Daily BriefsEvent-Driven

Event-Driven: Softbank Group, Santos Ltd, Singapore Press Holdings, Japan Rental Housing Investment, Swedish Orphan Biovitrum Ab and more

In today’s briefing:

  • That Upcoming $3-4bn SELL on Softbank Group (9984)
  • Santos/Oil Search Merger & Potential ASX100/200 Replacements
  • Keppel Corp / SPH: One Step Closer to Privatisation
  • Daiwa Securities Living (8986 JP): Offering Could Trigger Outperformance Vs TSEREIT Index
  • Advent & GIC/SOBI: Awaiting a Sweetened Offer

That Upcoming $3-4bn SELL on Softbank Group (9984)

By Travis Lundy

After consulting the ancient texts, studying the runes, tossing the bones, and reading the tea leaves, I surmise there is likely to be a large seller on Softbank Group (9984 JP) coming shortly. 

My take on this is the selldown is $3-4bn worth of stock. Which is decent. Especially as the company has taken it on the chin recently with investments in China turning less salutary.

Explained below.

Santos/Oil Search Merger & Potential ASX100/200 Replacements

By Brian Freitas

On 10 September, Santos Ltd (STO AU) and Oil Search Ltd (OSH AU) announced that they were merging to create a regional champion.

Oil Search Ltd (OSH AU) shareholders will receive 0.6275 shares of Santos Ltd (STO AU) for each share held in Oil Search. This will result in Oil Search Ltd (OSH AU) shareholders owning 38.5% of the merged group and Santos Ltd (STO AU) shareholders owning the remaining 61.5%.

The merged entity would be among the 20 largest Oil & Gas companies globally and one of the 20 largest listed companies on the ASX that would place the merged entity in the S&P/ASX 20 Index.

The merger is subject to the usual conditions of approval and has Material Adverse Change conditions. The Deputy Prime Minister of Papua New Guinea has already spoken about PNG’s national interest being harmed and this could be the toughest approval to obtain for the merger to proceed.

Santos Ltd (STO AU) and Oil Search Ltd (OSH AU) are members of the FTSE All-World and MSCI Standard indices. Post the merger, passive shareholders in Oil Search Ltd (OSH AU) will receive shares in Santos Ltd (STO AU) and there will be minimal impact from these shareholders.

Santos Ltd (STO AU) and Oil Search Ltd (OSH AU) are members of the S&P/ASX100 and the S&P/ASX 200 (AS51 INDEX). We see Pilbara Minerals (PLS AU) as a potential inclusion in the S&P/ASX100 while Imugene Ltd (IMU AU) or Paladin Energy (PDN AU) could be included in the S&P/ASX 200 (AS51 INDEX)

Keppel Corp / SPH: One Step Closer to Privatisation

By Brian Freitas

On 30 March, Singapore Press Holdings (SPH SP) announced that it was undergoing a strategic review to consider options for its various businesses. On 6 May, the company announced that it would be transferring its media business to a not-for-profit entity.

Then, on 2 August, Keppel Corp (KEP SP) announced that it was proposing to acquire Singapore Press Holdings (SPH SP) ex the media business and then delist and privatise SPH. Under the terms of the Scheme, for each share of Singapore Press Holdings (SPH SP) held, shareholders will receive cash of S$0.668, 0.596 units of Keppel REIT (KREIT SP) and 0.782 units of SPH REIT (SPHREIT SP).

The offer valued Singapore Press Holdings (SPH SP) at S$2.0987/share (a 11.63% premium to the close of S$1.88/share for SPH) using the closing prices for Keppel REIT (KREIT SP) and SPH REIT (SPHREIT SP). Since then, the offer value has dropped to S$2.0507/share while Singapore Press Holdings (SPH SP) has moved higher to S$1.94/share.

On 10 September, Singapore Press Holdings (SPH SP) shareholders voted in favour of the spin-off of the media business. This paves the way for the next EGM and Scheme Meeting where Singapore Press Holdings (SPH SP) shareholders will vote on the proposed privatisation by Keppel Corp (KEP SP).

Singapore Press Holdings (SPH SP) still trades at a 5.4% discount to the offer value and is lower from the 3.1% discount at the close on 31 August. With around 3 months to go before the privatisation is complete (if voted through), there is good value is arbitraging the spread.

Daiwa Securities Living (8986 JP): Offering Could Trigger Outperformance Vs TSEREIT Index

By Janaghan Jeyakumar, CFA

On Friday after market-close, midsize residential JREIT Daiwa Securities Living (8986 JP) (formerly known as “Japan Rental Housing Investment”) launched a follow-on equity offerings to partially fund their recent acquisitions. 

The primary offer quantity is 70,476 units. In addition, there will also be an over-allotment quantity of 3,524 units. The total size of this offering could be roughly ¥8.5bn (~US$77mn). 

While such offerings are mostly of interest to primary market investors, we also see such offerings as catalysts for strong secondary market performance making these events worth tracking for secondary market investors too. We have previously discussed the historical pre- and post-offering performance of JREITs in J-REIT Offering Primer: Get Ready for Offering Season 2021. On average, J-REITs have historically outperformed the TSEREIT Index in the wake of follow-on equity offerings, with win rates exceeding 80%.

Below is a look at the details of Daiwa Securities Living (DSLIC)’s latest offering and an evaluation of its potential to trigger outperformance against the TSEREIT Index.  

Advent & GIC/SOBI: Awaiting a Sweetened Offer

By Jesus Rodriguez Aguilar

A Swedish Orphan Biovitrum Ab (SOBI SS) takeover had been rumoured for years. In 2015, SOBI ended talks on a possible offer after reports that Biogen and Pfizer were among interested parties.

On 1 September, Advent International Corporation and GIC Special Investments Pte. Ltd. made an offer to acquire SOBI for SEK 69.4 bn, or SEK 235/share. The deal, once completed, could be the largest-ever LBO in Sweden and the largest LBO of a European healthcare company in five years.

The biding consortium is interested in SOBI’s product portfolio and focus on rare diseases.

There are irrevocable undertakings, 43.41% in aggregate, from Investor AB (36.45%) and Fjärde AP-Fonden (6.96%).  However, their agreement would lapse if another bid comes in at SEK 251/share and is recommended by the Board.

There is a minimum acceptance condition of 90% plus one share (necessary to initiate a compulsory acquisition procedure in respect of the remaining shares in the Company under the Swedish Companies Act). This means that the bidding consortium needs acceptances from 82.3% of the float, which although quite high, is achievable. It must be noted that the five largest holders own 58.65% of the share capital, whilst the 100 largest shareholders own 88.7% of the share capital.

Investor AB (INVEA SS) does not seem overly excited by the offer, unless a competing bid comes north of SEK 251/share.

SOBI has been consistently trading above the offer price. The shares closed at SEK 242 on 10 September, c. 3% above the offer price.

The offer values SOBI at 15.6x EV/Fwd EBITDA, vs. a median multiple of 30x for takeovers of biotech firms announced over the past year, according to Bloomberg, and a median of 20x for takeovers carried out since 2010, according to data compiled by S&P Market Intelligence.

Median implied valuation across multiples (both LTM and NTM) of SOBI is SEK 246.71/share, c. 5% above the offer price, and just 1.7% below the threshold at which the irrevocable undertakings would cease to apply.

On this basis, I believe that the offer from the bidding consortium may be sweetened; the market thinks alike. Recommendation is long SOBI SS, TP SEK 246.7. Further upside could come from a competing bid.

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