Biologics holdings is looking to raise upto US$495m by selling a 4.4% stake in Wuxi Biologics (Cayman) Inc (2269 HK). This will be fifth placement by the company since it listed less than two years ago. Below is a link to our coverage of the listing and the earlier placement:
Each of the past placement has been of a similar size (around US$500m) and has generally done well. The most recent placement took place three months ago. The deal scores a marginal negative score on our framework and there is still a lot more selling left once the six months lock-up expires.
Personalis offers genomic sequencing to bio-pharmaceutical companies by fully analyzing sample tissue data of cancer patients. It provides its bio-pharmaceutical customers with information on all of the approximately 20,000 human genes alongside immune system information, as opposed to many cancer panels that cover roughly 50 to 500 genes which puts the company with a distinct competitive advantage over its competition.
The company has filed for an IPO to raise funds of approximately US$100m and has set its IPO price at US$15 per share, which implies a valuation of US$323m. We see good potential for the company where clinical trials and drug development requires significant cancer genetic information of patients where Personalis could play a significant role and make use of the market opportunity presented. Due to a strong industry coupled with strong growth in revenues and a solid balance sheet with positive operating cash flows, we believe the stock is attractive. That being said, the investors should be vary of Personalis’ revenues being highly concentrated into a few customers which exposes the company to substantial risk of losing revenues due to cancellation of contracts.
In our weekly Shanghai/Shenzhen Connect Ideas series, we aim to help our investors understand the flow of northbound trades via the Shanghai and Shenzhen Connect, as analyzed by our proprietary data engine and highlight interesting trade ideas.
We split the stocks eligible for the Shanghai/Shenzhen Connect trade into two groups: stocks with a market capitalization above USD 5 billion, as well as between USD 1 billion and USD 5 billion.
Hansoh Pharma’s IPO was priced at the high end and started trading last Friday. In our earlier note, we argued that the company should trade at least on par with its close peer, Sino Biopharm. Its strong debut echos our positive view on the deal. In this insight, we will summarize the allocation and trading on the first day, and update our views on the company’s valuation.
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TOT Biopharm, a China-based clinical-stage biopharmaceutical company, plans to raise at least USD 100 million from its listing on the Hong Kong Stock Exchange. In this insight, we will look at the company’s product pipeline, and the company’s shareholders and management team.
With only one Avastin biosimilar in the near-commercial stage clinical trial, we think the company’s portfolio and the experience of the management team are not impressive.
Early Friday, listed regional (Singapore, Malaysia, Indonesia) private healthcare provider Health Management Intl (HMI SP) asked for a trading halt and late in the evening the company announced an Implementation Agreement for a privatisation by way of Scheme of Arrangement whereby private equity fund EQT (EQT Mid Market Asia III GP B.V. is funding the SPV which is the Offeror) would acquire HMI for S$0.73/share in cash or one share of the Acquirer.
That price is a 25-30% premium to the 1, 3, 6, and 12 month VWAPs prior to announcement and a 14% premium to the last “undisturbed” trading day.
The “undisturbed” day was 16 June, which was the day before the company announced that it was in discussions with a third party for a possible transaction.
In hindsight, it may have been odd that the shares did not move much. The obvious conclusion to some was that this was might be a change in control where the owners would sell at current price, offering no premium to minorities.
chart source: tradingview.com
Instead it’s effectively an MBO.
Quiddity’s new Quiddity Singapore M&A Guide 2019is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Look for other countries in the series here.
In our weekly Shanghai/Shenzhen Connect Ideas series, we aim to help our investors understand the flow of northbound trades via the Shanghai and Shenzhen Connect, as analyzed by our proprietary data engine and highlight interesting trade ideas.
We split the stocks eligible for the Shanghai/Shenzhen Connect trade into two groups: stocks with a market capitalization above USD 5 billion, as well as between USD 1 billion and USD 5 billion.
In our weekly HK Connect Snippet series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine, and highlight interesting observations.
We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Personalis offers genomic sequencing to bio-pharmaceutical companies by fully analyzing sample tissue data of cancer patients. It provides its bio-pharmaceutical customers with information on all of the approximately 20,000 human genes alongside immune system information, as opposed to many cancer panels that cover roughly 50 to 500 genes which puts the company with a distinct competitive advantage over its competition.
The company has filed for an IPO to raise funds of approximately US$100m and has set its IPO price at US$15 per share, which implies a valuation of US$323m. We see good potential for the company where clinical trials and drug development requires significant cancer genetic information of patients where Personalis could play a significant role and make use of the market opportunity presented. Due to a strong industry coupled with strong growth in revenues and a solid balance sheet with positive operating cash flows, we believe the stock is attractive. That being said, the investors should be vary of Personalis’ revenues being highly concentrated into a few customers which exposes the company to substantial risk of losing revenues due to cancellation of contracts.
In our weekly Shanghai/Shenzhen Connect Ideas series, we aim to help our investors understand the flow of northbound trades via the Shanghai and Shenzhen Connect, as analyzed by our proprietary data engine and highlight interesting trade ideas.
We split the stocks eligible for the Shanghai/Shenzhen Connect trade into two groups: stocks with a market capitalization above USD 5 billion, as well as between USD 1 billion and USD 5 billion.
Hansoh Pharma’s IPO was priced at the high end and started trading last Friday. In our earlier note, we argued that the company should trade at least on par with its close peer, Sino Biopharm. Its strong debut echos our positive view on the deal. In this insight, we will summarize the allocation and trading on the first day, and update our views on the company’s valuation.
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
That said, not all IPOs had a good debut. China East Education (667 HK)‘s IPO flopped despite being the biggest education IPO in Hong Kong this year and was reported earlier that its books were covered on the second day of bookbuild.
Tai Hing (6811 HK)‘s IPO also took a hit, opening 17% below its IPO price. As per our valuation note, we thought that the IPO would only have been attractive from a valuation perspective at the bottom end of its IPO price range, hence, Wednesday’s low debut price presented a good opportunity to accumulate a position for near-term recovery.
Jinxin Fertility Co Ltd (1951 HK) is looking to close its books early. The IPO boasts Orbimed, Hillhouse, and Ally Bridge among its cornerstone investors. The three investors had also participated in Hansoh Pharma’s IPO which performed exceptionally well. Another potential IPO that is moving fast is Alibaba Group Holding (BABA US) which is said to have filed for Hong Kong listing which could raise up to US$20bn.
On the other hand, ESR Cayman (ESR HK) pulled its Hong Kong IPO citing market condition as the reason. This was not totally unexpected as Sumeet Singh pointed out in his valuation note, ESR Cayman IPO – Richly Valued, that while it is a good company, implied valuation looks a tad too expensive and deal dynamics did not inspire confidence. Hopefully, the IPO will relaunch at a more sensible valuation.
In other countries, Thailand seems to be the most active of all. Asset World Corporation, owned by Charoen Sirivadhanabhakdi, will be looking to IPO in the second half of the year while Index Living Mall, a furniture and home-decoration retailer, is looking to list in the third quarter of 2019.
Accuracy Rate:
Our overall accuracy rate is 72.3% for IPOs and 63.8% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings this week
Shenzhen Leoking (Hong Kong, US$100m)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
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Towards the end of May 2019, Shinnihonseiyaku filed for an IPO on the mothers board of the Tokyo stock exchange. The primary offering is very small in this IPO and most of the shares sold through this offering are from the existing shareholders.
Based on the given price range for the stock, Shinnihonseiyaku Co.Ltd would be valued in the range of ¥20-23bn in EV, which implies a FY2018 EV/EBIT range of 8.1-9.1x. The multiples seem cheap considering what the peers in the Japanese cosmetics industry are trading at currently and the fact that the returns on capital are higher than the peers makes it attractive on the surface. However, we see significant red flags that may affect the company’s returns over the medium to long term.
IPO Details
Book Building
From 2019/06/11 to 2019/06/17
Offer
From 2019/06/19 to 2019/06/24
Selling Shareholders
4,570,000
Overallotment Option
730,000
New Issue
300,000
Existing Shares
20,581,300
Shares Outstanding Post IPO
20,881,300
Low
High
Price Range
1,350
1,470
Expected Market Cap – in ¥m
28,190
30,696
Expected EV – in ¥m
20,121
22,596
*based on March 2019 debt and cash and IPO proceeds
Implied Multiples- FY2018
EV/Sales
0.6x
0.7x
EV/EBIT
8.1x
9.1x
P/E
16.1x
17.5x
Source: Company Disclosures
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TOT Biopharm, a China-based clinical-stage biopharmaceutical company, plans to raise at least USD 100 million from its listing on the Hong Kong Stock Exchange. In this insight, we will look at the company’s product pipeline, and the company’s shareholders and management team.
With only one Avastin biosimilar in the near-commercial stage clinical trial, we think the company’s portfolio and the experience of the management team are not impressive.
Early Friday, listed regional (Singapore, Malaysia, Indonesia) private healthcare provider Health Management Intl (HMI SP) asked for a trading halt and late in the evening the company announced an Implementation Agreement for a privatisation by way of Scheme of Arrangement whereby private equity fund EQT (EQT Mid Market Asia III GP B.V. is funding the SPV which is the Offeror) would acquire HMI for S$0.73/share in cash or one share of the Acquirer.
That price is a 25-30% premium to the 1, 3, 6, and 12 month VWAPs prior to announcement and a 14% premium to the last “undisturbed” trading day.
The “undisturbed” day was 16 June, which was the day before the company announced that it was in discussions with a third party for a possible transaction.
In hindsight, it may have been odd that the shares did not move much. The obvious conclusion to some was that this was might be a change in control where the owners would sell at current price, offering no premium to minorities.
chart source: tradingview.com
Instead it’s effectively an MBO.
Quiddity’s new Quiddity Singapore M&A Guide 2019is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Look for other countries in the series here.
In our weekly Shanghai/Shenzhen Connect Ideas series, we aim to help our investors understand the flow of northbound trades via the Shanghai and Shenzhen Connect, as analyzed by our proprietary data engine and highlight interesting trade ideas.
We split the stocks eligible for the Shanghai/Shenzhen Connect trade into two groups: stocks with a market capitalization above USD 5 billion, as well as between USD 1 billion and USD 5 billion.
In our weekly HK Connect Snippet series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine, and highlight interesting observations.
We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
Despite Toshiba Corp (6502 JP) having underperformed the TOPIX100 since the buybacks began and ~10% of shares out to be bought by mid-November, the reward vs risk profile of buying shares here does not seem that great in the near-term.
Harbin Electric Co Ltd H (1133 HK)‘s unprecedented deal calls for unprecedented action as only 37% of tendered shares withdrawn have traded.
There is a non-negligible risk the Asia Satellite Telecom Holdings Ltd (1135 HK) deal does not get done because of investor opposition. But there is hair on the asset and hair on the reinvestment model in the years ahead as long as US-China relations remain bad.
Toshiba’s buyback started last November with three instances of ToSTNeT-3 buybacks, followed by seven-plus months of on-market buybacks. Since the start of on-market buybacks, the company has bought back 20.8% of market volume. Notably, when the share price was weak in January and June, the company bought back ~32% of volume during those months. That leaves the company with ¥195.6bn (8-11% of remaining shares) left to spend on its buyback program. The buyback goes until November 8th 2019. At last month’s strong pace, it would take the full four months to complete.
Fundamentals are not overly positive. OP is expected to rise almost 300% this year vs last year, which was a bad year. But net income is expected to be negative. And that was before taking into account the Yokkaichi electrical outage problem at Toshiba Memory and substantial worsening of NAND prices out in the world. Expectations of a Toshiba Memory IPO later this year may be dashed as well given the losses which will arise from lower ASPs, and sharply lower QoQ bit growth because of the incident.
There are some very deep-pocketed activist-like shareholders who may be in this for the long haul. When the buybacks look like they are ending – it will likely be quite a while until another buyback occurs – we may see previously strong hands become weak hands and be interested in liquidating simply because the market support of the buyback will be gone.
With less than ¥200bn to go, and a multi-year path for Toshiba Next Plan ahead, the one hope here is serious capital action (mergers, sales) or other significant action by the new board to show they mean business. Travis Lundy thinks buying out minorities in Toshiba Plant Systems and Toshiba Tec – which are simply too cheap at 4.5x and 4.0x EV/EBITDA – is a reasonable idea, but doesn’t think the board will be as effective in early days as some might hope.
He would be a seller of Toshiba in the market into strength because he sees post-buyback overhang, and does not see tremendous progress near-term. After the Buyback ends, if there are no capital transactions, the next major flow event for foreign investors to take profits on their “buy-the-dip” trade of 2017 is years away.
Meituan and Xiaomi Corp (1810 HK), two of the largest IPOs in Hong Kong last year, were included in Hang Seng Composite Index shortly after their listing (Xiaomi on July 23th and Meituan on October 8th). But neither was included in the southbound Hong Kong Connect scheme due to their dual-class structures. This may change.
The Stock Exchange of Hong Kong (SEHK) has been working with the two exchanges in Shenzhen and Shanghai to allow the dual-class shares to be included in the Hong Kong Connect. In April this year, representatives from the SEHK mentioned that dual class shares of Chinese companies shall be included in the Hong Kong Connect scheme in July.
Shareholders who had tendered in Harbin Electric’s Offer have been entitled to withdraw those shares since 11 June – 21 days after the Closing Date on the 20 May. 112.7mn shares or 16.7% of shares have now been withdrawn. Netting off shares that have tendered (~12.5mn) since the 20 May, the total acceptance level is estimated at 71% compared to 85.84% at the time of the unprecedented extension. Harbin’s price of $3.85/share now offers an extraordinary one-up (~18.5%) to the Offer price of $4.56/share, to two-down (~35%) to the undisturbed price of $2.50.
The Offer has shareholder approval – shareholders comprehensively (99.13% of H-shares attending) voted FOR the proposal. The Offeror wants the deal done – which is why they sought and received the extension from the SFC. Both the Offeror and shareholders who voted would prefer to get this deal done now rather than later.
My interpretation of the Takeover’s Code and the Scheme Document is that the Offeror can buy in the market. Why haven’t they? This is likely down to the Offeror not being 100% confident what it buys in the market will achieve the 90% acceptance objective. Plus, the Offeror would prefer not to hold any H at all, as before, should the deal lapse.
One unorthodox approach for shareholders to express interest in getting this deal up is for investors to independently ‘self-coordinate’ towards a common objective, by initiating a hybrid institutional acceptance facility (IAF). IAFs are common in Australia. Investors could individually (and collectively) offer their stock out in the market at the Offer Price both during trading or during the auction period, as a signal for the Offeror to allow them to buy in the market.
Asia Sat announced a Scheme Implementation Agreement at HK$10.22/share, a 23.4% premium to last close – the undisturbed is likely not HK$8.28 from the day before it was halted; the shares mysteriously moved beforehand – and a 10% premium to the 31 December 2018 NAV. The Offer Price is final. The Offeror, holding 74.73% is split 50:50 between CITIC and Carlyle, the latter acquiring its stake from GEC in 2014 via a Sale and Purchase Agreement at HK$26.00/share, in which the Independent Financial Advisor found the deal to be not fair and not reasonable.
Ex-special dividend in 2015, the Offer Price is 50% below where the stock was trading just after the last Mandatory Offer in 2015 when Carlyle bought in. The fact that it is trading wide to terms tells you the initial reaction is that this has hair. This is not difficult to block – it would require about US$13mm of stock. International Value Advisers has 6.1% and could block with that. It is not clear what their total purchase price was. The last 1.1% or so was purchased at HK$5.12/share. The previous 4.9% could have been done at a low price or a fair bit higher price.
The stock is illiquid, trading at a low PER, and low EV/EBIT ratio, partly on the fact that there is no possible alternate bidder for the asset (because CITIC will take it eventually) and partly because the assets don’t live forever. They will have to replace the existing satellites with others in the 5-10 years to come. At a multiple well lower than the average of the peers, it is not a compelling multiple at which to sell.
Because the satellites appear to be used by Chinese government agencies and possibly the Chinese military, there is a risk that if the US cracks down further on US-China interaction, and US export controls start to deem semi-autonomous Hong Kong (as control location despite corporate legal jurisdiction in Bermuda) as part of mainland China rather than separate (as it does now), AsiaSat might have a substantially less bright future.
GBST announced a non-binding indicative Offer of $3.25/share (cash) from Ss&C Technologies (SSNC US) by way of a Scheme at a 64.6% premium to the closing price on the 11 April, when GBST was first approached by Bravura Solutions (BVS AU). Two days later SSNCV bumped its Offer to $3.60/share. GBST had mentioned in an announcement the previous Friday when talks broke down with Bravura, it “has now received other non-binding confidential competing proposals to acquire 100% of the ordinary shares of GBST via cash offers at a price higher than $3.00 per share”. On cue, the updated SSNC announcement mentions an Offer of $3.50 from FNZ Group.
Although indicative, SSNC’s Offer probably had a better chance of getting up compared to Bravura as there is a risk the two competing softwares offered by Bravura and GBST could not be folded into one.
GBST’s board will exclusively open its data room to SSNC for four weeks. Should a Binding Offer transpire, the board will unanimously recommend it. Shareholder support should follow a binding proposal from SSNC. Spheria, the second largest shareholder, had previously expressed Bravura’s $2.50/share Offer had merit. Spheria promptly bumped its stake in GBST to 10.74% from 9.09% on the 13 May, then to 12.42% on the 20 June. and most recently to 14.46%.
SSNC’s Offer is an 82.3% premium to the undisturbed price. Trading at terms with two, possibly three, competing bidders. Getting involved, as recommended, when SSNC entered the scene nicely paid off. Sitting at or just below the Offer price may still yield a decent return – this could go another 5-10% more.
Abacus Property (ABP AU) and Charter Hall (CHC AU) have now announced an A$3.04/unit Offer versus its initial $2.95/unit all-cash non-binding proposal. This will be reduced by any further distribution. The proposal is also “best and final“. All other prior conditions remain – such as completion of due diligence – but this time on a non-exclusive basis.
In the meantime, AOF announced the value of its property assets had increased by ~A$0.14/unit as part of its 2019 revaluation process. This has elevated the unaudited NTA/unit to A$2.79/unit, up from $2.67/unit December-end 2018.
Therefore, the revised Offer is a 9% premium to the NTA compared to a premium of 10.5% under the original Offer; but bear in mind AOF has recently gone ex the June-quarter dividend of A$0.0395/unit. The revised Offer also exceeds the initial Offer plus the June and September distributions.
On balance, this bump is probably enough to account for the uplift in the NTA. And compared to precedent property transactions demonstrating similar characteristics to AOF, this should get up.
ReportedlyCoca Cola Co (KO US) is in talks to buy a stake in CCD’s core coffee business which owns ‘Cafe Coffee Day’, India’s largest coffee chain. Coke has stated plans to expand beyond sugary drinks into healthier drinks and acquired Costa Coffee for USD5.1bn last year.
Devi Subhakesan expects CCD to double from the (then) current market price of Rs229.5 and trade closer to its SOTP value of Rs440/share. The coffee ops account for ~72% of NAV.
This is based on her assumption of 20x EV/EBITDA used in the SOTP as being conservative, with domestic F&B retail peers likeJubilant Foodworks (JUBI IN) trading at around 26x.
Caesars and Eldorado Resorts (ERI US) have announced their highly anticipated merger, encouraged by 17.75% CZR shareholder Carl Icahn, which combines Reno NV-based Eldorado with Las Vegas, NV-based Caesars into the largest U.S. gaming company. Deal terms call for each CZR share to receive $8.40 cash and 0.0899 shares of ERI common stock. There will be a provision for shareholders to elect, subject to proration, the form of consideration. Upon completion of the deal, the combined company shareholder split will be approximately 51% ERI shareholders and 49% CZR shareholders. The merged entity will take the Caesars name.
The combined company will be the largest U.S. gaming company in terms of number of properties, with approximately 60, followed by PENN with 37 properties. ERI management expects the combined company to have the greatest combined EBITDAR in the industry of $4 to $4.5bn in a year or two, with MGM number two with $2.5bn.
The multiples being paid are a premium based on most of the metrics evaluated, though on the important EBITDA multiples, both trailing and forecast, the premium is not particularly high. Still, John DeMasi didn’t think this would present a problem with REI (ERI’s largest shareholder with 14.3%) and Carl Icahn (CZR’s largest shareholder with 17.75%) having entered into voting agreements to vote for the transactions relating to the merger.
For definitive deal, rate-of-return arbitrage and event-driven investors, the CZR/ERI deal is attractive and should be considered for portfolio inclusion. It has support of major shareholders on both sides, it is a strategically logical deal by an acquirer who is one of the best operators in the sector, with an excellent track record of adding value with acquisitions. Financing is not a condition, and none of the conditions seems onerous. HSR can probably be resolved with a few divestitures and state gaming approvals should not be a problem with ERI’s track record of running its properties well since 1973. Based on what is known at this point, this arb seems like a relatively safe bet.
JM has bought a further 4.85mn shares in JS since my previous insight (StubWorld: Matheson’s Strategic Buying of Strategic) in March – or ~0.44% of shares out, taking its 2019 total to 6.6mn or 0.6% of shares outstanding. The simple ratio (JM/JS) is now at 1.62x against an 8-year average of 1.7x and the long-term average (20 years) of 1.79.
JS is required to maintain a free float of 15% as stated at the end of every SGX announcement of shares acquired by JM (here is the most recent announcement). JS’s primary listing is in London, and that’s the reason the Financial Conduct Authority of the United Kingdom is referenced at the top of each share purchase filing by JS. The default position under the UK listing regime is for companies to have a minimum free float of 25%, but Jardines negotiated a lower percentage (15%) with the UKLA.
My correspondence with Jardines indicates the % held by JM in JS indicates very little wiggle room (read the insight (link below) for exact details). JS offers scrip dividends which expand the denominator, yet the latest scrip entitlement announced early May was for just 130,691 shares.
What to do? If investors believe there will be more aggressive buying (as seen in the 1Q19) by JM into JS and therefore supporting JS’s share price, they should reconsider. This does not appear to be workable. Unless Jardines negotiates a still lower % float, which appears doubtful – I’m not aware of any precedent. The long-term ratio (JM/JS) is in favour of JM. And JM’s yield is more attractive at 2.67% versus 0.86% for JS.
The Taiwan and Indian M&A Guides issued this past week are the seventh and eight installments in a series of M&A guides that our Quiddity team (Travis, Janaghan Jeyakumar, and myself) are publishing to aid investors in understanding the rules, parameters, possibilities, and processes when companies conduct mergers and acquisitions. These insights are designed to be used as a reference. Any questions are welcome.
Health Management Intl (HMI SP) has announced a S$0.73/share (14.1% & 24.8% premium to last close and one-month VWAP) Offer from EQT by way of a Scheme. Irrevocables total 61.8%.
“City failed to value us, saysMerlin Entertainments (MERL LN) theme park boss Sir John Sunderland”. It may be true, but it is not a good look. It is management’s job to do the right thing with regard to investor relations. And if the stock is not cheap enough to buy rather than grow by investing in new assets, then it isn’t “too cheap” for management.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Interestingly, on the 2 July, 229 companies with shareholdings in SHK, were moved into China Everbright. This is probably just cleaning house.
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Towards the end of May 2019, Shinnihonseiyaku filed for an IPO on the mothers board of the Tokyo stock exchange. The primary offering is very small in this IPO and most of the shares sold through this offering are from the existing shareholders.
Based on the given price range for the stock, Shinnihonseiyaku Co.Ltd would be valued in the range of ¥20-23bn in EV, which implies a FY2018 EV/EBIT range of 8.1-9.1x. The multiples seem cheap considering what the peers in the Japanese cosmetics industry are trading at currently and the fact that the returns on capital are higher than the peers makes it attractive on the surface. However, we see significant red flags that may affect the company’s returns over the medium to long term.
IPO Details
Book Building
From 2019/06/11 to 2019/06/17
Offer
From 2019/06/19 to 2019/06/24
Selling Shareholders
4,570,000
Overallotment Option
730,000
New Issue
300,000
Existing Shares
20,581,300
Shares Outstanding Post IPO
20,881,300
Low
High
Price Range
1,350
1,470
Expected Market Cap – in ¥m
28,190
30,696
Expected EV – in ¥m
20,121
22,596
*based on March 2019 debt and cash and IPO proceeds
In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.
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Jinxin Fertility Co Ltd (1951 HK) is a leading assisted reproductive service (ARS) provider in China and the US. Its network of ARS medical facilities ranked third in China as measured by IVF treatment cycles performed in 2018, according to Frost and Sullivan. Jinxin has launched its IPO to raise as much as HK$2.99 billion ($381 million).
In our IPO initiation note, we cautioned that while Jinxin’s investment story has the elements of an attractive growth story, it also has negatives which need to be considered. The PHIP provided additional financial information including 4Q18 financials. Overall, our view remains unchanged that Jinxin’s fundamentals are mixed which needs to be reflected in the valuation.
In this insight, I’ll run the deal through our IPO framework and comment on valuations.
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Jinxin Fertility Co Ltd (1951 HK) is a leading assisted reproductive service (ARS) provider in China and the US. Its network of ARS medical facilities ranked third in China as measured by IVF treatment cycles performed in 2018, according to Frost and Sullivan. Jinxin has launched its IPO to raise as much as HK$2.99 billion ($381 million).
In our IPO initiation note, we cautioned that while Jinxin’s investment story has the elements of an attractive growth story, it also has negatives which need to be considered. The PHIP provided additional financial information including 4Q18 financials. Overall, our view remains unchanged that Jinxin’s fundamentals are mixed which needs to be reflected in the valuation.
Below is a recap of the key IPO and fundamental research produced by the Global Equity Research team. This week we update on the valuation for logistics real estate platform ESR Cayman (ESR HK) as well as the valuation for Hansoh Pharmaceutical (3692 HK) and China East Education (EASTEDU HK). Finally, we note we will be having a webinar this Wednesday, June 12th at 10 am GMT to discuss our bear-case thesis on Tencent Holdings (700 HK). More details below.
Best of luck for the new week – Rickin, Arun and Venkat
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Early Friday, listed regional (Singapore, Malaysia, Indonesia) private healthcare provider Health Management Intl (HMI SP) asked for a trading halt and late in the evening the company announced an Implementation Agreement for a privatisation by way of Scheme of Arrangement whereby private equity fund EQT (EQT Mid Market Asia III GP B.V. is funding the SPV which is the Offeror) would acquire HMI for S$0.73/share in cash or one share of the Acquirer.
That price is a 25-30% premium to the 1, 3, 6, and 12 month VWAPs prior to announcement and a 14% premium to the last “undisturbed” trading day.
The “undisturbed” day was 16 June, which was the day before the company announced that it was in discussions with a third party for a possible transaction.
In hindsight, it may have been odd that the shares did not move much. The obvious conclusion to some was that this was might be a change in control where the owners would sell at current price, offering no premium to minorities.
chart source: tradingview.com
Instead it’s effectively an MBO.
Quiddity’s new Quiddity Singapore M&A Guide 2019is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Look for other countries in the series here.
In our weekly Shanghai/Shenzhen Connect Ideas series, we aim to help our investors understand the flow of northbound trades via the Shanghai and Shenzhen Connect, as analyzed by our proprietary data engine and highlight interesting trade ideas.
We split the stocks eligible for the Shanghai/Shenzhen Connect trade into two groups: stocks with a market capitalization above USD 5 billion, as well as between USD 1 billion and USD 5 billion.
In our weekly HK Connect Snippet series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine, and highlight interesting observations.
We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
Despite Toshiba Corp (6502 JP) having underperformed the TOPIX100 since the buybacks began and ~10% of shares out to be bought by mid-November, the reward vs risk profile of buying shares here does not seem that great in the near-term.
Harbin Electric Co Ltd H (1133 HK)‘s unprecedented deal calls for unprecedented action as only 37% of tendered shares withdrawn have traded.
There is a non-negligible risk the Asia Satellite Telecom Holdings Ltd (1135 HK) deal does not get done because of investor opposition. But there is hair on the asset and hair on the reinvestment model in the years ahead as long as US-China relations remain bad.
Toshiba’s buyback started last November with three instances of ToSTNeT-3 buybacks, followed by seven-plus months of on-market buybacks. Since the start of on-market buybacks, the company has bought back 20.8% of market volume. Notably, when the share price was weak in January and June, the company bought back ~32% of volume during those months. That leaves the company with ¥195.6bn (8-11% of remaining shares) left to spend on its buyback program. The buyback goes until November 8th 2019. At last month’s strong pace, it would take the full four months to complete.
Fundamentals are not overly positive. OP is expected to rise almost 300% this year vs last year, which was a bad year. But net income is expected to be negative. And that was before taking into account the Yokkaichi electrical outage problem at Toshiba Memory and substantial worsening of NAND prices out in the world. Expectations of a Toshiba Memory IPO later this year may be dashed as well given the losses which will arise from lower ASPs, and sharply lower QoQ bit growth because of the incident.
There are some very deep-pocketed activist-like shareholders who may be in this for the long haul. When the buybacks look like they are ending – it will likely be quite a while until another buyback occurs – we may see previously strong hands become weak hands and be interested in liquidating simply because the market support of the buyback will be gone.
With less than ¥200bn to go, and a multi-year path for Toshiba Next Plan ahead, the one hope here is serious capital action (mergers, sales) or other significant action by the new board to show they mean business. Travis Lundy thinks buying out minorities in Toshiba Plant Systems and Toshiba Tec – which are simply too cheap at 4.5x and 4.0x EV/EBITDA – is a reasonable idea, but doesn’t think the board will be as effective in early days as some might hope.
He would be a seller of Toshiba in the market into strength because he sees post-buyback overhang, and does not see tremendous progress near-term. After the Buyback ends, if there are no capital transactions, the next major flow event for foreign investors to take profits on their “buy-the-dip” trade of 2017 is years away.
Meituan and Xiaomi Corp (1810 HK), two of the largest IPOs in Hong Kong last year, were included in Hang Seng Composite Index shortly after their listing (Xiaomi on July 23th and Meituan on October 8th). But neither was included in the southbound Hong Kong Connect scheme due to their dual-class structures. This may change.
The Stock Exchange of Hong Kong (SEHK) has been working with the two exchanges in Shenzhen and Shanghai to allow the dual-class shares to be included in the Hong Kong Connect. In April this year, representatives from the SEHK mentioned that dual class shares of Chinese companies shall be included in the Hong Kong Connect scheme in July.
Shareholders who had tendered in Harbin Electric’s Offer have been entitled to withdraw those shares since 11 June – 21 days after the Closing Date on the 20 May. 112.7mn shares or 16.7% of shares have now been withdrawn. Netting off shares that have tendered (~12.5mn) since the 20 May, the total acceptance level is estimated at 71% compared to 85.84% at the time of the unprecedented extension. Harbin’s price of $3.85/share now offers an extraordinary one-up (~18.5%) to the Offer price of $4.56/share, to two-down (~35%) to the undisturbed price of $2.50.
The Offer has shareholder approval – shareholders comprehensively (99.13% of H-shares attending) voted FOR the proposal. The Offeror wants the deal done – which is why they sought and received the extension from the SFC. Both the Offeror and shareholders who voted would prefer to get this deal done now rather than later.
My interpretation of the Takeover’s Code and the Scheme Document is that the Offeror can buy in the market. Why haven’t they? This is likely down to the Offeror not being 100% confident what it buys in the market will achieve the 90% acceptance objective. Plus, the Offeror would prefer not to hold any H at all, as before, should the deal lapse.
One unorthodox approach for shareholders to express interest in getting this deal up is for investors to independently ‘self-coordinate’ towards a common objective, by initiating a hybrid institutional acceptance facility (IAF). IAFs are common in Australia. Investors could individually (and collectively) offer their stock out in the market at the Offer Price both during trading or during the auction period, as a signal for the Offeror to allow them to buy in the market.
Asia Sat announced a Scheme Implementation Agreement at HK$10.22/share, a 23.4% premium to last close – the undisturbed is likely not HK$8.28 from the day before it was halted; the shares mysteriously moved beforehand – and a 10% premium to the 31 December 2018 NAV. The Offer Price is final. The Offeror, holding 74.73% is split 50:50 between CITIC and Carlyle, the latter acquiring its stake from GEC in 2014 via a Sale and Purchase Agreement at HK$26.00/share, in which the Independent Financial Advisor found the deal to be not fair and not reasonable.
Ex-special dividend in 2015, the Offer Price is 50% below where the stock was trading just after the last Mandatory Offer in 2015 when Carlyle bought in. The fact that it is trading wide to terms tells you the initial reaction is that this has hair. This is not difficult to block – it would require about US$13mm of stock. International Value Advisers has 6.1% and could block with that. It is not clear what their total purchase price was. The last 1.1% or so was purchased at HK$5.12/share. The previous 4.9% could have been done at a low price or a fair bit higher price.
The stock is illiquid, trading at a low PER, and low EV/EBIT ratio, partly on the fact that there is no possible alternate bidder for the asset (because CITIC will take it eventually) and partly because the assets don’t live forever. They will have to replace the existing satellites with others in the 5-10 years to come. At a multiple well lower than the average of the peers, it is not a compelling multiple at which to sell.
Because the satellites appear to be used by Chinese government agencies and possibly the Chinese military, there is a risk that if the US cracks down further on US-China interaction, and US export controls start to deem semi-autonomous Hong Kong (as control location despite corporate legal jurisdiction in Bermuda) as part of mainland China rather than separate (as it does now), AsiaSat might have a substantially less bright future.
GBST announced a non-binding indicative Offer of $3.25/share (cash) from Ss&C Technologies (SSNC US) by way of a Scheme at a 64.6% premium to the closing price on the 11 April, when GBST was first approached by Bravura Solutions (BVS AU). Two days later SSNCV bumped its Offer to $3.60/share. GBST had mentioned in an announcement the previous Friday when talks broke down with Bravura, it “has now received other non-binding confidential competing proposals to acquire 100% of the ordinary shares of GBST via cash offers at a price higher than $3.00 per share”. On cue, the updated SSNC announcement mentions an Offer of $3.50 from FNZ Group.
Although indicative, SSNC’s Offer probably had a better chance of getting up compared to Bravura as there is a risk the two competing softwares offered by Bravura and GBST could not be folded into one.
GBST’s board will exclusively open its data room to SSNC for four weeks. Should a Binding Offer transpire, the board will unanimously recommend it. Shareholder support should follow a binding proposal from SSNC. Spheria, the second largest shareholder, had previously expressed Bravura’s $2.50/share Offer had merit. Spheria promptly bumped its stake in GBST to 10.74% from 9.09% on the 13 May, then to 12.42% on the 20 June. and most recently to 14.46%.
SSNC’s Offer is an 82.3% premium to the undisturbed price. Trading at terms with two, possibly three, competing bidders. Getting involved, as recommended, when SSNC entered the scene nicely paid off. Sitting at or just below the Offer price may still yield a decent return – this could go another 5-10% more.
Abacus Property (ABP AU) and Charter Hall (CHC AU) have now announced an A$3.04/unit Offer versus its initial $2.95/unit all-cash non-binding proposal. This will be reduced by any further distribution. The proposal is also “best and final“. All other prior conditions remain – such as completion of due diligence – but this time on a non-exclusive basis.
In the meantime, AOF announced the value of its property assets had increased by ~A$0.14/unit as part of its 2019 revaluation process. This has elevated the unaudited NTA/unit to A$2.79/unit, up from $2.67/unit December-end 2018.
Therefore, the revised Offer is a 9% premium to the NTA compared to a premium of 10.5% under the original Offer; but bear in mind AOF has recently gone ex the June-quarter dividend of A$0.0395/unit. The revised Offer also exceeds the initial Offer plus the June and September distributions.
On balance, this bump is probably enough to account for the uplift in the NTA. And compared to precedent property transactions demonstrating similar characteristics to AOF, this should get up.
ReportedlyCoca Cola Co (KO US) is in talks to buy a stake in CCD’s core coffee business which owns ‘Cafe Coffee Day’, India’s largest coffee chain. Coke has stated plans to expand beyond sugary drinks into healthier drinks and acquired Costa Coffee for USD5.1bn last year.
Devi Subhakesan expects CCD to double from the (then) current market price of Rs229.5 and trade closer to its SOTP value of Rs440/share. The coffee ops account for ~72% of NAV.
This is based on her assumption of 20x EV/EBITDA used in the SOTP as being conservative, with domestic F&B retail peers likeJubilant Foodworks (JUBI IN) trading at around 26x.
Caesars and Eldorado Resorts (ERI US) have announced their highly anticipated merger, encouraged by 17.75% CZR shareholder Carl Icahn, which combines Reno NV-based Eldorado with Las Vegas, NV-based Caesars into the largest U.S. gaming company. Deal terms call for each CZR share to receive $8.40 cash and 0.0899 shares of ERI common stock. There will be a provision for shareholders to elect, subject to proration, the form of consideration. Upon completion of the deal, the combined company shareholder split will be approximately 51% ERI shareholders and 49% CZR shareholders. The merged entity will take the Caesars name.
The combined company will be the largest U.S. gaming company in terms of number of properties, with approximately 60, followed by PENN with 37 properties. ERI management expects the combined company to have the greatest combined EBITDAR in the industry of $4 to $4.5bn in a year or two, with MGM number two with $2.5bn.
The multiples being paid are a premium based on most of the metrics evaluated, though on the important EBITDA multiples, both trailing and forecast, the premium is not particularly high. Still, John DeMasi didn’t think this would present a problem with REI (ERI’s largest shareholder with 14.3%) and Carl Icahn (CZR’s largest shareholder with 17.75%) having entered into voting agreements to vote for the transactions relating to the merger.
For definitive deal, rate-of-return arbitrage and event-driven investors, the CZR/ERI deal is attractive and should be considered for portfolio inclusion. It has support of major shareholders on both sides, it is a strategically logical deal by an acquirer who is one of the best operators in the sector, with an excellent track record of adding value with acquisitions. Financing is not a condition, and none of the conditions seems onerous. HSR can probably be resolved with a few divestitures and state gaming approvals should not be a problem with ERI’s track record of running its properties well since 1973. Based on what is known at this point, this arb seems like a relatively safe bet.
JM has bought a further 4.85mn shares in JS since my previous insight (StubWorld: Matheson’s Strategic Buying of Strategic) in March – or ~0.44% of shares out, taking its 2019 total to 6.6mn or 0.6% of shares outstanding. The simple ratio (JM/JS) is now at 1.62x against an 8-year average of 1.7x and the long-term average (20 years) of 1.79.
JS is required to maintain a free float of 15% as stated at the end of every SGX announcement of shares acquired by JM (here is the most recent announcement). JS’s primary listing is in London, and that’s the reason the Financial Conduct Authority of the United Kingdom is referenced at the top of each share purchase filing by JS. The default position under the UK listing regime is for companies to have a minimum free float of 25%, but Jardines negotiated a lower percentage (15%) with the UKLA.
My correspondence with Jardines indicates the % held by JM in JS indicates very little wiggle room (read the insight (link below) for exact details). JS offers scrip dividends which expand the denominator, yet the latest scrip entitlement announced early May was for just 130,691 shares.
What to do? If investors believe there will be more aggressive buying (as seen in the 1Q19) by JM into JS and therefore supporting JS’s share price, they should reconsider. This does not appear to be workable. Unless Jardines negotiates a still lower % float, which appears doubtful – I’m not aware of any precedent. The long-term ratio (JM/JS) is in favour of JM. And JM’s yield is more attractive at 2.67% versus 0.86% for JS.
The Taiwan and Indian M&A Guides issued this past week are the seventh and eight installments in a series of M&A guides that our Quiddity team (Travis, Janaghan Jeyakumar, and myself) are publishing to aid investors in understanding the rules, parameters, possibilities, and processes when companies conduct mergers and acquisitions. These insights are designed to be used as a reference. Any questions are welcome.
Health Management Intl (HMI SP) has announced a S$0.73/share (14.1% & 24.8% premium to last close and one-month VWAP) Offer from EQT by way of a Scheme. Irrevocables total 61.8%.
“City failed to value us, saysMerlin Entertainments (MERL LN) theme park boss Sir John Sunderland”. It may be true, but it is not a good look. It is management’s job to do the right thing with regard to investor relations. And if the stock is not cheap enough to buy rather than grow by investing in new assets, then it isn’t “too cheap” for management.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Interestingly, on the 2 July, 229 companies with shareholdings in SHK, were moved into China Everbright. This is probably just cleaning house.
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
Hong Kong IPOs seemed to have taken a turn for the better. Budweiser Brewing Company APAC (1876 HK) launched its US$10bn mega IPO that have perhaps inspired confidence in other companies. For example, China Feihe (FEIHE HK) filed its prospectus after pulling its failed listing attempt back in 2017 while Shanghai Henlius Biotech (1566213D HK) refiled as well after its December 2018 application lapsed not long ago.
Other interesting things happening in APAC ECM is India’s surprise proposed change in public free float requirement from 25% to 35% which may see share sale in the near future and could potentially enlarge upcoming IPO deal sizes.
Accuracy Rate:
Our overall accuracy rate is 72.5% for IPOs and 64% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings this week
China Feihe (Hong Kong, ~US$1bn)
Neutech (Hong Kong, potential US$100m)
Shanghai Henlius Biotech (Hong Kong, re-filed)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
In our weekly Shanghai/Shenzhen Connect Ideas series, we aim to help our investors understand the flow of northbound trades via the Shanghai and Shenzhen Connect, as analyzed by our proprietary data engine and highlight interesting trade ideas.
We split the stocks eligible for the Shanghai/Shenzhen Connect trade into two groups: stocks with a market capitalization above USD 5 billion, as well as between USD 1 billion and USD 5 billion.
In our weekly HK Connect Snippet series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine, and highlight interesting observations.
We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
Despite Toshiba Corp (6502 JP) having underperformed the TOPIX100 since the buybacks began and ~10% of shares out to be bought by mid-November, the reward vs risk profile of buying shares here does not seem that great in the near-term.
Harbin Electric Co Ltd H (1133 HK)‘s unprecedented deal calls for unprecedented action as only 37% of tendered shares withdrawn have traded.
There is a non-negligible risk the Asia Satellite Telecom Holdings Ltd (1135 HK) deal does not get done because of investor opposition. But there is hair on the asset and hair on the reinvestment model in the years ahead as long as US-China relations remain bad.
Toshiba’s buyback started last November with three instances of ToSTNeT-3 buybacks, followed by seven-plus months of on-market buybacks. Since the start of on-market buybacks, the company has bought back 20.8% of market volume. Notably, when the share price was weak in January and June, the company bought back ~32% of volume during those months. That leaves the company with ¥195.6bn (8-11% of remaining shares) left to spend on its buyback program. The buyback goes until November 8th 2019. At last month’s strong pace, it would take the full four months to complete.
Fundamentals are not overly positive. OP is expected to rise almost 300% this year vs last year, which was a bad year. But net income is expected to be negative. And that was before taking into account the Yokkaichi electrical outage problem at Toshiba Memory and substantial worsening of NAND prices out in the world. Expectations of a Toshiba Memory IPO later this year may be dashed as well given the losses which will arise from lower ASPs, and sharply lower QoQ bit growth because of the incident.
There are some very deep-pocketed activist-like shareholders who may be in this for the long haul. When the buybacks look like they are ending – it will likely be quite a while until another buyback occurs – we may see previously strong hands become weak hands and be interested in liquidating simply because the market support of the buyback will be gone.
With less than ¥200bn to go, and a multi-year path for Toshiba Next Plan ahead, the one hope here is serious capital action (mergers, sales) or other significant action by the new board to show they mean business. Travis Lundy thinks buying out minorities in Toshiba Plant Systems and Toshiba Tec – which are simply too cheap at 4.5x and 4.0x EV/EBITDA – is a reasonable idea, but doesn’t think the board will be as effective in early days as some might hope.
He would be a seller of Toshiba in the market into strength because he sees post-buyback overhang, and does not see tremendous progress near-term. After the Buyback ends, if there are no capital transactions, the next major flow event for foreign investors to take profits on their “buy-the-dip” trade of 2017 is years away.
Meituan and Xiaomi Corp (1810 HK), two of the largest IPOs in Hong Kong last year, were included in Hang Seng Composite Index shortly after their listing (Xiaomi on July 23th and Meituan on October 8th). But neither was included in the southbound Hong Kong Connect scheme due to their dual-class structures. This may change.
The Stock Exchange of Hong Kong (SEHK) has been working with the two exchanges in Shenzhen and Shanghai to allow the dual-class shares to be included in the Hong Kong Connect. In April this year, representatives from the SEHK mentioned that dual class shares of Chinese companies shall be included in the Hong Kong Connect scheme in July.
Shareholders who had tendered in Harbin Electric’s Offer have been entitled to withdraw those shares since 11 June – 21 days after the Closing Date on the 20 May. 112.7mn shares or 16.7% of shares have now been withdrawn. Netting off shares that have tendered (~12.5mn) since the 20 May, the total acceptance level is estimated at 71% compared to 85.84% at the time of the unprecedented extension. Harbin’s price of $3.85/share now offers an extraordinary one-up (~18.5%) to the Offer price of $4.56/share, to two-down (~35%) to the undisturbed price of $2.50.
The Offer has shareholder approval – shareholders comprehensively (99.13% of H-shares attending) voted FOR the proposal. The Offeror wants the deal done – which is why they sought and received the extension from the SFC. Both the Offeror and shareholders who voted would prefer to get this deal done now rather than later.
My interpretation of the Takeover’s Code and the Scheme Document is that the Offeror can buy in the market. Why haven’t they? This is likely down to the Offeror not being 100% confident what it buys in the market will achieve the 90% acceptance objective. Plus, the Offeror would prefer not to hold any H at all, as before, should the deal lapse.
One unorthodox approach for shareholders to express interest in getting this deal up is for investors to independently ‘self-coordinate’ towards a common objective, by initiating a hybrid institutional acceptance facility (IAF). IAFs are common in Australia. Investors could individually (and collectively) offer their stock out in the market at the Offer Price both during trading or during the auction period, as a signal for the Offeror to allow them to buy in the market.
Asia Sat announced a Scheme Implementation Agreement at HK$10.22/share, a 23.4% premium to last close – the undisturbed is likely not HK$8.28 from the day before it was halted; the shares mysteriously moved beforehand – and a 10% premium to the 31 December 2018 NAV. The Offer Price is final. The Offeror, holding 74.73% is split 50:50 between CITIC and Carlyle, the latter acquiring its stake from GEC in 2014 via a Sale and Purchase Agreement at HK$26.00/share, in which the Independent Financial Advisor found the deal to be not fair and not reasonable.
Ex-special dividend in 2015, the Offer Price is 50% below where the stock was trading just after the last Mandatory Offer in 2015 when Carlyle bought in. The fact that it is trading wide to terms tells you the initial reaction is that this has hair. This is not difficult to block – it would require about US$13mm of stock. International Value Advisers has 6.1% and could block with that. It is not clear what their total purchase price was. The last 1.1% or so was purchased at HK$5.12/share. The previous 4.9% could have been done at a low price or a fair bit higher price.
The stock is illiquid, trading at a low PER, and low EV/EBIT ratio, partly on the fact that there is no possible alternate bidder for the asset (because CITIC will take it eventually) and partly because the assets don’t live forever. They will have to replace the existing satellites with others in the 5-10 years to come. At a multiple well lower than the average of the peers, it is not a compelling multiple at which to sell.
Because the satellites appear to be used by Chinese government agencies and possibly the Chinese military, there is a risk that if the US cracks down further on US-China interaction, and US export controls start to deem semi-autonomous Hong Kong (as control location despite corporate legal jurisdiction in Bermuda) as part of mainland China rather than separate (as it does now), AsiaSat might have a substantially less bright future.
GBST announced a non-binding indicative Offer of $3.25/share (cash) from Ss&C Technologies (SSNC US) by way of a Scheme at a 64.6% premium to the closing price on the 11 April, when GBST was first approached by Bravura Solutions (BVS AU). Two days later SSNCV bumped its Offer to $3.60/share. GBST had mentioned in an announcement the previous Friday when talks broke down with Bravura, it “has now received other non-binding confidential competing proposals to acquire 100% of the ordinary shares of GBST via cash offers at a price higher than $3.00 per share”. On cue, the updated SSNC announcement mentions an Offer of $3.50 from FNZ Group.
Although indicative, SSNC’s Offer probably had a better chance of getting up compared to Bravura as there is a risk the two competing softwares offered by Bravura and GBST could not be folded into one.
GBST’s board will exclusively open its data room to SSNC for four weeks. Should a Binding Offer transpire, the board will unanimously recommend it. Shareholder support should follow a binding proposal from SSNC. Spheria, the second largest shareholder, had previously expressed Bravura’s $2.50/share Offer had merit. Spheria promptly bumped its stake in GBST to 10.74% from 9.09% on the 13 May, then to 12.42% on the 20 June. and most recently to 14.46%.
SSNC’s Offer is an 82.3% premium to the undisturbed price. Trading at terms with two, possibly three, competing bidders. Getting involved, as recommended, when SSNC entered the scene nicely paid off. Sitting at or just below the Offer price may still yield a decent return – this could go another 5-10% more.
Abacus Property (ABP AU) and Charter Hall (CHC AU) have now announced an A$3.04/unit Offer versus its initial $2.95/unit all-cash non-binding proposal. This will be reduced by any further distribution. The proposal is also “best and final“. All other prior conditions remain – such as completion of due diligence – but this time on a non-exclusive basis.
In the meantime, AOF announced the value of its property assets had increased by ~A$0.14/unit as part of its 2019 revaluation process. This has elevated the unaudited NTA/unit to A$2.79/unit, up from $2.67/unit December-end 2018.
Therefore, the revised Offer is a 9% premium to the NTA compared to a premium of 10.5% under the original Offer; but bear in mind AOF has recently gone ex the June-quarter dividend of A$0.0395/unit. The revised Offer also exceeds the initial Offer plus the June and September distributions.
On balance, this bump is probably enough to account for the uplift in the NTA. And compared to precedent property transactions demonstrating similar characteristics to AOF, this should get up.
ReportedlyCoca Cola Co (KO US) is in talks to buy a stake in CCD’s core coffee business which owns ‘Cafe Coffee Day’, India’s largest coffee chain. Coke has stated plans to expand beyond sugary drinks into healthier drinks and acquired Costa Coffee for USD5.1bn last year.
Devi Subhakesan expects CCD to double from the (then) current market price of Rs229.5 and trade closer to its SOTP value of Rs440/share. The coffee ops account for ~72% of NAV.
This is based on her assumption of 20x EV/EBITDA used in the SOTP as being conservative, with domestic F&B retail peers likeJubilant Foodworks (JUBI IN) trading at around 26x.
Caesars and Eldorado Resorts (ERI US) have announced their highly anticipated merger, encouraged by 17.75% CZR shareholder Carl Icahn, which combines Reno NV-based Eldorado with Las Vegas, NV-based Caesars into the largest U.S. gaming company. Deal terms call for each CZR share to receive $8.40 cash and 0.0899 shares of ERI common stock. There will be a provision for shareholders to elect, subject to proration, the form of consideration. Upon completion of the deal, the combined company shareholder split will be approximately 51% ERI shareholders and 49% CZR shareholders. The merged entity will take the Caesars name.
The combined company will be the largest U.S. gaming company in terms of number of properties, with approximately 60, followed by PENN with 37 properties. ERI management expects the combined company to have the greatest combined EBITDAR in the industry of $4 to $4.5bn in a year or two, with MGM number two with $2.5bn.
The multiples being paid are a premium based on most of the metrics evaluated, though on the important EBITDA multiples, both trailing and forecast, the premium is not particularly high. Still, John DeMasi didn’t think this would present a problem with REI (ERI’s largest shareholder with 14.3%) and Carl Icahn (CZR’s largest shareholder with 17.75%) having entered into voting agreements to vote for the transactions relating to the merger.
For definitive deal, rate-of-return arbitrage and event-driven investors, the CZR/ERI deal is attractive and should be considered for portfolio inclusion. It has support of major shareholders on both sides, it is a strategically logical deal by an acquirer who is one of the best operators in the sector, with an excellent track record of adding value with acquisitions. Financing is not a condition, and none of the conditions seems onerous. HSR can probably be resolved with a few divestitures and state gaming approvals should not be a problem with ERI’s track record of running its properties well since 1973. Based on what is known at this point, this arb seems like a relatively safe bet.
JM has bought a further 4.85mn shares in JS since my previous insight (StubWorld: Matheson’s Strategic Buying of Strategic) in March – or ~0.44% of shares out, taking its 2019 total to 6.6mn or 0.6% of shares outstanding. The simple ratio (JM/JS) is now at 1.62x against an 8-year average of 1.7x and the long-term average (20 years) of 1.79.
JS is required to maintain a free float of 15% as stated at the end of every SGX announcement of shares acquired by JM (here is the most recent announcement). JS’s primary listing is in London, and that’s the reason the Financial Conduct Authority of the United Kingdom is referenced at the top of each share purchase filing by JS. The default position under the UK listing regime is for companies to have a minimum free float of 25%, but Jardines negotiated a lower percentage (15%) with the UKLA.
My correspondence with Jardines indicates the % held by JM in JS indicates very little wiggle room (read the insight (link below) for exact details). JS offers scrip dividends which expand the denominator, yet the latest scrip entitlement announced early May was for just 130,691 shares.
What to do? If investors believe there will be more aggressive buying (as seen in the 1Q19) by JM into JS and therefore supporting JS’s share price, they should reconsider. This does not appear to be workable. Unless Jardines negotiates a still lower % float, which appears doubtful – I’m not aware of any precedent. The long-term ratio (JM/JS) is in favour of JM. And JM’s yield is more attractive at 2.67% versus 0.86% for JS.
The Taiwan and Indian M&A Guides issued this past week are the seventh and eight installments in a series of M&A guides that our Quiddity team (Travis, Janaghan Jeyakumar, and myself) are publishing to aid investors in understanding the rules, parameters, possibilities, and processes when companies conduct mergers and acquisitions. These insights are designed to be used as a reference. Any questions are welcome.
Health Management Intl (HMI SP) has announced a S$0.73/share (14.1% & 24.8% premium to last close and one-month VWAP) Offer from EQT by way of a Scheme. Irrevocables total 61.8%.
“City failed to value us, saysMerlin Entertainments (MERL LN) theme park boss Sir John Sunderland”. It may be true, but it is not a good look. It is management’s job to do the right thing with regard to investor relations. And if the stock is not cheap enough to buy rather than grow by investing in new assets, then it isn’t “too cheap” for management.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Interestingly, on the 2 July, 229 companies with shareholdings in SHK, were moved into China Everbright. This is probably just cleaning house.
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
Hong Kong IPOs seemed to have taken a turn for the better. Budweiser Brewing Company APAC (1876 HK) launched its US$10bn mega IPO that have perhaps inspired confidence in other companies. For example, China Feihe (FEIHE HK) filed its prospectus after pulling its failed listing attempt back in 2017 while Shanghai Henlius Biotech (1566213D HK) refiled as well after its December 2018 application lapsed not long ago.
Other interesting things happening in APAC ECM is India’s surprise proposed change in public free float requirement from 25% to 35% which may see share sale in the near future and could potentially enlarge upcoming IPO deal sizes.
Accuracy Rate:
Our overall accuracy rate is 72.5% for IPOs and 64% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings this week
China Feihe (Hong Kong, ~US$1bn)
Neutech (Hong Kong, potential US$100m)
Shanghai Henlius Biotech (Hong Kong, re-filed)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
Medipal Holdings (7459 JP) shows a clear up trend with upside momentum concerns brewing given non confirmation of recent highs by trending models.
Our more tactical view is bullish off of noted trendline support at 2,300-50 for a try on a minor new high. Buying weakness is the game plan for a new high with a stop below trendline support. A new high shows projection to 2,890 and risk to a marginally higher level.
It is this minor new high that we envision a potential intermediate cycle peak that would lead to a break below the current trendline support as bear divergence matures. It is this primary trendline support that will inflect the macro cycle and seek out secondary support if broken.
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