Daily BriefsEvent-Driven

Event-Driven: Allied Properties (H.K.), Kakao Games, Link Administration Holdings, Douyu International Holdings, Suez and more

In today’s briefing:

  • Allied Properties (56 HK): Amateur Hour
  • Kakao Games – KOSDAQ150 December Inclusion and Lock Up Expiry
  • Link Admin/PEP: All Together Now. Again
  • Huya and DouYu’s Merger Is Game On
  • Veolia – Suez Recap. Veolia Wins the First Round, but Suez’s Unions Delay the Operation.

Allied Properties (56 HK): Amateur Hour

By David Blennerhassett

After the sanctioning of Allied Properties (H.K.) (56 HK)‘s (APH) Scheme (Allied Prop (56 HK): Scheme Done. AGL Next?) was thrice delayed by the High Court and further updates from the company shed no light on the issues faced, what was inconceivably feared became apparent last Friday night when the Court declined to sanction the Scheme.

This afternoon, the High Court judgment appeared on the Hong Kong Judiciary website. 

It is ultimately a frustrating read, one in which some of the Offeror’s (Allied (373 HK)) preparatory work was sloppy or poorly prepared.

But the great double-take in this ruling is a large portion of the judgment devoted to the headcount test at the Scheme vote.

APH is incorporated in Hong Kong. S674(c) of the Hong Kong Ordinance says “subject to subsection 2(a)…”.  Subsection 2(a) replaced the headcount rule with the 10%-of-float veto. The headcount test was abolished in 2012 after a decision was reached on a Companies Bill.

It is not clear why Allied’s counsel did not raise this abolishment; but instead, butchered an attempt to show a majority in number had occurred, and as a result of this off-piste analysis, negatively influenced the court on sanctioning the Scheme.

I expect Allied to appeal. I do not expect shares to resume trading during an appeal. 

Unfortunately for shareholders who approved the Scheme, payment under the offer appears some way off.

Kakao Games – KOSDAQ150 December Inclusion and Lock Up Expiry

By Brian Freitas

Kakao Games (1404796D KS) is down almost 9% today due to the expiry of the 1 month lock up on IPO shares. Of the institutional allotment, there were 4.36m shares that were locked in for 1 month and are eligible for sale today. Volume traded so far today has already crossed 4.7m shares.

With the review period for changes to the KOSDAQ150 index in the December review ending on 30 October, this is a crucial phase that will determine if Kakao Games (1404796D KS) makes the cut for inclusion in the index.

Based on current prices, the stock easily makes the case for index inclusion and only a very steep fall over the next 2 weeks would take the stock out of the list of probable inclusions.

In this Insight, we look at the Kakao Games IPO, the criteria for inclusion in the KOSDAQ150 Index, and the impact on the stock if it is included in the index.

Link Admin/PEP: All Together Now. Again

By David Blennerhassett

Back in August 2005, Private Equity Partners acquired share registry outfit ASX Perpetual Registrars (APR) for ~A$132mn. PEP followed with the acquisition of Telstra’s fund administrator Australian Administration Services, which was rebranded Link Administration, which subsequently acquired APR.

After further, substantial investments and tech upgrades, PEP IPO’ed Link Administration Holdings (LNK AU) in October 2015 at $6.37/share, the top end of the range. PEP cleared out its holding in September 2016 at A$8.38/share. 

Link has morphed since PEP’s exit, significantly growing its domestic and global operations, via the acquisition of UK-based Capital Asset Services in 2017 (for A$1.493bn); the Property Exchange Australia (known as PEXA), Australia’s first digital property settlement platform, acquired by a Link-led consortium (alongside CBA and Morgan Stanley) in 2018 for $1.6bn, which increased Link’s shareholding to 44.2% from 19.8%; and the acquisition of Pepper Group’s European loan servicing, advisory, and asset management business for A$266mn in January this year.

The New News

Link has announced its has received a conditional, non-binding indicative proposal from a consortium comprising PEP and the Carlyle Group, by way of a Scheme. The indicative cash price is A$5.20/share, a 30% premium to last close.

Perpetual, holding 9.65% of shares out, said it would vote for a firm Offer of $5.20/share and above.

This is a non-binding proposal and there is no guarantee a firm offer will unfold. 

But this is a business with which PEP is well acquainted, having orchestrated and developed Link’s initial business 15 years ago.

As always, more below the fold.

Huya and DouYu’s Merger Is Game On

By Arun George

HUYA Inc (HUYA US) and Douyu International Holdings (DOYU US) have entered into a merger agreement to create a Chinese game live streaming giant. The proposed share exchange ratio is 0.73 Huya ADS for each DouYu ADS. Based on Friday’s close prices, the share exchange ratio values DouYu at $18.83 per ADS, a 35% premium to the Friday close price. On completion, the shareholders of Huya and DouYu will each hold 50% shares of the combined company on a fully diluted basis, respectively. Tencent Holdings (700 HK)‘s voting power in the combined company will be 67.5% on a fully-diluted basis.

With Tencent owning more than two-thirds of the votes in Huya, the approval of the merger largely comes down to securing the backing of DouYu shareholders. As DouYu is incorporated in the Cayman Islands, for the merger to succeed, DouYu shareholders representing two-thirds of shares present and voting need to approve the deal. Tencent collectively has the support of 54.6% of DouYu’s voting rights. In our previous note, we outlined that the merger makes a lot of sense due to potential revenue and cost synergies. In combination with an attractive share exchange ratio, we expect DouYu’s shareholders to support the merger. The merger is expected to close during the first half of 2021.

Veolia – Suez Recap. Veolia Wins the First Round, but Suez’s Unions Delay the Operation.

By Jesus Rodriguez Aguilar

The moving parts of Veolia Environnement SA (VIE FP) ‘s bear hug on Suez (SEV FP) start to fit in. Veolia wins the first round in this hostile bid by negotiating a purchase of 29.9% of Suez from Engie.

Nevertheless, a judge suspends Veolia’s purchase of 29.9% of Engie’s stake in Suez and says Suez’s unions should be consulted. Veolia’s purchase is not canceled, but delays the whole full takeover plan.

Let us remember that the whole chain of events was unleashed by Engie’s plans to adopt a lighter balance-sheet. Subsequently, Veolia decided to make an offer for Engie’s stake in Suez, and use it to launch a full takeover bid for Suez.

Its objective, if its rival does not sell assets or change the perimeter, is to pay 18 euros for the remaining shares, which values Suez ​​at €11,252 million.

Veolia is cannily putting now pressure on Suez (as it previously somehow did on Engie) and proposes to Suez to allow each party a period of 6 months ending on March 31st 2021, during which the both companies will undertake their best efforts to reach an agreement to successfully implement the project carried out by Veolia. The following stage would concern antitrust remedies, and the following one would be to line up the funds required for the full takeover bid.

Although this is a puzzle with several moving parts, Veolia appears to be strongly committed to the acquisition of Suez and to have a clear vision of a combined future. The implementation of Veolia’s plans could give birth to a leading utility in the water and waste markets, with a pro-forma 2020 income of c. €43 bn (source Capital IQ consensus).

Suez is no longer trading on fundamentals. The mean implied equity value across multiples (source Capital IQ consensus), is €17.05 per share, vs. €18 per share offered by Suez, 5.5% more.

Completing the takeover will be long and cumbersome, expected to complete between end of Q3 2020 and en of Q1 2021), hence the 11.7% gross spread to the terms announced by Veolia

The bid would be likely to go ahead in my view, thus the recommendation is LONG Suez, target price €18 per share.

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