In this briefing:
- JDI – LG Display to Benefit from Apple’s Mini-LED Adoption but Buy JDI Instead
- Nuflare – Shift to Multibeam Is the Risk but Will Being Part of Toshiba Really Help?
- QMS: Legal Wranglings Take The “Ooh” Out Of Quadrant’s Bid
- HSI – Potential Impact of WVR Share Inclusion & Finance Sector Capping
- Activist Murakami-San Going After Toshiba Sub Nuflare?
News is that Apple will be adopting mini LED technology for its next generation of Macbook Pro and Ipad Pro models. LG Display and General Interface Solutions are mentioned as key suppliers but we feel there may be a better play on this news.
With the announcement of Murakami’s interest in Nuflare, we examined the details surrounding the company’s challenges in developing multibeam mask writers as these seem to be the key swing factor in determining whether earnings are likely to trend as the company has outlined in its release or whether sellside analysts have it right, and the company is likely to suffer steadily declining earnings.
On the 29 October, Quadrant Private Equity entered into a Scheme Implementation Deed (SID) with out-of-home (OOH) advertising business Qms Media (QMS AU) under which Quadrant agreed to acquire 100% of QMS at $1.22/share, a 36.3% premium to the close. A final dividend of A$0.013/share for the financial year ending 31 December 2019 will also be added. The Scheme has board support and the backing of 15% of shares out (via rollover options).
All good to go.
This is not a “little known” proceeding as the AFR stated – the dispute has been noted in QMS’ Annual Reports and accounts since last year. Quadrant would have been fully aware of the ongoing case.
It is the size of the lawsuit that has emerged which gives pause. QMS has responded that:
At no time in the proceedings to date has the Manboom Group set out the quantum of any claim for damages and QMS is not aware of any facts or materials which support the quantum of the damages referred to in the AFR article.
QMS is not aware of any further information since the publication of its Half Year Report and Accounts which would cause it to change its view on the merits of the claim or the potential liability which QMS may have in respect of the claim.
However, as stated on page 26 of QMS’ 2019 interim report:
… particular of damages claimed will be proved after discovery, which is likely to be completed in November prior to the directions hearing
The documents sighted by AFR would indicate that discovery has posited A$150-$200 in lost revenue.
If successful, this would trigger a MAC under the SID. QMS has launched its own counterclaim against Manboom. The proceedings are scheduled for a directions hearing on the 13 December.
On 8 November, Hang Seng Indexes announced the results of the quarterly index review of the HSI and HSCEI. While making no changes to the HSI, Hang Seng Indexes announced plans to conduct a market consultation on various topics related to the HSI, including eligibility of Weighted Voting Right companies for inclusion in the index and the weighting of the Finance sector in the index. The consultation is targeted to be conducted in the first quarter of 2020 and it is expected that the result of the consultation will be announced in May 2020.
In this Insight, we look at the potential impact on the HSI if one or both of these changes go through.
When Toshiba Corp (6502 JP) announced the three tender offers for its three affiliates discussed in the last three insights below, all three Tender Offers were announced at prices which were “light” – they were quite clearly not overpaying.
Recent Insights on Toshiba Restructuring and Buyout of Subs
|16 Oct 2019||Toshiba||Toshiba Buyback Ending: The Next Catalyst Is Restructuring|
|24 Oct 2019||Toshiba Tec||Toshiba Restructuring Coming – Toshiba Tec Is STILL the Right Horse.|
|12 Nov 2019||Toshiba Plant||Toshiba Restructuring – It’s Coming, Subs Are Up, Wording Is Important|
|13 Nov 2019||Toshiba Plant||Toshiba Tender for Toshiba Plant (1983) – Lighter Than It Should Be|
|13 Nov 2019||Nishishiba Elec||Toshiba Tender for Nishishiba Electric (6591) – Also Cheap|
|13 Nov 2019||Nuflare Technology||Toshiba Tender for Nuflare Technology (6256) – Lightish to Too Light|
The price for Nuflare was set at a 50% premium to where it had been trading six weeks prior but not after having been lifted from Toshiba’s original proposal of ¥9,520/share which was ~3.6x the EBITDA that the financial advisors to Nuflare were looking at for March 2021.
Nuflare’s Independent Committee and their own Financial Advisors came up with a higher DCF “fair value” then Toshiba bid ¥11,900/share which was near the bottom of the fair value ranges estimated by both Deloitte Tohmatsu – Nuflare’s own advisor (¥11,452-15,655) and by Mizuho Securities (the advisor to the Independent Committee) at ¥11,368-14,992. The averages come out to be ~¥13,550 and ~¥13,150 just to get to the DCF fair value range mid-point.
The bid was light.
My analysis was that the EV/2021 EBITDA multiple was ~5.4x and the Adusted EV/EBITDA multiple was 4.85x. From there, EBITDA was forecast by both parties to rise significantly in the following 3-4 years. Neither was a particularly great place to be a seller.
The New News
Yesterday, after the close, it was disclosed that Minami Aoyama Fudosan, a company run by famed Japanese activist Yoshiaki Murakami, had purchased 575,100 shares or a 5.02% stake, “with the aim to provide advice to management and to submit important proposals, depending on the investment situation.”
That is code for “disagree with management.”
Now things get interesting.