Daily BriefsEvent-Driven

Event-Driven: Softbank Group, Oriental Watch, Nam Tai Property Inc, Citadel Group, Gift Inc, Sri Trang Gloves and more

By September 15, 2020 No Comments

In today’s briefing:

  • Softbank – Interpreting the Arm Sale
  • Oriental Watch (398 HK): Conditional Partial Offer
  • Nam Tai Property – An Interesting Activist Situation
  • Citadel Group: Private Equity Partners’ Offer
  • TOPIX Inclusion (9279 JP): Gift Inc
  • FTSE GEIS December 2020 – Potential IPO Inclusions

Softbank – Interpreting the Arm Sale

By Mio Kato

So the Arm sale is finally here, as is the $40bn that Softbank was looking for… sort of. We had commented previously that we felt Softbank’s mark for Arm was optimistic (this could be debated now but we actually feel this acquisition lends credence to this view), the acquisition would probably be heavy on the share component, and that exclusion of Arm’s IoT business from the deal would be a no-confidence vote from Nvidia and a repudiation of Son’s “Vision”. On the latter point we believe we were correct.


Oriental Watch (398 HK): Conditional Partial Offer

By David Blennerhassett

After Oriental Watch (398 HK) (“OWH”) was suspended “pursuant to the Codes on Takeovers and Mergers and Share Buy-backs“, the immediate takeaway was to conclude the company would be subject to a Privatization Offer. But in what is becoming increasingly more common, OWH has announced a partial buyback from the company – 14.55% of shares out or 83mn shares, at HK$3.00/share, a 53.85% premium to last close.

This will cost the company HK$0.25bn (US$32mn). OWH had net cash on hand of ~HK$0.65bn as at Mar 2020.

Yeung Ming Biu & concert parties hold 30.85% of shares out and will not tender. That leaves 69.15% of the register subject to the buyback, implying a minimum pro-ration of 21.04%.

Should the partial buyback complete (i.e. fully exercised) Yeung & concert parties will hold 36.10% of shares out, before the exercise of any outstanding share options. That step-up in %-held oversteps Hong Kong’s “creeper rule”, and therefore Independent Shareholders are required, by way of a special resolution (75% vote), to approve a whitewash waiver such that Wong is not obligated to make a general offer for shares not held. 

As always, more below the fold. Plus Ye Olde Arb Grids.  


Nam Tai Property – An Interesting Activist Situation

By Travis Lundy

Nam Tai Property Inc (NTP US) has been the stomping ground for a small US-based activist and a few other shareholders since last year with one shareholder IsZo Capital LP there as the top independent shareholder since 2017, and “public” since filing a 13G in February 2019. 

Nam Tai Property – founded in 1975 – was originally an electronics company based in Shenzhen. It changed its name to Nam Tai Property in 2014. It is listed, somewhat oddly, on the NYSE.

In May, IsZo Capital – which at the time owned 9.8% of shares out vs 6.68% at end-December – sent the company a letter which it also released to the public. IsZo was upset that Nam Tai was trading at only about US$4.05 at the time, which was a 70% decline since the share price in January 2018, 28 months earlier, when Kaisa Group Holdings (1638 HK) replaced the CEO with Ying Chi Kwok who was the younger brother of the CEO of Kaisa (and himself owns 13.8% of Kaisa). Kaisa had themselves bought in at just under US$17/share, paying CNY 750mm for 6.5mm shares held by then-lead shareholders Koo Ming Kown and Cho Sui Sin. They bought another 1.1mm shares in the quarter and then another 1.583mm in Q4 2017 to get to the current position of 9.191mm shares. That was 25.01% when they got there but ESOP plans have dropped that to 23.61% now.

Before the letter in May, IsZo had been rallying shareholders to its cause, and the register saw significant turnover, presumably towards shareholders friendly to the activist cause. The letter WAS on a website (https://fixntp.com) that IsZo put up but it is no longer there. 

The letter itself explained issues with Kaisa’s history and conflicted ownership and called on shareholders to reconstitute the Board and remove Kaisa insiders from leadership roles, proposing a slate. Another fund, Railroad Ranch Capital, wrote a letter in June 2020 supporting IsZo’s proposals. They said they owned 4.5% in shares and derivatives.

While this situation has been on my radar I haven’t done much with it. I take a brief look below the fold. 


Citadel Group: Private Equity Partners’ Offer

By David Blennerhassett

Canberra-based IT services outfit Citadel Group (CGL AU) (“CGL”) has entered into a Scheme with Private Equity Partners (PEP).

The unsolicited cash consideration of A$5.70/share is a 43.2% premium to the last close of A$3.98/share. A scrip alternative will be made available. The proposal values CGL’s equity at A$448.6mn  (US$327mn). 

It is the intention of CGL’s board to declare a fully franked special dividend of up to A$0.15/share on or shortly before the Scheme implementation date, which theoretically could enable some shareholders to receive up to A0.064/share additional benefit. The cash consideration will be reduced by the special dividend.

The fully franked final dividend of A$.06/share, to be paid on the 1 October – for those shareholders who were on the register as at 3 September – is also added.

Apart from standard Scheme shareholder approvals, the Offer has limited conditionality – it is not subject to due diligence nor any funding condition. 

Currently trading at a gross/annualised spread of 2.4%/9.4%, assuming mid-late December completion.

As always, more below the fold.


TOPIX Inclusion (9279 JP): Gift Inc

By Janaghan Jeyakumar, CFA

TSE Mothers-listed noodle restaurant chain Gift Inc (9279 JP) announced (J-only) on Friday after market close it had received approval to move to TSE1 as of 18th September 2020. 

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

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. 


FTSE GEIS December 2020 – Potential IPO Inclusions

By Brian Freitas

The FTSE Global Equity Index Series (GEIS) quarterly rebalance in December is used to include IPOs which did not qualify as an immediate fast entrant to the indices at the time of listing and were not listed for at least 3 months by the following semi-annual review to be included in the indices.

The results of the December 2020 quarterly review will be announced on 20 November and all changes will be effective after the close of trading on 18 December.

Based on current market prices, we see a high probability of Smoore International (6969 HK), SK Biopharmaceuticals (326030 KS), Hygeia Healthcare Group (6078 HK) and Sri Trang Gloves (STGT TB) being included in the FTSE All-World index.

Kangji Medical (9997 HK) and Mindspace Business Parks REIT (MBP IN) could be added to the All-World index if their stock prices increase by around 15% by 11 November, else they will be added to the FTSE All-Cap index.

There are a few other HK listed stocks that could be added to the FTSE All-Cap index: Akeso Biopharma Inc (9926 HK), Yeahka Limited (9923 HK), Archosaur Games (9990 HK) and Peijia Medical (9996 HK)


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