In today’s briefing:
- 7&I (3382) – Bain Gets York Holdings with a Surprising Price, And We Approach Deal Deadlines
- Warren Buffett and the Japanese Trading Houses I
- Merger Arb Mondays (24 Feb) – Seven & I, Proto, Tam Jai, Pentamaster, Vesync, Canvest, Domain
- Seven & I Restructures but Discontent Rises Among Franchisees and Customers
- Weekly Deals Digest (23 Feb) – JXAM, Canvest, CNBM, Tam Jai, Proto, Domain, Mayne, SG Fleet
- Japan Hotel REIT: Interest Rate Hike Will Hurt Tourism, with More Hikes to Come. We Turn Bearish
- ECM Weekly (24th Feb 2025) – JX Advance, Mixue, Hexaware, Geekplus, Trualt, Goodman, Xtalpi, Hyundai
- Nikkei Index Options Weekly (Feb 17 – 21): USD/JPY at Inflection Point
- Effort Goals Are Cozy for Both the Government and the Company
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.
Warren Buffett and the Japanese Trading Houses I
- The Berkshire Hathaway Annual Shareholder Letter for 2024 was released this weekend. Much was made in Japanese twitter-space of the comments he made on the Japanese trading houses.
- He said Berkshire Hathaway’s admiration of these companies “has consistently grown” and Berkshire likes their capital deployment, managements, and their attitude in respect to investors. They also pay themselves reasonably.
- He mentioned Berkshire will increase their stakes somewhat in the trading houses “over time.” That comment deserves some exploration, as does the comment about yen funding.
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.
Weekly Deals Digest (23 Feb) – JXAM, Canvest, CNBM, Tam Jai, Proto, Domain, Mayne, SG Fleet
- A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
- ECM developments: Mixue Group (MIX HK) and JX Advanced Metals (5016 JP) IPOs.
- Event-Driven developments: Canvest Environmental Protection Group (1381 HK), China National Building Material (3323 HK), Tam Jai International (2217 HK), Proto Corp (4298 JP), Domain Holdings Australia (DHG AU).
Japan Hotel REIT: Interest Rate Hike Will Hurt Tourism, with More Hikes to Come. We Turn Bearish
- In April 2024, we published a few notes on Japan REITs on the back of interest rate cut cycle and weaker Asian currencies
- Today, the macro environment has shifted, Japan has started a rate hike cycle.
- Japan Hotel REITs will suffer due to negative impact on tourism and higher cap rate assumptions
ECM Weekly (24th Feb 2025) – JX Advance, Mixue, Hexaware, Geekplus, Trualt, Goodman, Xtalpi, Hyundai
- Aequitas Research’s weekly update on the IPOs, placements, lockup expiry and other ECM linked events that were covered by the team over the past week.
- On the IPO front, Mixue Group (MIX HK) and Chifeng Jilong Gold (600988 CH) might go live in the coming week, with JX Advanced Metals (5016 JP) following after.
- On the placements front, there were a few mega deals this week.
Nikkei Index Options Weekly (Feb 17 – 21): USD/JPY at Inflection Point
- The 150 level on USD/JPY seems to be an area of heightened interest. We see potential for greater disparity of Nikkei returns below this level.
- Nikkei 1-month implied vol is at the 17th percentile; while not currently monetizing, caution is warranted on short vol positions as USD/JPY vol trends higher.
- Call volume dropped sharply vs total volume, with Puts outpacing Calls every day this week.
Effort Goals Are Cozy for Both the Government and the Company
- The cause of the lower female managerial positions behind gender wage gap is clear, but even proposed amendment to the Act seem to be a detour to solve the problem.
- What hasn’t worked 40 years after the Equal Employment Opportunity Law is that there’re no penalties and the environment has always been one in which it’s permissible not to achieve.
- Effort goals are cozy for both the government, which can feel sense of doing by launching effort goals, and companies that will not be blamed if they don’t achieve them.
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