In this briefing:
- Amorepacific Stub: Interesting Situation Amid Pref Issuance
- UNIZO: An Amended Proposal, A New Proposal, and a Response to Elliott
- Amorepacific Group Plans to Buy 200 Billion Worth of Amorepacific Corp & The Long-Short Trade
- TSMC – Chip Away at the ADR Premium
- TPV Technology: IFA’s Flawed Valuation
Holdings/Sub are now at a +2.5σ on a 20D MA. Holdings discount relative to Sub (price ratio) is currently at a 120D high. Holdings announced a ₩200 pref issuance last night. Not only that, Holdings said that it would use the proceeds to buy Sub shares openly in the market. This will surely be enough to reverse the ongoing price diversion favoring Holdings. It’s time for another arb here: short Holdings and long Sub. Liquidity on both names shouldn’t be much of an issue here.
The Document Release
|1||2019 H1 Earnings Revision||announcement, slides|
|2||Third Party Acquisition Proposals||announcement, slides|
|3||Answers to Elliott’s Questions||release||release|
As discussed in the previous insight, Elliott was going to find it difficult to get the answers to the questions they posed (the questions in the press release from yesterday can be found at http://elliottletters.com/) (note this website is not secure so fill out the enquiry fields and send your information at your own risk).
More discussion below.
Amorepacific Group (002790 KS) announced today after market close that it plans to purchase 1.33 million shares of Amorepacific Corp (090430 KS), which is worth 200 billion won or about 2.3% of Amorepacific Corp common shares outstanding. Amorepacific Group plans to conduct a rights offering to raise funds for this purchase. Amorepacific Group also plans to invest in the Osulloc tea brand business, which has been one of the Amorepacific affiliates.
Long-short Trade – This announcement is likely to put a strong positive pressure on the Amorepacific Corp shares and a negative pressure on the Amorepacific Group shares in the next few weeks. Most likely, the potential arb on this deal is likely to be settled in the first few minutes of trading on the morning of October 11th. You would want to be long Amorepacific Corp and short on Amorepacific Group shares on this arb trade.
We believe that one of the reasons why Amorepacific Group is issuing convertible preferred shares is because this could be one of the methods that Chairman Seo Kyung-Bae may use to increase the ownership of Amorepacific Group to his children. Chairman Seo has two daughters including Seo Min-Jung (age 26) and Seo Ho-Jung (age 22). The elder daughter Seo Min-Jung started working at Amorepacific Corp in 2017. It appears that the elder daughter Seo Min-Jung is being groomed to eventually take on key senior management positions at Amorepacific although this is likely to take many more years.
The premium on the Taiwan Semiconductor Sp Adr (TSM US) ADR is nearing its highs over the last two years on higher than average volumes. The traded value on the ADR is higher than the local stock and the premium is causing the local stock to gap up at the open over the last few days as arbitrage traders hedge their positions and local investors look to the ADR for cues on direction.
We would look at entering a short Taiwan Semiconductor Sp Adr (TSM US) position against a long Taiwan Semiconductor Manufacturing Company (TSMC) (2330 TT) position in the 6-7% premium range and wait for a reversion back to around 2%.
TPV Technology (903 HK) is a leading display solutions provider. On 12 August, TPV’s largest shareholder, CEC, launched an HK$3.86 cash per share privatisation proposal by way of a scheme of arrangement. On Tuesday, the delayed scheme document was released, with the court meeting set for 30 October.
In our previous note, we stated that the interims reinforce our view that CEC’s offer is not attractive for shareholders willing to take a long-term view. Predictably, the IFA recommended that the independent shareholders vote in favour of CEC’s offer. However, on closer inspection, we believe that the IFA’s valuation methodology is full of holes and continue to believe that CEC’s offer is unattractive.