Daily BriefsEvent-Driven

Event-Driven: Pressance Corp, AIA Group Ltd, Haier Electronics Group Co, Tesla Motors, Banco Bilbao Vizcaya Argentari, LG International, Rakuten Inc, Rarejob Inc, I.K Co Ltd, Mitsubishi Motors and more

In today’s briefing:

  • Pressance (3254 JP) Partial Tender – YUMMY!
  • Will Index Providers Turn HK Into an Emerging Market? What Would Happen?
  • Haier Electric (1169 HK): The “H-Share” Guessing Game
  • Tesla: S&P500 Inclusion (Finally) Secured
  • BBVA: So Long, Sun-Belt – What Next; Buybacks and Potentially M&A?
  • LG International & LG Hausys To Split from the LG Group
  • KKR & Rakuten Join Hands to Acquire the Supermarket & Hypermarket Chain Seiyu
  • TOPIX Inclusion (6096 JP): Rarejob Inc
  • TOPIX Inclusion (2722 JP): I.K Co Ltd
  • Mitsubishi Motors – Rumoured Stake Sale by Nissan Will Renew Alliance Breakup Concerns

Pressance (3254 JP) Partial Tender – YUMMY!

By Travis Lundy

On Friday 13th November 2020, Open House (3288 JP) and 32%-owned affiliate Pressance Corp (3254 JP) announced a revision of their shareholder agreement and a quasi-MBO Partial Tender Offer and Capital Injection which would, as a result of both being successful, get Open House to 65% ownership and would get Pressance an additional JPY 5bn in capital. 

Pressance (3254 JP) is a relatively fast-growing Kansai-based real estate developer and broker in Japan, building, selling, and managing condos and parking lots. It specializes in smaller condos – both in terms of bedrooms per unit and in terms of total units per property – and investment properties, and then managing those properties. It also runs a small hotel business. Pressance had been fast-growing in stock price as well until just under a year ago when former CEO Yamagishi-san was arrested in connection with a case of missing money at a school called Meijo Gakuen. The previous president was arrested too. Hedge funds bought shares in large numbers at the time. Tower Investment Management, which had been steadily selling into strength, bought 3.5% of the shares out in the two days after the sharp selloff started, getting to 10.27%. They bought more in March when the COVID crisis hit getting to 15.46% by early April 2020. CEO Yamagishi sold 31.63% to Open House in April.

Open House (3288 JP) is a larger fast-growing Kanto-based real estate broker and developer, getting two-thirds of its revenue from the development and sale of single-family homes, another 10% from developing condominiums – both done under a number of “brands”, and another 20% from the property resale/broking business with more than 80% of properties (by count) in the 100-500mm and 500mm yen-plus price categories (65% in Tokyo and Yokohama, 35% in Kansai/Chubu/Kyushu and elsewhere).

Open House already owns just under one-third of Pressance and is looking to make that just under two-thirds, probably hoping that some shareholders who might be viewed as “noisy” will accept the invitation to exit their positions. This is also an exit opportunity for the former Pressance CEO who will be selling roughly 8% of Pressance shares into the Tender Offer. For Open House, this is a bolt-on to consolidate more growth.

We’ll see.

As always with partial offers, below you’ll find the details and the Partial Offer Arb Grids.


Will Index Providers Turn HK Into an Emerging Market? What Would Happen?

By Travis Lundy

Late Friday the 13th UK time, Sky News carried an article titled “China’s hostile meddling threatens Hong Kong market demotion.” 

There has been a lot of ink (and angst) spilled about the National Security Law and its effect on foreign businesses and this article was mostly about something else. The headline is somewhat deceiving – 65% of the article by wordcount is about the main subject of the article – a man named Mark Makepeace. 

This makes the article and its embedded commentary all the more interesting. Mark Makepeace was, until last year, the CEO of index provider FTSE Russell which he had effectively helped spin off from the LSE and the FT as FTSE International in 1995.

His comments, conveyed occasioned by an interview related to the launch of his new book “FTSE: The Inside Story” are worth reading. 

This story gets treatment because of the considerable amount of feedback and number of questions I got back about this over the weekend – something which surprised me.


Haier Electric (1169 HK): The “H-Share” Guessing Game

By David Blennerhassett

Back on the 19 December 2019, following a brief suspension pursuant to the Takeovers Code,  Haier Electronics Group Co (1169 HK) (HEG) announced its parent, Haier Smart Home (600690 CH) (HSH) was contemplating taking Haier private with newly issued Hong Kong shares, implying HSH was seeking an H-share listing, either first, or concurrent with the share swap.

A little over seven months later, HEG announced a pre-conditional Scheme such that HEG shareholder will receive 1.6 new HSH H shares plus HK$1.95 in cash. A 632-page Application Proof for the listing of HSH H-shares has been lodged. This will be a listing by introduction.

The pre-condition (HSH’s shareholders and CSRC approval) were fulfilled on the 1 September.

The Scheme Document has now been despatched – all 1,052 pages of it. The Court Meeting/SGM will be held on the 9 December, with the expected listing of the HSH H shares on the 22 December. The IFA (Somerley) considers the Offer to be fair & reasonable.

The Valuation Advisor (Platinum Advisors) has bumped the mid-point of the Offer Consideration to $38.03, up from $31.51 in late July. That revised assessment covers global peers, SoTPs, and direct comparables. HSH is up 51%/73% since the deal transaction was floated in December, and confirmed in July. HEG is up 62%/36% during the same time frame.

This mid-point assessment is just a valuer’s opinion. There is no guarantee this is where the Hs will trade. 

And that is the key question: where will the unlisted HSH H-shares trade with respect to the HSH A-shares? 

More below the fold.


Tesla: S&P500 Inclusion (Finally) Secured

By Brian Freitas

A short while ago, S&P Dow Jones Indices announced the inclusion of Tesla Motors (TSLA US) in the S&P 500 (SPX INDEX) effective after the close of trading on 18 December. The deletion will be announced later.

S&P DJI have also announced they will be conducting a market consultation on whether Tesla Motors (TSLA US) should be added to the S&P500 all at once or in two tranches to reduce the impact of the funding trade.

From the numbers, the market should be able to absorb the buying on Tesla Motors (TSLA US) and the selling on the other index constituents pretty easily. However, with Christmas just a week away from the implementation date and possibly lower liquidity, market participants may have different views and the trade could be split into two tranches.


BBVA: So Long, Sun-Belt – What Next; Buybacks and Potentially M&A?

By Victor Galliano

  • In our view, the PNC-BBVA USA Bancshares deal reflects the trend towards “in country” domestic bank consolidation in developed markets, given very low interest rates, the pressure on fees and the need to focus on opex reduction
  • The attractive price tag of USD11.6bn (€9.7bn) provides Banco Bilbao Vizcaya Argentari (BBVA SM) with a big capital uplift at a limited cost to earnings; it reflects a historic (2019A) PE multiple of 19.7x and PTBV ratio of 1.34x, equivalent to 45% of market cap on at the close of 13th November
  • The US commercial bank disposal also gives BBVA a 294bps boost to its core capital ratio, which stood at 11.52% at 3Q20 end, and post deal would result in CET1 ratio of c 14.5%
  • Even though BBVA’s disposal will be EPS dilutive post-deal, the cost of foregone earnings is relatively low, given the sale price; USA Bancshares accounted for less than 10% of groups earnings in 2019 and 13% of the group’s gross income in the first nine months of 2020
  • BBVA management intends to redeploy capital in its core markets, and also has the option to do a large share buy-back at current share prices, ECB permitting
  • The big question is how management will focus on excess capital redeployment through potential M&A going forward, and will look to redress the earnings split between its core emerging (c 70%) and developed markets (c 30%), post this disposal; we put forward our views on M&A options in this report
  • Risks to our positive view on BBVA include the ECB maintaining strict regulatory constraints on a share buyback; also that BBVA is selling its USA franchise at a relatively low point in the macro-economic cycle

LG International & LG Hausys To Split from the LG Group

By Douglas Kim

It was announced this morning that LG International (001120 KS) and LG Hausys Ltd (108670 KS) will split from the LG Group. Following this announcement, LG International and LG Hausys shares are up 2.9% and 5.4%, respectively. Koo Bon-Joon, the second eldest member of the Koo brother of the LG Group, is leading this split. Koo Bon-Joon has a 7.7% stake in LG Corp (003550 KS), which is currently worth 992 billion won. 

Both LG International and LG Hausys’ share price are rising because many investors believe that once they are split from the LG Group, they believe that the new owner Koo Bon-Joon could revitalize these companies and that this M&A event is a key signal that Koo Bon-Joon is trying to complete this deal when these two companies are highly undervalued. 


KKR & Rakuten Join Hands to Acquire the Supermarket & Hypermarket Chain Seiyu

By Oshadhi Kumarasiri

Walmart (WMT US) owned Japanese supermarket and hypermarket chain Seiyu announced on 16th November 2020 that KKR & Co Inc (KKR US) and Rakuten Inc (4755 JP) will acquire 65% and 20% of the share capital of Seiyu in a deal which values Seiyu at ¥172.5 billion ($1.6 billion).

The transaction is expected to be completed in the first quarter of 2021, pending regulatory approval. KKR, Rakuten and Walmart plan to jointly operate Seiyu.


TOPIX Inclusion (6096 JP): Rarejob Inc

By Janaghan Jeyakumar, CFA

TSE Mothers-listed Rarejob Inc (6096 JP) announced after market-close on 13th Nov 2020 they had received approval to move to the First Section of the Tokyo Stock Exchange as of 20th November 2020. 

TSE1 reassignment triggers inclusion into the TOPIX Index and the Inclusion Event can be expected to be at the close of trading 29th December 2020. 

Rarejob Inc (6096 JP) provides English-language training for individuals, corporates, and educational institutions in Japan and the Philippines. They currently have 6,000 registered Filipino tutors and online educational content to support distance learning for various age groups. 

In this insight, we take a look at the Index Inclusion Parameters and the Fundamentals of the company to evaluate the upside potential of the TOPIX Inclusion Event. 


TOPIX Inclusion (2722 JP): I.K Co Ltd

By Janaghan Jeyakumar, CFA

I.K Co Ltd (2722 JP) announced today after market close they had received approval (J-only) to move from the Second Section to the First Section of the Tokyo Stock Exchange as of 4th December 2020. 

I.K CO., Ltd. provides marketing services for various skin care products, make-up items, and low-calorie healthy-lifestyle food products. 

TSE1 reassignment triggers inclusion into the TOPIX Index and the Inclusion Event can be expected to be at the close of trading 28th January 2021. 

In conjunction with the TSE-reassignment announcement, the company also announced (J-only) a share sale for a total quantity of 575,000 shares including an over-allotment quantity. 

In this insight, we take a look at the Index Inclusion Parameters and the Fundamentals of the company to evaluate the upside potential of the TOPIX Inclusion Event. 


Mitsubishi Motors – Rumoured Stake Sale by Nissan Will Renew Alliance Breakup Concerns

By Mio Kato

Bloomberg reported today that Nissan is exploring the possibility of selling some or all of its stake in junior alliance partner Mitsubishi Motors. We had previously highlighted the struggles of the alliance members even relative to their peers and this stress appears to be putting increased pressure on the alliance itself. While this rumour guarantees nothing, we believe the continued earnings weakness from the alliance members increases rather than decreases the chance of a breakup.


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