Daily BriefsJapan

Japan: Toa Oil Co Ltd, Seven & I Holdings and more

In today’s briefing:

  • Toa Oil (5008) Tender Offer Update – Looks Bumpity.
  • Seven & I Holdings: OP Beats Could Continue into 4QFY21

Toa Oil (5008) Tender Offer Update – Looks Bumpity.

By Travis Lundy

On 15 December, Idemitsu Kosan (5019 JP) launched a Tender Offer for subsidiary Toa Oil Co Ltd (5008 JP) at what was an extraordinarily opportunistic price – JPY 2450/share.

Some might call this price insultingly low.

It was apparently deemed “fair” because the non-arms’ length contract signed with the parent (and Tender Offeror) provides for an exceptionally low ROA, and the next few years involves some shutdowns for longer-term maintenance, which will lower FCF. 

This pricing process fairness problem was discussed in some detail in Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008)

There have been a few developments since the announcement.

  • Just prior to the offer being made, large shareholder Cornwall Capital had been increasing their stake and coincidentally announced an increased stake of 18.22% on the same day as the announcement. Since the offer has been made, they have filed two more amendments to quantity to lift their stake to 20.83% as of 24 December (reported 4 January). As seen from the chart, the shares have not traded below terms since they first freely traded pre-announcement, and Cornwall increased their stake by 2.6+% from 15-Dec to 24-Dec 2020 at prices ABOVE terms.
  • Since the 25th of December, another 5% of shares out have traded at prices above terms. Nobody else has yet announced a 5+% position. 
  • Around year-end, specialty “business-politics” magazine Sentaku published an article talking about the oil refining business in Japan, JXTG/ENEOS’s leading place in it, the Idemitsu deal for Toa which was termed odd, Fuji Oil Co Ltd (5017 JP), Cosmo Energy Holdings (5021 JP), and some speculation about what might be behind the Idemitsu deal for Toa. The conclusions of the article in that regard are striking. 

In the meantime, after a single day limit up ending below terms which saw 20,400 shares trade, the next 1.46mm shares (11.8% of shares out) have all traded above terms.

If one adds the 20.8% held by Cornwall Capital (including the 2.6% purchased above terms since announcement) plus the 9.2% which have traded above terms not purchased by Cornwall, that gets one to 30.4%, which is reasonably close to a blocking stake. 

Discussion continues below.


Seven & I Holdings: OP Beats Could Continue into 4QFY21

By Oshadhi Kumarasiri

Our 2021 High Conviction call, Seven & I Holdings (3382 JP) delivered 3QFY21 results yesterday with operating income surpassing consensus estimate by more than 20%. The company’s 3QFY21 consolidated revenue was 1.2% below consensus. However, the YoY rate of revenue decline narrowed to 10% in 3QFY21, compared to 15.8% in 1HFY21.

More importantly, Seven & I has rallied 28% from the August low of ¥3,052 per share (at the time of the Speedway acquisition) and 18% since the publication of our high conviction call.


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