In today’s briefing:
- 7&I (3382) – Bain Gets York Holdings with a Surprising Price, And We Approach Deal Deadlines
- A/H Premium Tracker (To 21 Feb 2025): AH Premia Continue to Fall; Wider Spreads Narrow Most
- HK Connect SOUTHBOUND Flows (To 21 Feb 2025); Another HUGE Jump in Value Traded, Consumer Still Bid
- Merger Arb Mondays (24 Feb) – Seven & I, Proto, Tam Jai, Pentamaster, Vesync, Canvest, Domain
- Seven & I Restructures but Discontent Rises Among Franchisees and Customers
- SG Fleet (SGF AU): 8th April Scheme Vote
- Weekly Update (SNDK, LBTYA, MRP, HHH, GTX)
- Sandisk Spin-off Overview
- Strategic Shifts and Financial Updates: CURN, SGRP, SAGE, WOW, and EMBRAC-B:ST Developments
7&I (3382) – Bain Gets York Holdings with a Surprising Price, And We Approach Deal Deadlines
- Over the weekend, the Nikkei and Jiji reported the 7&i Board met Saturday and decided Bain would have preferred negotiating rights to buy York Holdings. They bid “over ¥700bn.”
- That’s a trifle lower than the ¥1.2trn Reuters reported (on Christmas Day) Bain bid but details aren’t known. Proper structuring would get the vast majority to 7&i in post-tax cash.
- For 7&i to decide by the AGM (which could be contentious), they need time to debate. Bids are likely needed in 3wks. In the meantime, “Trump Risk” lurks.
A/H Premium Tracker (To 21 Feb 2025): AH Premia Continue to Fall; Wider Spreads Narrow Most
- AH Premia continue to fall with the widest spreads narrowing more than the narrowest spreads, and liquid pairs seeing more narrowing than illiquid pairs.
- Average AH Premia are at a new 5yr low (longer, actually, but charts below only show 5yrs). The big warning sign? Rolling 52wk performance of A vs H in pairs.
- Momentum is going to work until it does not. A new Trump EO this weekend seems to have potential to lead to more restrictions on US ownership of Chinese stocks.
HK Connect SOUTHBOUND Flows (To 21 Feb 2025); Another HUGE Jump in Value Traded, Consumer Still Bid
- This past week saw SOUTHBOUND Connect clear HK$800bn of gross value traded, and net value was near recent highs at +HK$51bn. Consumer and finance names continue to be the rage.
- Notable is the HUGE back-and-forth. If HK$800bn traded and SOUTHBOUND only bought HK$51bn, HK$375bn was round-tripped for short-term purposes.
- That is twice the “excess” traded seen for the past year. Tencent (700 HK) saw US$14bn traded but net buying was US$121mm.
Merger Arb Mondays (24 Feb) – Seven & I, Proto, Tam Jai, Pentamaster, Vesync, Canvest, Domain
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Seven & I Holdings (3382 JP), Smart Share Global (EM US), Tam Jai International (2217 HK), Vesync (2148 HK), ESR Group (1821 HK), Goldlion Holdings (533 HK).
- Lowest spreads: Makino Milling Machine Co (6135 JP), Shibaura Electronics (6957 JP), Millennium & Copthorne Hotels Nz (MCK NZ), Domain Holdings Australia (DHG AU), Avjennings Ltd (AVJ AU).
Seven & I Restructures but Discontent Rises Among Franchisees and Customers
- York HD is due to take over operation of all group business except Seven Eleven at the end of February and press reports suggest Bain’s bid has been accepted.
- All of which is fine but this leaves Seven Eleven Japan which is struggling against rivals. Even franchise owners are becoming more critical.
- A recent survey by Nikkei also suggested that consumers are increasingly favouring Lawson and Familymart and 30% visited Seven Eleven stores less frequently in 2024. This is a big problem.
SG Fleet (SGF AU): 8th April Scheme Vote
- On the 25 November 2024, SG Fleet (SGF AU) (SGF), an Aussie provider of fleet leasing services, announced a A$3.50/share non-binding/indicative proposal from Sydney PE outfit Pacific Equity Partners (PEP).
- On the 4th December, both parties entered into a SID on the same terms. SGF’s largest shareholder, Super Group (SUPER SP) (53.58%), was supportive.
- The Scheme Booklet is now out, with a Scheme Meeting on the 8th April. Expected implementation on the 30th April. The IE (Grant Thornton) says fair & reasonable.
Weekly Update (SNDK, LBTYA, MRP, HHH, GTX)
I want to use my introduction to provide some comments on Howard Hughes (HHH).
Bill Ackman’s Pershing Square Capital Management has disclosed a new offer related to Howard Hughes.
The proposal is that Pershing Square Capital Management purchases 10 million newly issued shares at $90 each, totaling $900 million, which would increase Pershing Square’s stake from 37.6% to 48%.
Sandisk Spin-off Overview
- On February 24, 2025, Western Digital (WDC) will spin-off 80.1% of its stake in Sandisk (SNDK).
- Sandisk is trading in the when issued market at $48.26. At that share price, SNDK is trading at an EV/ annualized revenue of 1.0x and a price to annualized earnings of 9.9x.
- This price looks relatively attractive given Sandisk’s NAND flash memory partner, Xioxia, is trading at 1.3x TTM revenue.
Strategic Shifts and Financial Updates: CURN, SGRP, SAGE, WOW, and EMBRAC-B:ST Developments
- Currency Exchange International (CURN) exits Canadian operations, incurring discontinuation costs, but expects $5-$6m profit tailwind by 2026.
- SPAR Group (SGRP) faces a third financing delay, suggesting Highwire Capital’s potential funding issues or hesitance.
- Embracer Group’s (EMBRAC-B:ST) valuation update post-Asmodee spin-off indicates potential 20%-80% upside if market recognizes Asmodee stake.
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