Daily BriefsEvent-Driven

Event-Driven: Boral Ltd, Soho China Ltd, Pershing Square Tontine Holdings-A, Empired Ltd, Sumo Group, Cerved Group S.p.A., Green Cross Cell, Green Cross LabCell and more

In today’s briefing:

  • Boral (BLD AU): Index Impact from Seven’s Offer
  • SOHO China’s Offer Spread Risk/Reward
  • Pershing Square Chokes on Its Everlasting Gobstopper
  • Empired (EPD AU): Capgemini’s Full Offer
  • Tencent/Sumo: Recommended Cash Offer
  • Trading Above Terms at the Start of the Tender Offer Period
  • GC Cell – GC LabCell: Korean Biopharma Merger Trading Tight
  • Green Cross Merger Swap Summary & Arb Spread Status

Boral (BLD AU): Index Impact from Seven’s Offer

By Brian Freitas

Seven Group Holdings (SVW AU) first disclosed a 10% interest in Boral Ltd (BLD AU) on 2 June 2020. Then, Seven Group Holdings (SVW AU) increased its holding to 19.984% on 9 September.

After taking a break for the rest of 2020, Seven Group Holdings (SVW AU) disclosed a 22.984% holding on 8 April 2021. Unable to buy any more shares in the market, Seven Group Holdings (SVW AU) announced an off-market takeover for all the shares that it did not own in Boral Ltd (BLD AU) at A$6.50/share. Since then, Seven Group Holdings (SVW AU) have increased their offer to A$7.30/share and A$7.40/share.

Seven Group Holdings (SVW AU) now hold 56.84% of Boral Ltd (BLD AU).

Boral Ltd (BLD AU) is a constituent of the S&P/ASX 200 (AS51 INDEX), FTSE All-World and the MSCI Small Cap indices. FTSE has already reduced the investability weight for the stock earlier this month and could reduce the investability weight further at the September QIR. Boral Ltd (BLD AU)‘s weight in the S&P/ASX 200 (AS51 INDEX) should also be reduced at the September QIR.

Shorts at 22m+ shares should provide some support on a drop in the stock price post the end of the offer period or on passive selling.

SOHO China’s Offer Spread Risk/Reward

By Arun George

Soho China Ltd (410 HK) is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. As a reminder on 16 June, SOHO China announced a pre-conditional voluntary conditional cash offer from Blackstone Group (BX US). The offer of HK$5.00 in cash per share is a 31.6% premium over the closing price of HK$3.80 per share on the last trading day (11 June prior to the trading halt). The offer is conditional on the offeror holding more than 50% of the voting rights. The offer will meet the 50+% acceptance threshold as the offeror has secured irrevocables from Pan Shiyi and Zhang Xin representing 54.93% of the outstanding shares.

In SOHO China: Blackstone Makes Its Offer, we stated that Blackstone has driven a hard bargain and secured the irrecovables from Pan Shiyi and Zhang Xin at a relatively good price. Notably, Blackstone’s offer price of HK$5.00 per share is 17% below last year’s rumoured privatisation price of HK$6.00 per share. The lower price likely explains Blackstone’s move to pursue a conditional voluntary offer rather than privatisation via a scheme. While not a knockout offer, we concluded that the offer will resonate with some shareholders. 

However, since the announcement of the offer, the spread has widened from 9% on the first trading day after the deal announcement to 21% at the last close price of HK$4.12. The high spread is due to concerns that the key pre-condition, which is approval by SAMR under the PRC anti-monopoly law, will not be forthcoming. Blackstone has made its submission to SAMR.  

We continue to think that the pre-condition will be satisfied as SOHO China will remain a listed entity, Pan Shiyi and Zhang Xin will continue to retain a meaningful holding, Blackstone has prior experience in closing Chinese real estate deals and SOHO China is a relatively small player in a fragmented commercial property market in China. Based on a deal break price of HK$2.45 per share, the deal probability has reached an all-time low of 65% at the last close price of HK$4.12. An 80% deal probability would imply a price of HK$4.50 per share and an 11% gross spread, which we view as reasonable.

Pershing Square Chokes on Its Everlasting Gobstopper

By Travis Lundy

Pershing Square Capital Management and Pershing Square Tontine Holdings-A (PSTH US) announced on 4 June a deal which was at a time complex, and self-perpetuating. The “Tontine” which made the name “cute” became a deal SpinCo, and a RemainCo, and rights to yet something else. The obvious conclusion was that the next deal would allow them to raise capital, and leave a remaining listed rights situation, which would then become the rights to the next DealCo, and this would self-perpetuate as long as there were deals to be done. I called it…

Kids love ’em. 

The thing is, as every kid who has ever sucked on an Everlasting Gobstopper knows, they can easily get stuck in your throat. 

Pershing Square was adamant that this deal, while complex, would pass the NYSE and SEC rules for a business combination. 

But today, PSTH announced it had choked on its gobstopper. 

That’s not a great look. 

But what are the opportunities?

More below the fold.

Empired (EPD AU): Capgemini’s Full Offer

By David Blennerhassett

Systems integrator Empired Ltd (EPD AU) has entered into a Scheme with Capgemini SE (CGEMY US) at a price of A$1.35/share, a 64.6% premium to last close, and an all-time high.

The Offer has the unanimous backing of Empired’s board. In addition, CEO Russell Baskerville with 5.8% of Empired’s outstanding shares intends to vote in favour of the Scheme.

In addition to shareholder approval, the Offer is subject to OIO approval. The Offer is not subject to due dili or financing.

This looks done. 

More below the fold.

Tencent/Sumo: Recommended Cash Offer

By Jesus Rodriguez Aguilar

On 19 July, Sixjoy Hong Kong Limited, a bidco subsidiary of Tencent (700 HK) and the Board of Sumo Group (SUMO LN) reached an agreement to acquire a 91.25% stake in Sumo for 513p/share to be effected by means of a scheme of arrangement.

  • For an implied equity value of £918.8 mn (as reported) and an implied EV of £925.7 mn.

  • 8.9x EV/Fwd Revenue, 38.8x EV/Fwd EBITDA and 57.0x P/Fwd EPS.

  • The irrevocable undertakings received plus the stake of Tencent represent in aggregate 35.7% of the share capital of Sumo.

Tencent’s deep pockets will allow Sumo to increase the resources to increase scale and finance new game projects. Moreover, Sumo would greatly benefit from Tencent’s know-how in its international expansion plans.

Transaction is subject to approval from shareholders of Sumo Group, third party clearance, the sanction of the scheme by the Court, the receipt of antitrust clearances in the United Kingdom and United States and a foreign-direct investment approval under the CFIUS regime in the United States (or lapsing of the applicable waiting periods), and other customary conditions.

The offer is in line with the European comparables median of 8.4x EV/Fwd Revenue. On this basis, the offer looks fair. Given both the irrevocable undertakings, the stake of Tencent, and the premium offered, a counteroffer seems highly unlikely.

This is a rock-solid trade, in my view. Completion should take place in about five months. On 19 July, the shares closed at 503p, a 40.5% increase. Gross spread is 1.95%, around 4% annualised.

Recommendation is long SUMO LN, TP 513p.

Trading Above Terms at the Start of the Tender Offer Period

By Jesus Rodriguez Aguilar

The tender offer period for Cerved Group S.p.A. (CERV IM) has started, and will end on 5 August. On 16 July, the first day, the shares closed at €10.04, 5.7% above the offer price and in line with my prior TP of €10/share (see Cerved Group – Castor Srl: Sweet Opportunity in Loans Gone Sour).

The Board of Cerved says that the offer from Castor Bidco is inadequate and does not take into account the growth prospects of Cerved, sale of Cerved Management Group, synergies, the premium is low and the bid opportunistic.

Activist investor Berry Street has said it will not tender its 3% stake at the current bid price. Berry Street previously held 1% of KAZ Minerals (KAZ LN), whose takeover offer was increased by c. 36%.

Castor stated in the announcement that in the event that, following the offer, the offeror comes to hold a total stake greater than 90%, but lower than 95%, the offeror will not restore a free float sufficient to ensure regular trading.

If as a result of the offer, the offeror holds at least 95% of the shares, it will exercise its right to purchase the remaining Cerved Shares. If the right to purchase is exercised, Borsa Italiana will order the suspension from listing and/or the delisting of Cerved Shares. If several shareholders collectively own above 5% of the share capital, they may block a hypothetical squeeze-out.

I revise upwards my initial €10.0/share valuation of Cerved on a standalone basis. By using inputs from Capital IQ consensus (revenue, EBITDA, Capex), WACC of 8%, 11.5x EV/EBITDA exit multiple and g=2%, my new estimate of fair value on a standalone-basis is €11.04/share, this is a c.10% upside to the current market price and c. 16% above the current offer price. For comparison, mean TP on Capital IQ consensus is €10.23/share.

The market awaits a sweetened offer, which is highly likely in my view. An increase would be justified by better prospects and synergies, which equally split could be worth up to €0.455/share and there is some PE interloper risk. Long CERV IM.

GC Cell – GC LabCell: Korean Biopharma Merger Trading Tight

By Janaghan Jeyakumar, CFA

South Korean biopharmaceutical companies Green Cross Cell (031390 KS) (“GC Cell”) and Green Cross LabCell (144510 KS) (“GC LabCell”) announced last Friday they had entered into a definitive merger agreement to combine in an all-stock transaction. Following the completion of the Merger, GC LabCell will be the surviving entity and GC Cell will be the extinct entity. 

The exchange ratio is set at 0.4023542 GC LabCell Shares per GC Cell Share. At present, the companies have a combined market cap of KRW1.7tn (~US$1.5bn). 

The Deal has been approved by the Boards of both companies. The completion of this Transaction is subject to Shareholder Approvals and Regulatory Approvals and the Transaction is expected to close in 4Q 2021. 

More below the fold.

For more information on M&A rules and practices in Korea, please check: Quiddity Korea M&A Guide 2020 

Green Cross Merger Swap Summary & Arb Spread Status

By Sanghyun Park

Swap overview

This merger swap is very similar to the recent case of GS Retail & GS Home Shopping. Green Cross Lab Cell will merge with Green Cross Cell through a stock swap. The Green Cross Cell shareholders will get 0.4023542 Green Cross Lab Cell shares for each Green Cross Cell share.

Swap overview
TypeStock swap
AcquirerGreen Cross Lab Cell Corp (144510)
Target companyGreen Cross Cell Corp (031390)
Swap price for Green Cross Lab Cell₩102,882
Swap price for Green Cross Cell₩41,395
Swap ratio0.4023542
Source: DART


The record date for securing voting rights at the general shareholders’ meeting is August 2nd. The last day to secure the purchase right was yesterday. If you have purchased stocks by yesterday, you can exercise your stock purchase right by notifying your dissenting opinion between August 27 and September 13.

The exercise period of the stock appraisal right is from September 13th to October 4th. Trading of Green Cross Cell will be suspended from October 28th to November 11th, and new shares of Green Cross Lab Cell will be listed on November 12th.

Last day to own stock purchase rights2020. 07. 19
Record date of the shareholder register2020. 08. 02
Dissenting opinion notice2020. 08. 27 ~ 09. 13
Shareholder meeting2020. 09. 13
Stock purchase right exercise2020. 09. 13 ~ 10. 04
Trade suspension (only Green Cross Cell)2020. 10. 28 ~ 11. 11
Listing2020. 11. 12
Source: DART

Stock purchase rights

The stock purchase cost ceiling is set at ₩150.0B combined for both. The exercise prices are currently 6.31% and 5.91% below the current share prices of GS Retail and GS Home Shopping. 

Spread – stock purchaseGreen Cross Lab Cell CorpGreen Cross Cell Corp
Current price₩110,200₩43,750
Exercise price₩103,244₩41,163
Premium/discount to the current price-6.31%-5.91%
Stock purchase ceiling condition₩150.0B
Source: DART & KRX

Price calculations

Below is the calculation of swap prices and stock purchase rights exercise prices for reference.

Swap pricesGreen Cross Lab Cell CorpGreen Cross Cell CorpNote
1-month VWAP (June 16~July 15, 2021)₩104,418₩41,268A
1-week VWAP (July 9~July 15, 2021)₩104,029₩41,068B
1-day close (July 15, 2021)₩100,200₩41,850C
Swap price₩102,882₩41,395(A+B+C)/3
Source: DART & KRX
Stock purchase rightsGreen Cross Lab Cell CorpGreen Cross Cell CorpNote
2-month VWAP (May 17~July 15, 2021)₩101,285₩41,154A
1-month VWAP (June 16~July 15, 2021)₩104,418₩41,268B
1-week VWAP (July 9~July 15, 2021)₩104,029₩41,068C
Swap price₩103,244₩41,163(A+B+C)/3
Source: DART & KRX

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