Event-Driven: Sogou Inc, Sogou Inc, Chongqing Zhifei Biological Products, Toshiba Corp, Accordia Golf Trust, Tencent Holdings, Lvmh Moet Hennessy Louis Vuitton, HDFC Standard Life Insurance, Genworth Financial Inc Cl A and more

In today’s briefing:

  • Sogou/Tencent: The Latest Chinese Internet Privatisation
  • Sogou’s Privatisation Bid from Tencent
  • FTSE China A50 Index Rebalance Preview – Changes Expected
  • Toshiba Vs. Effisimo – Much Ado About Nothing?
  • Accordia Golf Trust Deal Gets More Complicated
  • Tencent (700 HK): Privatization Offer to Sogou, For Search Engine Competition
  • LVMH/Tiffany: LVMH CFO Confirms It Will Respect Contract – 50% Annualized Upside
  • NIFTY50 Index Rebalance – HDFC Life at All Time High On Inclusion, Time to Switch
  • MergerTalk: Genworth Financial Holdings (GNW US) Update-Assessing The Risk-Reward Proposition

Sogou/Tencent: The Latest Chinese Internet Privatisation

By David Blennerhassett

Chinese search-engine Sogou Inc (SOGO US), majority-owned by Sohu.com Inc (SOHU US)  and Tencent Holdings (700 HK), has announced it has received a preliminary non-binding proposal from Tencent to acquire all of its outstanding ordinary shares that are not already owned by Tencent, for US$9.00 in cash per ordinary share or ADS.

The Offer price is a 57% premium to the undisturbed price and a two-year high.

Tencent owns ~39% of the total shares out in Sogou and 52.3% of the total voting power (on account of the super-voting rights of the Class B shares). Sohu holds 33.7%/43.9% respectively. Together, they control 96.4% of Sogou’s vote. 

Sogou closed at $8.49/share, up 48%. Sohu closed up 40%.
As Sogou is Cayman incorporated, this Offer only needs a two-thirds majority to get up. Provided Sohu is on board, this deal is rubber-stamped.
The only apparent risk is on timing. 
More below the fold.

Sogou’s Privatisation Bid from Tencent

By Arun George

On 27 July, Sogou Inc (SOGO US) announced a non-binding privatisation proposal from Tencent Holdings (700 HK). The bid of $9.00 per ADS values Sogou at a market cap of $3.5 billion. The proposal represents a premium of 56.5% to the closing trading price of the ADSs on the last trading day (24 July 2020) and a premium of 84.9% to the VWAP during the last 30 trading days. Tencent will finance the proposed acquisition with cash on hand. On the back of the bid, Sogou rose 48% to close at $8.51 per ADS. The potential privatisation comes hot on the heels of China internet privatisation bids of Bitauto Holdings (BITA US), 58.Com Inc Adr (WUBA US) and Sina Corp (Class A) (SINA US)

Tencent currently owns 52.3% of the aggregate voting power. The supporting shareholder, Mr Charles Zhang, owns 0.9% of the total voting power. To reach the two-thirds voting thresholds, Tencent would need the support of Sohu.com Inc (SOHU US), which owns 44.1% of the aggregate voting power. Sohu has stated that its board has not yet had an opportunity to review and evaluate the proposal in detail. Overall, we believe that Sohu will be supportive of the bid and the privatisation is a done deal. 

FTSE China A50 Index Rebalance Preview – Changes Expected

By Brian Freitas

The FTSE China A50 Index (XIN9I INDEX) is designed to represent the performance of the 50 largest companies by full market capitalisation of the mainland Chinese market that is available to domestic and international investors via the QFII, RQFII and Stock Connect programs.

The next rebalance will be effective after the close of trading on 18 September and the changes will be announced on 2 September. The September review will use data from the close of trading on 24 August to determine the stocks to be included and excluded.

Toshiba Vs. Effisimo – Much Ado About Nothing?

By Mio Kato, CFA

As we approach the Friday showdown between Toshiba management and its more vocal shareholders, we question whether a change in board members would really have much impact on the company. The reason being, we see little that can be done to goose Toshiba’s operations and governance improvements, and Toshiba management has said they are committed to returning proceeds from the sale of Kioxia to shareholders.

Accordia Golf Trust Deal Gets More Complicated

By Travis Lundy

After the close of business on 27 July 2020, the leading opponent of the proposed deal for Accordia to purchase the golf course assets of Accordia Golf Trust (AGT SP) and for Accordia Golf Trust to subsequently wind down – Hibiki Path Advisors – also the second largest shareholder – announced in a Press Release that “jointly with more than 50 fellow minority unitholders with collective ownership more than 12%”, they had submitted a request to Accordia Golf Trust Management (“AGTM”) to convene an EGM of unit holders on 18 August 2020 to discuss several matters listed in the press release. 

After laying out the demands for the agenda, Hibiki Path notes that they have also received numerous letters of support, indicating that “As of 25th July 2020, we have received written support from over 80 unitholders with collectively more than 18% of total outstanding units.”

Usually in these cases, the lead complainant will include their holdings in the total but the language was unclear. I contacted Hibiki Path, who responded that the numbers include their holdings. 

On the morning of 28 July, Accordia Golf Trust (AGT SP) requested a trading halt on its units pending a “major announcement” We got the announcement by the end of the day saying,

The Trustee-Manager is considering the Requisition Notice and seeking advice, and will make further announcements on SGXNET in due course.

As it is, the agenda items do not seem overly burdensome, or unfair in any way. There is not a lot to which Accordia should normally object, but if approving them means that the bid walks away because it does not meet the conditions, that would be problematic for the Trust Manager. 

Discussion ensues.

Tencent (700 HK): Privatization Offer to Sogou, For Search Engine Competition

By Ming Lu

  • Tencent proposed to acquire and privatize Sogou (SOGU).
  • Tencent needs Sogou to compete with Alibaba (BABA) and ByteDance.
  • Sohu will have a higher growth rate and a positive bottom line after the sale of Sogo.
  • The deal is positive but not significant to Tencent.
  • There is still some premium for Sogou compared to the offer price.

LVMH/Tiffany: LVMH CFO Confirms It Will Respect Contract – 50% Annualized Upside

By Rickin Thakrar

Tiffany & Co (TIF US) shares rallied 3% yesterday after the Lvmh (MC FP) CFO,  in an interview with Le Figaro, noted that LVMH will ‘respect the contract’ signed with Tiffany. We have long advocated that the LVMH-Tiffany is robust legally and favours Tiffany, whilst we believe in the gusto of deal-maker and LVMH CEO Bernard Arnault. Despite the rally yesterday, the deal for Tiffany remains attractive with a potential completion date in 2H20. We update our thoughts below. 

Our bullish stance on the Tiffany deal, despite a tough macro for Luxury goods, can be found here:

LVMH/Tiffany: Rumours of Deal-Collapse – Reassessing the Mounting Challenges in the US? 

LVMH – Tiffany Deal: Bernard Arnault Makes Another Big Splash 

NIFTY50 Index Rebalance – HDFC Life at All Time High On Inclusion, Time to Switch

By Brian Freitas

On 2 July, the Index Maintenance Sub-Committee (IMSC) of NSE Indices Limited made an ad-hoc change to the NIFTY Index (NIFTY INDEX) excluding Vedanta Ltd (VEDL IN) and including HDFC Standard Life Insurance (HDFCLIFE IN) with effect from the close of business on 30 July to coincide with the Futures & Options (F&O) expiry.

The change was made due to Vedanta Ltd (VEDL IN)‘s proposed voluntary delisting and HDFC Standard Life Insurance (HDFCLIFE IN) was the highest ranked non-constituent eligible for inclusion in the index.

HDFC Standard Life Insurance (HDFCLIFE IN) has rallied 34% from our first Insight on its potential inclusion in the NIFTY Index (NIFTY INDEX) at the September index review and has outperformed its peers over the period. With the stock now trading expensive relative to its peers, we recommend using the passive flow at the close tomorrow, which we estimate at around 20m shares to buy, to switch out of the stock and into its peers SBI Life Insurance (SBILIFE IN) and ICICI Prudential Life Insurance (IPRU IN).

MergerTalk: Genworth Financial Holdings (GNW US) Update-Assessing The Risk-Reward Proposition

By Robert Sassoon

There a couple of major considerations that are required in assessing the value proposition of Genworth Financial Inc Cl A (GNW US) and the risk-reward profile at this time. First and foremost there is the ongoing merger saga with China Oceanwide (CO) which remains unfinished business just three months short of the fourth anniversary from the initial announcement of the proposed merger agreement in late October 2016. Equity market participants are firmly in the camp of those who believe the deal will collapse. We are sitting on the fence as to whether or not CO will manage to put together the finances to complete the acquisition.  All eyes will be on this week’s GNW 2Q 2020 earnings report and call (scheduled for July 29, and July 30 respectively) for  clues as to which way this deal is moving. 

Second, there is the financial risk to GNW should the deal fall through. There does seem to be a stark difference of opinion on this between the equity and credit markets. On this matter, we would trust the credit market’s perspective which sees no major financial risk to GNW in the forseeable horizon should the deal not happen given the alternative options available to it.

While the potential upside in the short term is clear at ~150% should the acquisition move to completion, we believe the unwinding of the GNW share price amid deal uncertainty and Covid-induced economic uncertainty has left it trading not far from the historically lowest levels seen during the Great Financial Crisis of 2008/2009. We opine that the share price is trading well below its fair value floor of above $3, based on our SOTP analysis, which we believe very much errs on the side of conservatism. Our assessment makes for an attractive risk-reward proposition.

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