Brief Event-Driven: Liberbank (LBK SM) – Unicaja (UNI SM) Second Time Around and more

In this briefing:

  1. Liberbank (LBK SM) – Unicaja (UNI SM) Second Time Around
  2. JDI – LG Display to Benefit from Apple’s Mini-LED Adoption but Buy JDI Instead
  3. Nuflare – Shift to Multibeam Is the Risk but Will Being Part of Toshiba Really Help?
  4. QMS: Legal Wranglings Take The “Ooh” Out Of Quadrant’s Bid
  5. HSI – Potential Impact of WVR Share Inclusion & Finance Sector Capping

1. Liberbank (LBK SM) – Unicaja (UNI SM) Second Time Around

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According to media, a group of shareholders of both Liberbank SA (LBK SM) and Unicaja Banco SA (UNI SM) are urging to again open negotiations to merge both banks and there is reportedly consensus for an exchange ratio of 59 Unicaja/41 Liberbank. The combined bank would have pro-forma assets of c. EUR 98 billion, thus becoming the 6th top domestic player.

Both Abanca and Unicaja need to gain scale and capture the synergies that would come with the acquisition of Liberbank. The buyer will surely be spared from the next round of consolidation in the Spanish banking sector.

Since last negotiations (abruptly finished in May), both banks have strengthened its solvency and have CET1 fully loaded ratios over 13%. Liberbank and Unicaja are succeeding in the cleansing of their balance sheets from NPAs (more than EUR 2 billion in the last year), moreover, an increase in the value of their bond portfolios is also helping. This would mean that the ECB would not require a massive rights issue to strengthen the capital of the merged entity. A EUR 500 million contingent convertibles (CoCos) issue and another EUR 300 million in subordinated debt would be enough.

A further catalyst is that Fundación Unicaja, the main shareholder of Unicaja must reduce its shareholding percentage in Unicaja from c. 50% to below 40% before the end of 2020. A merger with Liberbank would help to achieve this goal.

The operation would be structured as an acquisition of Liberbank by Unicaja, with payment in new Unicaja shares, in my view.

Assuming the PV of cost synergies is 778 million (see calculations under “Synergies”) and that they are evenly split between Liberbank and Unicaja, EUR 389 million would go to Liberbank shareholders, or 0.128 per share of Liberbank in synergies, added to last close price would give EUR 0.438 per share of Liberbank.

Recommendation is long Liberbank with a target of EUR 0.438 per share, a 41% upside to the last close price.

Risks: the float in Unicaja is currently 28%, so there is a short squeeze risk in a position to capture the spread, specially if Abanca enters the fray.

2. JDI – LG Display to Benefit from Apple’s Mini-LED Adoption but Buy JDI Instead

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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.

3. Nuflare – Shift to Multibeam Is the Risk but Will Being Part of Toshiba Really Help?

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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.

4. QMS: Legal Wranglings Take The “Ooh” Out Of Quadrant’s Bid

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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.

Until an AFR article this week (paywalled) discussed an indicative $200mn legal proceeding against QMS in the Supreme Court of New South Wales from Manboom, co-owned by John Singleton.

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.


For more on the rules, regulations, practices, and foibles of Australian M&A, please refer to the Quiddity Australia M&A Guide 2019.

5. HSI – Potential Impact of WVR Share Inclusion & Finance Sector Capping

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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.

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