Daily BriefsEvent-Driven

Event-Driven: Toshiba Corp, Tencent Holdings, Alibaba Group, Prosus , Hitachi Metals, LG Corp, Tabcorp Ltd, Rakus Co Ltd and more

In today’s briefing:

  • Toshiba – The CEO Gets His MBO Bidder and Toshiba Will Get Interestinger
  • TOPIX Upweights: Big April Basket 2021 Pre-Event Is a WIN! Now the Event-Leg!
  • Tencent Placement – Limited Passive Flow; HSI, HSCEI Trackers to Sell in June
  • China ADRs Quick Update – SEC, Archegos, Blocks – Showing Signs of Life
  • Tencent Placement and the Holdco Implications – Deal Almost Done, Now What?
  • Be Careful What You Wish For REDUX – Prosus Selling US$15bn in Tencent
  • Hitachi Metals – Limited Upside Despite Bain Capital News But Let’s Find the Offshoot Ideas
  • LG Corp Split: Schedule, Financials, Base Price MC, Subs Stake Value, & KOSPI 200 Inclusion
  • Tabcorp (TAH AU) – Conscious Uncoupling
  • TOPIX April-End Rebalance – The OTHER Trades

Toshiba – The CEO Gets His MBO Bidder and Toshiba Will Get Interestinger

By Travis Lundy

This morning in the Nikkei there is an article (English, Japanese is here) headlined…

Toshiba receives offer from CVC to go private in $20bn deal

The accompanying article in Japanese including CEO Kurumatani-san’s comments suggests that the board will meet today to discuss it. The initial response to the press was that it had received the initial proposal yesterday without any previous consultation, so the company would seek more information and consider the proposal carefully.

It’s early days. The headline number of ¥5,000/share is too low, by a fair bit, and there are a lot of hurdles (which are NOT shareholders wanting more) before this could go forward (allowing shareholders to want more).

Exactly one year ago today, I wrote An MBO for Toshiba? Not As Silly As It Sounds after an article in an “investigative” magazine called FACTA (most famous for pre-commenting on the fraud on Olympus nearly a decade ago) put out an article “Toshiba: Kurumatani’s Astonishing MBO Scheme: Will He Be Able to Expel Noisy Shareholders?” (東芝・車谷が「MBO」画策の仰天: 物言う株主「放逐」は叶うか).

The article spent a lot of time talking about Kurumatani-san as a person, the insinuations that he hates shareholders, and about his desire to control his own fate – to “have his own castle” (by getting noisy activists out). The story suggested then that he saw his chance now (early April 2020) as the fall in the share price saw foreigners sell (that analysis was weak; I expect the activists were not the ones selling down hard in an illiquid market in the covid-crash, and I said as much). The article name-dropped PE funds and related parties (one fund, Integral, was led by a former SMBC colleague; and CVC – where Kurumatani-san spent a year as the Japan rep after leaving SMBC when he didn’t get the nod for the top job – was mentioned as another), but I highlighted, 

The “astonishing scheme” about the MBO though is not to be ignored. It serves a LOT of purposes. 

I stand by that conclusion, and it is worth thinking about how this might play out.

Much more below the fold.


TOPIX Upweights: Big April Basket 2021 Pre-Event Is a WIN! Now the Event-Leg!

By Janaghan Jeyakumar, CFA

The Tokyo Stock Exchange (TSE) calculates Free-Float Weight (FFW) for each listed company and uses this value as a key component of TOPIX Index Calculation. For companies with “low liquidity” the FFW will be multiplied by a fixed liquidity factor (“LF”) of 0.75 to derive the final FFW used for index calculation.

In TOPIX Index Upweights: The Big April Basket 2021, I discussed how the Tokyo Stock Exchange reviews this Liquidity Factor every April and highlighted 50 names (the “Big April Basket 2021”) that could potentially have their liquidity factors removed in this April’s review.

Today after the close, the official review results were announced and 48 out of 50 names in our Big April Basket 2021 were correct translating to a hit ratio of 96%. There were 11 other names added, and two of the names we expected to see the LF lifted did not.

As of today’s close, our Big April Basket (equally-weighted) is up +3.61% against the TOPIX Index in 7 trading days (since the close of the day after the insight) and there could be more to come. 

Below is a discussion on the details of the official review results and what changes are required for our basket strategy during the event-leg which could run until the end of April. 


Tencent Placement – Limited Passive Flow; HSI, HSCEI Trackers to Sell in June

By Brian Freitas

Last evening, Prosus (PRX NA) announced that it would sell up to 191.89m shares in Tencent Holdings (700 HK), raising up to US$14.6bn. This would bring its stake down to 28.9% and Prosus (PRX NA) has committed not to sell any more Tencent Holdings (700 HK) shares for at least the next three years.

Tencent Holdings (ADR) (TCEHY US) dropped 7.54% overnight, Naspers (NPN SJ) fell 5.03% and Prosus (PRX NA) lost 4.61%.

Apart from buying from FTSE passive trackers, we do not see any other passive inflows for Tencent Holdings (700 HK) in the near term. The MSCI increase in free float could only happen at the May 2022 SAIR, while any increase in the free float in the Hong Kong Hang Seng Index (HSI INDEX), Hang Seng China Enterprises Index (HSCEI INDEX) and Hang Seng Tech Index (HSTECH INDEX) will be offset by a lower capping factor.

The stock faces many headwinds: unwanted attention from SAMR, an increased number of floating shares, little passive buying flow to alleviate the impact of a larger float, and a reduction in the capped index weight in the HSI and HSCEI indices from 10% to 8%. The stock could remain under pressure in the near future.


China ADRs Quick Update – SEC, Archegos, Blocks – Showing Signs of Life

By Sumeet Singh

On 29th Mar 2021, we spoke about the Archegos driven correction in some of the China ADRs,  China ADRs- Blocks, Liquidation, Buyback – Implications. That in turn had followed close on the heels of the SEC driven correction for the sector, which we looked at in China ADRs – SEC Notice – Instead of Three, Probably Have Four Years till 2025 – Correction Overdone.

In this note, we’ll talk about the updates since our previous note.


Tencent Placement and the Holdco Implications – Deal Almost Done, Now What?

By Sumeet Singh

Prosus NV (PROSY US) aims to raise around US$14.5bn via selling a 2% stake in Tencent Holdings (700 HK) overnight in Hong Kong.

We spoke about the placement in Tencent Placement – Another Reluctant but Well-Flagged Sell Down, Lifting the US$14.5bn Overhang.

We have been covering the lock-up expiry since Feb 2021 in:

While the overall cash being raised should be positive for Prosus and Naspers, not all aspects of the deal will be viewed positively. 


Be Careful What You Wish For REDUX – Prosus Selling US$15bn in Tencent

By Travis Lundy

Three years ago on 22 March 2018, after Tencent Holdings (700 HK) reported full year earnings for the year to December 2017, Naspers (NPN SJ) launched a sale of shares in Tencent of about 2.0% of shares out, lowering their stake and raising cash which was supposed to be used to buy more e-commerce assets, with the lofty but separately-stated goal being to “balance the portfolio” over the coming years. 

At the time, Naspers was trading at a 40% discount – a level with which Naspers management was clearly unhappy – and Tencent was roughly 91% of Naspers NAV. 

At the time, apparently wary of signalling more pressure on Tencent shares from potential future sales, Naspers promised it would not sell any more Tencent shares for three years. 

But that set up the likelihood of a sale after Tencent reported earnings in March 2021, this time by Prosus (PRX NA) which inherited the listed equity positions from Naspers in a dropdown spinoff 18 months ago.

Then that sale did not arrive. 

There were, of course, ructions in the market that same week as Family Office Archegos Capital Management ran into a spot of difficulty and both it and its financiers had to sell (in a hurry) tens of billions of dollars of concentrated positions – many in the category of Chinese stocks listed outside of mainland China. It was clearly not the best time to sell a large block, so it appears Naspers/Prosus waited. 

Today, Prosus announced an accelerated offering of Tencent shares – again selling 2.0% of shares out, dropping their position from 30.9% to 28.9% of shares outstanding, at an indicated 5.5-8.7% discount to last close – a price range of HK$575-595/share. Again Prosus has locked themselves up for longer than normal.

Prosus has committed not to sell any further Tencent shares for at least the next three years, in line with its long-term belief in the potential of the business. 

This leaves one with the question… what next?


Hitachi Metals – Limited Upside Despite Bain Capital News But Let’s Find the Offshoot Ideas

By Mio Kato

The Nikkei reported today that Bain Capital’s bidding consortium has received preferential negotiating rights from Hitachi. The rumoured valuation is above ¥800bn which would put the premium at just 3.2% above the last close. As we said previously, the potential for a large hike to those terms seems limited and better returns may be on offer in trying to identify other potential buyout targets.


LG Corp Split: Schedule, Financials, Base Price MC, Subs Stake Value, & KOSPI 200 Inclusion

By Sanghyun Park

The LG Corp split ratio is 0.9115879 to 0.0884121 for LG Corp (surviving entity) and LX Holdings (new entity).

Per-share allocation is 0.91 LG Corp share and 44 LX Holdings shares (after stock split).

(₩B)BeforeLG CorpLX Holdings
TypeSurvivingNew
Assets10,692.99,779.8913.3
Current assets1,883.61,711.2172.4
Non-current assets8,809.48,068.7740.9
Liabilities393.4390.92.5
Current liabilities296.8296.70.1
Non-current liabilities96.694.22.4
Equity10,299.59,388.9910.8
Capital879.4801.677.7
Capital surplus2,409.01,575.9833.1
Retained earnings6,975.56,975.5
Split ratio0.91158790.0884121
SO160,322,613 shares77,745,975 shares
Per-share allocation0.91 share44 shares
Source: DART

The split got shareholder approval on March 26.

Now, the stock trade suspension kicks in on April 29 and runs until May 26.

The following day, May 27, is the re-listing day for both LG Corp and LX Holdings.

Schedule
Shareholder meeting3/26/21
Record date4/30/21
Trade suspension begins4/29/21
Trade suspensino ends5/26/21
Re-listing5/27/21
Source: DART

Tabcorp (TAH AU) – Conscious Uncoupling

By David Blennerhassett

Tabcorp Ltd (TAH AU) merged with Tatts Group Ltd (TTS AU) in November 2017 in an A$11bn transaction. Less than two years later, with the wagering division – which includes the retail betting shops and online betting brands – facing stiff competition on all fronts, and synergistic benefits from the merger not being extracted at expected levels, a demerger was floated.

Fast forward another three-plus years: after rejecting a A$3bn offer from Entain (ENT LN) (owner of Ladbrokes) to buy its wagering and media division, Tabcorp said last week it will undertake a strategic review to assess and evaluate all structural and ownership options to maximise value.

These include a potential sale of the wagering & media ops or a potential demerger – via the separation of the wagering segment or the lotteries business.

The strategic review is expected to take between 12 weeks and 13 weeks, the conclusion of which may tie in with the release of the FY21 financials. 

Chairman Steven Gregg said he remains open to a full bid for the wagering ops, but:

there’s a big gap between where we are and where that would need to be. The ball is really in their court.
Source: AFR

Apollo Global Management was also reportedly kicking tyres, along with bookie Matthew Tripp  – potentially backed the Murdochs.

As always, more below the fold.


TOPIX April-End Rebalance – The OTHER Trades

By Travis Lundy

This insight is meant to be read in conjunction with Janaghan Jeyakumar, CFA‘s TOPIX Upweights: Big April Basket 2021 Pre-Event Is a WIN! Now the Event-Leg! (which is the announced result of the proposed 50-name buy basket introduced in the explanation of an annual but obscure aspect of TOPIX Index calculation rebalancing explained in TOPIX Index Upweights: The Big April Basket 2021).

Suffice it to say, he got 48 out of the 50 names chosen right, and there are a few more trades related to this on the side. That is US$1.1bn to buy. 

This insight is about all the OTHER names in the TOPIX rebalance for April 2020, including a total of 43 up-weights and 16 down-weights with ~ US$500mm to buy and US$260mm to sell.

That means there will be a US$1bn sell on the close of the 28th too. Not huge, but there. 

The trades to do here are for investors to see if any of these situations warrant use as a liquidity event. 


Before it’s here, it’s on Smartkarma