Brief Event-Driven: Maeda Road Starts Talks With Nippo (1881) As a White Knight. Not a Winner Yet. and more

In this briefing:

  1. Maeda Road Starts Talks With Nippo (1881) As a White Knight. Not a Winner Yet.
  2. Bumrungrad: Bangkok Dusit’s Poor Diagnosis
  3. Why Tesco Should Not Sell Its Thai Business
  4. Wheelock’s Unexpected Two-Step Privatisation Proposal

1. Maeda Road Starts Talks With Nippo (1881) As a White Knight. Not a Winner Yet.

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Maeda Road Construction Co (1883 JP) today announced the start of talks with Nippo Corp (1881 JP) as a measure to counter Maeda Corp (1824 JP)‘s Tender Offer. 

It is a very hand-wave-y announcement with comments about cost pull, resource allocation, efficiencies, working towards the public good by constant improvement of social infrastructure, and then at the very end…

The two companies will proceed with the discussions on the specific terms of the alliance while complying with the antimonopoly law and other relevant laws and regulations.

The history here – the reason why that last line is needed – tells you something about what this announcement means. 

2. Bumrungrad: Bangkok Dusit’s Poor Diagnosis

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Bangkok Dusit Med Service (BDMS TB) has made a Conditional Voluntary Tender Offer (CVTO) for 24.99% held Bumrungrad Hospital Pub Co (BH TB) at THB125/share, an 11.6% premium to last close.

That Offer Price may increase by up to 20% – or up to THB150/share – depending on the “appropriateness of the market directions of the market of the Stock Exchange of Thailand and the trading price of BH at the time.”

In addition to requiring approval from BDMS’ shareholders, the key condition to the Offer will be the approval from the Trade Competition Commission (TCC). That is unlikely to be a defeating condition.

The initial headline price, and even the high end of this indicative range, appears highly opportunistic.

More below the fold.

3. Why Tesco Should Not Sell Its Thai Business

Margin

Tesco PLC (TSCO LN)‘s CEO Dave Lewis has done an admirable job turning around Tesco, despite a pretty muted share price reaction since his arrival in late 2014. Despite improving profitability and selling prized assets such as Korea to reduce debt, Tesco’s share price recovery has moved in-line with the FTSE 100 over the past five years whilst Tesco shares are worth half of their peak 13 years ago.

We argue the latest decision by Tesco to consider selling its Thai/Malaysian assets is misguided for three reasons; which are as follows:

  1. Tesco’s Thailand and Malaysian robust valuation are already broadly reflected in the group valuation.

  2. Tesco would heavily dilute its group margins and lose 12% of its EBIT whilst doubling down on a UK business that continues to lose market share.

  3. Tesco could see significant supply chain disruptions as it uses its Thai business as an importing hub. 

For more of our commentary over the years on Tesco and Thai retail, you can find our content here: 

Central Retail IPO: Trading Debut, Valuation Scenario Analysis 

Central Retail Corp IPO Initiation: Trouble at Till 

4. Wheelock’s Unexpected Two-Step Privatisation Proposal

Precedents

Wheelock (20 HK) is one of the largest property developers in Hong Kong. On 27 February, its shares rose 40% on the back of a privatisation offer from the Woo family, its controlling shareholder. The Woo family is taking private Wheelock through a two-step transaction. First, Wheelock will distribute its equity holdings in Wharf Real Estate Investment (1997 HK) and Wharf Holdings (4 HK) by offering one share each of Wharf REIC and Wharf Holdings. Second, the Woo family will offer HK$12.00 cash per Wheelock scheme share. 

Overall, we believe that the offer is a reasonable but not a knockout bid. In combination with the bid’s small cash component, short-term investors/traders should lock in profits as we expect the value of the privatisation bid to creep downwards. 

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