In today’s briefing:
- Toshiba Board to Shareholders: “Yes, Meh But We Did Our Job, Now It’s Up To You (We’re Tired Too)”
- Toshiba – The End… Hopefully
- Toshiba (6502 JP): JIP’s JPY4,620 Tender Offer, Now for the Really Hard Part
- Rakuten Bank IPO – Recent Filings Updates and Quick Thoughts on Valuation
- Rakuten Bank IPO: The Investment Case
- Rakuten Bank IPO Points That the Market Could Be Undervaluing Rakuten’s Businesses & Investments
- Oisix Hit as People Return to Work
- Samantha Thavasa Attempts Rebirth but Losses Continue
- Do Companies Tend to Focus on Shareholder Returns Because They Can’t Find Investment Opportunities?
Toshiba Board to Shareholders: “Yes, Meh But We Did Our Job, Now It’s Up To You (We’re Tired Too)”
- Just post-close, the Nikkei reported Toshiba’s Board had agreed a JIP deal at “around ¥2trln.” Toshiba confirmed HOURS later indicating language was still being hashed out. And the dividend cancelled.
- Toshiba “supports” the deal because it aligns a single shareholder with management goals. They cannot recommend to general shareholders because it is too low. But JIP was the only bidder.
- It raises the question of whether activists will submit to “Toshiba Fatigue” at what the Board admits is too low a price, or whether there is still fight left.
Toshiba – The End… Hopefully
- The Nikkei reported today that Toshiba’s board had chosen to accept JIP’s buyout offer.
- The purported pricing of ¥2trn is a relatively modest premium but is not a surprise and no surprise is a positive here in our view.
- All that remains is shareholder approval and while we doubt there will be too many celebrations on that front, there is likely to be relief.
Toshiba (6502 JP): JIP’s JPY4,620 Tender Offer, Now for the Really Hard Part
- Toshiba Corp (6502 JP) announced a pre-conditional tender offer by Japan Industrial Partners (JIP), the preferred bidder at JPY4,620 per share, a 9.7% premium to the last close price.
- The special committee opines that the offer is the best price that can be expected today, which sounds like we are recommending the offer as it is the only one.
- The offer has several negatives: a 14% price reduction during the process, below the undisturbed price, below the mid-point IFA DCF range and no serious effort on Plan B.
Rakuten Bank IPO – Recent Filings Updates and Quick Thoughts on Valuation
- Rakuten Bank (5838 JP), the online banking arm of Rakuten (4755 JP), aims to raise up to around US$900m in its Japan listing in April 2023.
- RB is the largest internet bank in Japan, by number of accounts. As of Dec 22, it had 13.3m deposit accounts with a total deposit base of JPY8.8tn.
- In our earlier notes, we have looked at the company’s past performance. In this note, we talk about the updates from its recent filings.
Rakuten Bank IPO: The Investment Case
- Rakuten Bank (5838 JP) is an online bank in Japan. It is looking to raise about US$870 million. The pricing is on 5 April and the listing is on 21 April.
- Rakuten Bank, wholly owned by Rakuten (4755 JP), is the largest Japanese internet bank as measured by the number of accounts and customer deposits.
- The investment case rest on Rakuten Ecosystem’s competitive advantage, growth in accounts/deposits, robust loan book growth, rising margins and low NPL ratio.
Rakuten Bank IPO Points That the Market Could Be Undervaluing Rakuten’s Businesses & Investments
- As Rakuten Bank (5838 JP) prepares for an IPO in April 2023, we see the potential for Rakuten’s NAV discount to narrow significantly from its current level of over 52%.
- We think the market could be unaware of the hidden value in smaller Rakuten businesses and other investments.
- Rakuten-Bank, which seems like a small piece of Rakuten’s ecosystem producing as much as 26-31% of Rakuten’s market-cap could open markets’ eyes to the undervaluation of Rakuten businesses & investments.
Oisix Hit as People Return to Work
- Oisix is Japan’s largest online food retailer but sales were flat in 1Q-3Q2022 as people returned to work and cooked less, and profits suffered as inflation brought increases in costs.
- The company’s US operation also shrank as fewer people bought food online now that many Japanese are back to normal working patterns again.
- But other international subsidiaries and its expanded wholesale businesses at home all grew strongly.
Samantha Thavasa Attempts Rebirth but Losses Continue
- Once a major hit with young women, Samantha Thavasa has struggled to find relevance in the past five years.
- Despite an injection of capital and management from new parent, Konaka, the business has continued to close stores.
- While Konaka is restructuring the business, the brand’s low levels of recognition with the younger generation will likely mean further retreat.
Do Companies Tend to Focus on Shareholder Returns Because They Can’t Find Investment Opportunities?
- Looking at all listed companies over past 10 years, despite the gradual dissolution of cross-holdings, the Total Asset Turnover has not increased and the Equity Ratio level has not changed.
- Reducing equity capital through shareholder returns is effective in raising ROE, but ROE is unlikely to rise continuously if the company’s cash flow does not continue to increase.
- ROA is the product of the ROE components of net sales and asset turnover, excluding financial leverage. ROA is a key factor for increasing valuations.
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