Daily Brief Consumer: Tsuruha Holdings, Shandong Fengxiang, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

Tsuruha (3391 JP): Welcia (3141 JP) Share Exchange and Aeon (8267 JP) Partial Offer Unattractive
Fengxiang (9977 HK): PAG’s Preconditional Privatisation Offer at HK$2.00
Effectiveness of MBO Special Committee Is Linked to Effectiveness of Independent Directors

Tsuruha (3391 JP): Welcia (3141 JP) Share Exchange and Aeon (8267 JP) Partial Offer Unattractive

Tsuruha Holdings (3391 JP) and Welcia Holdings (3141 JP) announced a merger through a share exchange followed by a partial tender offer by Aeon for a 50.90% stake of the merged entity.
The share exchange terms favour Welcia over Tsuruha shareholders. The Tsuruha shareholder vote is high risk as Orbis, the second-largest shareholder, intends to vote NO.
Aeon Co Ltd (8267 JP)’s follow-up partial offer for Tsuruha is unattractive compared to its previous offer for the Oasis stake, peer multiples and premium to the undisturbed price.

Shandong Fengxiang (9977 HK) has disclosed a preconditional privatisation offer from PAG, the controlling shareholder, at HK$2.00 per H share, a 33.3% premium to the undisturbed price.
The precondition relates to regulatory approvals. The key conditions for the privatisation will be approval by at least 75% independent H Shareholders (<10% of all independent H Shareholders rejection).
The shareholders with blocking stakes which have not provided irrevocables will likely be supportive as the offer is reasonable and there is a potential scrip alternative.

The key is whether the effectiveness of special committee can fairly guide MBO, but whether the independent outside directors are truly independent, properly informed, and skilled is an important assumption.
Since companies with high foreign shareholdings generally have higher corporate governance practices, there are concerns about practices in MBO cases for many companies that do not have high foreign shareholdings.
When a company whose “goal is IPO” conducts MBO when the stock price is lower than at IPO, there are concerns about whether the special committee will guide MBO fairly.

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