Brief M&A: Korea M&A Spotlight: Binggrae Acquires Haitai’s Ice Cream Business and more

In this briefing:

  1. Korea M&A Spotlight: Binggrae Acquires Haitai’s Ice Cream Business
  2. Toshiba Machine – Taking the Other Side
  3. Metrovacesa (MVC SM) Circled On
  4. LVMH – Tiffany Deal: Bernard Arnault Makes Another Big Splash
  5. Celltrion Merger: Potential Controversy from Healthcare’s Inventory Situation

1. Korea M&A Spotlight: Binggrae Acquires Haitai’s Ice Cream Business

Binggrae icecream

On 31 March, Binggrae Co Ltd (005180 KS) announced that it will acquire 100% of the ice cream business of Haitai Confectionery & Foods (101530 KS) for 140 billion won. As a result of this acquisition, Binggrae will overtake Lotte Confectionery to become the number one player in the domestic ice cream industry with nearly 40% market share.

Haitai Confectionery will use the proceeds from this sale to reduce its debt and further invest in its confectionery and snacks products. This M&A deal appears to be a “win-win” deal for both companies as they can continue to focus on their core business strengths.

It appears that the market has a more favorable view on Binggrae following this M&A deal, whose shares have gone limit up (30%) on only 81k volume this morning, which is not materially higher than the trading volume in the past week. So there is a good chance that Binggrae’s share price continues to go up sharply tomorrow.  On the other hand, the trading volume for Haitai Confectionery is already at 0.9 million (as of 10:30AM this morning), which is already up sharply versus the past week’s levels. 

2. Toshiba Machine – Taking the Other Side

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LightStream Research published an insight Toshiba Machine – Shareholders Side With Management and In This Case So Do We which more or less pooh-poohing financial media naysayers who had suggested that investors had voted against their own economic interests. 

Mio Kato, CFA‘s conclusion was that the company’s strategy may play out better for investors in the long-term. 

I think this particular angle is misguided, and I present a different view. I think the result was a huge disappointment for stewardship.

Separately, anyone who believes that ISS’ conclusions regarding the potential for a change in control were a good reason to vote FOR Toshiba Machine’s management proposals should be taking a looong, haaaard look at how they voted in the Z Holdings (4689 JP) shareholder meeting 17 March (seriously).

3. Metrovacesa (MVC SM) Circled On


Over the last weeks, distressed investors have reportedly shown interest in Metrovacesa SA (MVC SM), whose share price has dropped by 70% since its last public offer in February 2018.

After delays in unit deliveries and two profit warnings, management offers no guidance for unit deliveries, although it does for cash flow generation. The business mix will now involve less houses and apartment deliveries and more land sales. It is therefore difficult to calculate a DCF valuation. I sense that the patience of the main shareholders (Santander and BBVA) is ending and both banks are increasingly interested in extracting value from the business sooner rather than later. This may involve a sale of the business and/or a combination with a peer.

I believe that the current valuation is that of a company in distress, which does not seem to be the case for Metrovacesa. The current economic standstill, the clumsy response to coronavirus from Spanish government and the foreseeable slow down in housing demand, at least until the current situation clears, will certainly not help house buying. Nevertheless 72% discount to NAV seems excessive.

Leaving aside the current market conditions, the market had previously been doubting the asset valuations or the long-term business plan. Moreover, the coronavirus has abruptly brought the economic cycle to an end. Therefore, in the short term, the share may lack catalysts, unless the company ramps up production (unlikely) or steps up land sales.

Applying the P/BV of Neinor Homes, 0.7x to Metrovacesa, would give a valuation of EUR 11.5 per share of Metrovacesa, which although uncrazy, seems overly optimistic at the moment.

Applying a straight discount of 50% to the NAV of Metrovacesa would give EUR 8.8 per share, which seems an undemanding valuation for such a large land bank.

4. LVMH – Tiffany Deal: Bernard Arnault Makes Another Big Splash


Tiffany (TIF US) is an American jewellery company focused on hard luxury items such as jewellery and as well as silver and diamond engagement/wedding rings. Tiffany was founded in 1837 and had net sales of 4.4bn USD as of FY19. Tiffany received a friendly takeover offer of $135 per share in an all-cash deal from Lvmh Moet Hennessy Louis Vuitton (MC FP)  in November 2019 with an expected completion date in mid-2020 with a completion date no later than August 24, 2020. LVMH is one of the largest luxury brands in the world and owns brands such as Dom Perignon, Bulgari, Marc Jacobs and Hublot.

The bid and acquisition price may not come as a surprise given LVMH CEO Bernard Arnault has had a penchant for big acquisitions, even if oddly timed. There is scant evidence that Mr Arnault is likely to back away from a deal, despite the scope for deteriorating market conditions ( Carrefour SA (CA FP) in 2007 with Colony Capital as an example).

Below, we look at the deal below and assess whether Arnault and LVMH are likely to complete the deal with Tiffany. More thoughts below.

5. Celltrion Merger: Potential Controversy from Healthcare’s Inventory Situation


Celltrion held the annual general meeting on March 27. During this meeting, CEO Seo reaffirmed the merger between the three siblings. He specifically said that he would unveil a preliminary merger plan as early as the third quarter of this year. So, it seems almost official that we are now moving into a merger mode. That is, it is now time to start talking on potential issues (or controversies) that may result from a merger as we move on.

Then, one of the most prominent issues is the immense inventory still sitting on the Celltrion Healthcare book

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