both proposals. 
  • With BGH unwilling to concede to CapVest, it is likely that BGH increases its 20.02% stake at a higher price than its takeover offer, resulting in a higher offer price.  

Solvency Risk Short Candidates: Carvana, Life Time Group, Bed Bath & Beyond, Surgery Partners

By Eric Fernandez, CFA

  • This model seeks companies facing dangerously high leverage coupled with negative or declining cash flows.  It considers interest expense, capex and short term maturities for additional input. 
  • The companies may not be viable given cash flows and capital structures.  These shorts tend to have  higher betas  and can have strong down moves as the crisis is recognized. 
  • This week we flag: Carvana, Life Time Group, Bed Bath & Beyond, Surgery Partners

CPI/S IMMO: Agreement Regarding EGM and Offer

By Jesus Rodriguez Aguilar

  • CPI, directly and indirectly, owns 42.6% in S Immo and seeks to launch a €23.5 mandatory offer if a 15% voting cap in S IMMO’s by-laws is removed.
  • CPI has Board support. AGM will take place on 1 June. Although S IMMO trades at a large discount to NAV, interloper risk is low.
  • Gross spread is 1.3%. Assuming clearances are obtained, and offer settled by 1 August, estimated annual return would be 5.5%. Long SPI AV.

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May 05
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Event-Driven: Jinko Solar, SK Telecom, JMT Network Services, Microstrategy Inc Cl A, Suchuang Gas Corp, Bausch Health Companies and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • STAR50 Index Rebalance Preview: 3 Changes or 5? It Depends…
  • Overlooked Aspect About MSCI’s SKT Foreign Room Calculation
  • SET50 Index Rebalance Preview: +JMT, JMART, BJC / -RATCH, STGT, IRPC
  • Microstrategy: More Losses For Bitcoin Spruiker
  • Suchuang Gas’ Scheme Meeting on 10 June Is a Welcome Exit from the Ongoing Share Suspension
  • SpinTalk: The Bausch Corporate Overhaul Is More Illusory Than Substantive At Least for Now

STAR50 Index Rebalance Preview: 3 Changes or 5? It Depends…

By Brian Freitas

Overlooked Aspect About MSCI’s SKT Foreign Room Calculation

By Sanghyun Park

  • The MSCI does not have a rule on how to treat DRs in the foreign room calculation. It only considers the proportion of shares AVAILABLE to foreign investors.
  • Unlike KT in 2019, SKT ADRs are not traded at a premium. It means that the MSCI may treat a portion of SKT ADRs as Still AVAILABLE Shares.
  • For this reason, it cannot be concluded that SKT will be deleted simply because it is below 3.75%.

SET50 Index Rebalance Preview: +JMT, JMART, BJC / -RATCH, STGT, IRPC

By Brian Freitas

Microstrategy: More Losses For Bitcoin Spruiker

By David Blennerhassett

  • Microstrategy Inc Cl A (MSTR US) reported a net loss of $155.6mn in the fourth quarter, compared to the net loss of $124.3mn in the 4Q21. 
  • MSTR took a non-cash digital asset impairment charge of $170.1mn in the first quarter, up from $146.6mn in the 4Q21. 
  • A bet on MSTR is a bet on bitcoin. Yet MSTR is down 37% YTD, compared to ~20% for bitcoin. 

Suchuang Gas’ Scheme Meeting on 10 June Is a Welcome Exit from the Ongoing Share Suspension

By Arun George

  • The scheme document is out with the Court meeting scheduled for 10 June. The IFA considers the offer to be fair and reasonable. Suchuang Gas Corp (1430 HK) remains suspended.
  • Key conditions are the headcount test and approval by at least 75% of disinterested shareholders (<10% of all disinterested shareholders rejection). 
  • Excluding the irrecovables, no shareholder holds a blocking stake. As the timeframe to fulfil the resumption guidance remains highly uncertain, the offer is a welcome exit opportunity. 

SpinTalk: The Bausch Corporate Overhaul Is More Illusory Than Substantive At Least for Now

By Robert Sassoon

  • Bausch Health Companies (BHC US)‘s share price reversal over the past year has eliminated the substantial  gains achieved after it announced plans for a major corporate overhaul in August 2020.
  • No substantive change to BHC’s current holding company structure and leverage ratio will result from the imminent execution of the Bausch & Lomb IPO which is less transformational than expected.
  • The potential for a more value-creating overhaul remains, but timing is uncertain. Until the relevant catalysts come into play, we expect the BHC share price to tread water at best.

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May 04
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Event-Driven: Hitachi Transport System, AGL Energy Ltd, Virtus Health, SG Micro Corp, LG Energy Solution, Suchuang Gas Corp and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Hitachi Transport (9086 JP):  Trading Too Wide
  • MCB Goes Big To Thwart AGL Energy De-Merger
  • BGH Stonewalls As Virtus Rejects Offer
  • CSI300 Index Rebalance Preview: 30 Potential Changes as Sector Rotation Continues
  • LG Energy/LG Chem Flow Trading on Solactive Lithium Index Rebalancing
  • AGL Energy’s Demerger Vote in the Balance with Grok Ventures’ Move
  • Suchuang Gas (1430 HK): 10th June Court Meeting As Shares Remain Suspended

Hitachi Transport (9086 JP):  Trading Too Wide

By Travis Lundy

MCB Goes Big To Thwart AGL Energy De-Merger

By Travis Lundy

  • In mid-February, Brookfield and Mike Cannon-Brookes had teamed up to propose anA$7.50/share bid for AGL Energy Ltd (AGL AU).The bid was rejected by the Board, discussed here.
  • Weeks later, the pair came back nearly 10% higher, discussed in Second Brookfield-MCB Bid for AGL Energy Rejected. MCB’s big dreams of massive solar and massive customer base were thwarted.
  • Brookfield walked but MCB has come back now to buy 11.3% of AGL through a loan+collar transaction and a total return swap. He aims at scuppering the June demerger vote.

BGH Stonewalls As Virtus Rejects Offer

By David Blennerhassett

  • In its Target Statement, Virtus Health (VRT AU)‘s board unanimously determined BGH’s Offer is inferior to CapVest’s and recommends shareholders to not accept BGH’s Offer.
  • Separately, Virtus is seeking interim orders from the Takeovers Panel, such that BGH amends its bidder’s statement and also provides withdrawal rights. 
  • A Supreme Court of New South Wales hearing will be held on 4 May 2022 to convene the Scheme meeting in relation to the CapVest Transaction.

CSI300 Index Rebalance Preview: 30 Potential Changes as Sector Rotation Continues

By Brian Freitas

  • We expect the maximum permitted 30 changes at a single review to take place at the June rebalance. Most changes are high probability.
  • We estimate a one-way turnover of 4.25% at the rebalance leading to a one-way trade of CNY 10.677bn.
  • Industrials, Information Technology and Materials sectors are expected to have the most net inclusions, while Health Care and Financials are expected to have the most net deletions.

LG Energy/LG Chem Flow Trading on Solactive Lithium Index Rebalancing

By Sanghyun Park

  • We cannot completely rule out the possibility that Solactive will announce a correction disclosure for the LG Energy Inclusion/LG Chem Exclusion 2 to 3 trading days before May 11th.
  • LG Energy can expect an inflow of 0.85x ADTV (0.16% of SO). On the other hand, LG Chem will face an outflow of -1.76x ADTV (0.52% of SO).
  • Considering the correction disclosure uncertainty and the passive flow size, we should approach this as a day trading event after watching the results by this Friday (or the following Monday).

AGL Energy’s Demerger Vote in the Balance with Grok Ventures’ Move

By Arun George

  • Mike Cannon-Brookes (Grok Ventures) has become the largest AGL Energy Ltd (AGL AU) shareholder, by acquiring an 11.28% interest through derivatives transactions. 
  • Mr Cannon-Brookes will vote against the demerger scheme (vote on 15 June) and has launched an online campaign to influence the retail heavy share register.
  • The rationale for the demerger remains unconvincing. Our SoTP points to upside absent a demerger. If the demerger fails, the long-term play could still be to revisit the privatisation plan.

Suchuang Gas (1430 HK): 10th June Court Meeting As Shares Remain Suspended

By David Blennerhassett

  • Suchuang Gas Corp (1430 HK)‘s Scheme Document is now out. The Scheme Meeting will be held on the 10th June with expected payment on or before the 21 June. 
  • The Independent Financial Advisor (Essence International) has concluded the offer by CR Gas (1193 HK) is fair and reasonable. 
  • The pain is almost over for shareholders. This is as good a deal one can expect under the circumstances. Shareholders should vote through the Offer resolutions and pocket the cash. 

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