Daily BriefsEvent-Driven

Event-Driven: Vedanta Ltd, Serverworks, Hyundai Motor Co, Ca Immobilien Anlagen Ag and more

In today’s briefing:

  • Vedanta (VEDL IN) Promoter To Launch an Open Offer To Buy More
  • TOPIX Inclusion: Serverworks (4434 JP):  Clouds in a BLUE Sky
  • Apple EV + Hyundai Motor = An Ideal Marriage or A Relationship Doom to Fail?
  • CA Immo – Starwood: Mandatory Offer

Vedanta (VEDL IN) Promoter To Launch an Open Offer To Buy More

By Travis Lundy

Just over four weeks ago on 8 December 2020, Vedanta Resources (VED LN) promoter Anil Agarwal was on CNBC-TV18 in India saying that the promoter (Vedanta Resources, himself, the associated companies) had no plans at all to increase their stake in VEDL and no plans to make an open offer. He said the same in an interview with ETNow on 10-11 December. 

Eight trading days later, they launched an off-market purchase to buy 4.98% of shares outstanding – the effective limit in any given fiscal year – to buy shares at a price between INR 150.45-160.00. This was discussed in Vedanta Promoter Launches Offer to Buy 4.98%. Early reports were they got less than 5%, and had to pay the top price to get that bit, but the 13D filed on 24 December suggests they got to 2,048,458,132 shares which is 55.1% which was what they were looking to do.

Then the shares went up some more. They immediately went above INR 160, then went higher. 

Less than a week after making that purchase, local media (Economic Times and others) were mentioning the possibility (from “sources”) that Vedanta Resources might come back with an Open Offer for another 10%. 

Since the new year, the shares have popped further, likely in response to sharply higher commodity prices and a sharply higher share price for Hindustan Zinc (HZ IN), which rallied from Rs 240/share at year-end to above Rs 300/share in the first week of the year. 

The NEW News

On 9 January 2021, Vedanta Resources (VED LN) released an announcement that it would launch a Voluntary Open Offer to purchase an additional 371,750,500 shares (10% of shares out) of Vedanta Ltd (VEDL IN) at Rs. 160/share, spending about US$800mm to get there. 

A Detailed Public Statement (“DPS”) will be released on or about 15 January. This starts a two-month-plus process leading to a two-week Open Offer, likely to take place starting in the second half of March. 

More on what this means, how it could play out, etc, below the fold. 

TOPIX Inclusion: Serverworks (4434 JP):  Clouds in a BLUE Sky

By Janaghan Jeyakumar, CFA

On Friday after market-close, Tokyo-based cloud integration company Serverworks (4434 JP) announced (J-only) they had received approval to move from the MOTHERS Section to the First Section of the Tokyo Stock Exchange as of 15th January 2021.

TSE1 reassignment triggers inclusion into the TOPIX Index and the Inclusion Event can be expected to be at the close of trading 25th February 2021.

Serverworks provides Amazon Web Services (AWS) based cloud integration services to corporate clients in Japan. They help companies transition from conventional on-premise information systems where companies own and operate their own information equipment and software to cloud-based solutions where a third party service provider (Amazon.com Inc (AMZN US) in the case of AWS) invests in equipment and software and charges users typically on a pay-as-you-go basis depending on the level of usage.  

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. 

Apple EV + Hyundai Motor = An Ideal Marriage or A Relationship Doom to Fail?

By Douglas Kim

One of the biggest stories coming out of Korea in 2021 has been the “deal that has yet to be confirmed” between Apple and Hyundai Motor. On Sunday (10 January), a local newspaper Korea IT News reported that Hyundai Motor Co (005380 KS) and Apple Inc (AAPL US) plan to sign a partnership deal by March 2021 to develop autonomous electric vehicles and start production around 2024 in the United States.

CA Immo – Starwood: Mandatory Offer

By Jesus Rodriguez Aguilar

On 8 January, SOF-11 Klimt CAI S.à r.l., an affiliate of Starwood Capital, announced its intention to launch a takeover offer to acquire the remaining 70% of Ca Immobilien Anlagen Ag (CAI AV) it does not already own.

Consideration is €34.44, in cash, equivalent to CA Immo’s undiluted EPRA NNNAV, with no minimum acceptance condition.

  • 1.1x P/ 2021e BV, 25.8x deal value/est. FFO and 91.14% deal value/consensus NAV, per share (assuming a NAV estimate per share of €37.79, source: S&P MI).
  • 10.2% discount to EPRA NAV.

Starwood is a bargain hunter and distressed investor, so it must see value at the offer price.

  • The offer price is 17.7% below the closing price of 14 February 2020, when the pandemic started to hit the markets.
  • Therefore Starwood is betting on the recovery of the German office market. CA Immo has prime buildings in Berlin, Munich, Frankfurt and other German cities, and a big land bank in Berlin.
  • CA Immo is planning to invest €710 million that should add c. 45 mn to FFO if all is occupied at a 6% gross yield on cost.

The shares have shot up by c. 14.6% vs last close and are trading at €35.30,

  • c. 2.5% above the offer price.
  • Volume negotiated on 11 January is close to €40 mn.

The market is thinking of either a sweetened bid or that the company is now in play (again) and there could be another bidder.

  • I believe that the Board of CA Immo will press for a better offer, considering that the current offer from Starwood is below where the shares were trading in February (€41.85).
  • The 30% stake held by Starwood represents a barrier to any other bidder, plus there will be no minimum acceptance condition.

Considering the resilience of the German prime office sector, and the pipeline of CA Immo, an improved offer representing a 10% premium to current EPRA NNNAV could be justified, or €38.34 per share, 11% premium to the current bid, and c. 4% 21e FFO yield (Capital IQ).

  • On this basis, recommendation is LONG CA Immo, TP €38.34.
  • The downside is that Starwood does not improve its bid, but the share price should be supported by  FFO yield, in the absence of a worsening pandemic scenario.

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