People were playing silly buggers with Vedanta Ltd (VEDL IN) in the cash and futures market. It was not pretty. It felt like either there were some large players who are extremely inexperienced OR it smelt like someone was trying to manipulate sentiment to accept an eventual offer at INR 153-170. Ultimately though, the delisting failed.
Northern Star Resources (NST AU) and SAR have agreed to a merger-of-equals via a Scheme of Arrangement under which NST will acquire 100% of SAR. SAR shareholders will receive 0.3763 new NST shares for each SAR share. SAR will also pay a fully franked dividend of A$0.038/share, conditional on the Scheme becoming effective. Subsequent to a successful Scheme, NST shareholders will hold 64% of the combined entity (with roughly a A$16bn market cap), and SAR shareholders 36%. Standard Scheme conditions apply: SAR shareholders approving the Scheme (75%); independent expert concluding the Scheme is in the best interest of SAR shareholders; and no MACs, for either NST and SAR.
Pre-tax synergies are estimated to be worth A$1.5bn-A$2bn over the next 10 years. NST executive chairman Bill Beament said the synergies to be unlocked in the merger would not be achievable without the operations of both companies being in close proximity to each other.
The ratio of 0.3763 compares to the 12-month average of 0.343. The companies are close and already jointly operate the world-class Super Pit mine in Kalgoorlie. There is considerable cross-over in the shareholder base between the two companies, who in turn should vote the merger through.
Borrow on NST is easy. Trading around terms, to slightly through. It may trade tight to start with because of the franking credit available to domestic investors, but it isn’t worth much.
Travis Lundy issued a trio of reports, covering the AGM on the 30 September to approve the audited financial results of the fiscal year ended 31 March and to re-appoint a certain number of directors; 1Q results on the 3 October; and the commencement of the Reverse Book Build Auction on 5 October and ending on the 9 October.
The sharp selldown on the 7 October was the result of a large (21mm shares) net sell of a futures position – possibly just one seller. At that date, the RBB has only collected 13% of the necessary shares (1.341bn). There seems to be more fear/acceptance of the possibility the RBB doesn’t get to 90%. Travis continues to believe that is a significant risk.
VEDL had underperformed a basket of its peers by 18% year-to-date as of the 7 October close. And by more than that since the end of February 2020. VEDL is cheap to peers despite debt. Because of where the shares have fallen, much of the post-break fall in price has probably happened. That leaves the situation to have much more upside than downside even if you thought the RBB Success is a 50/50 proposition.
Late Friday afternoon, local colour suggested they were at 89% (including LIC’s 236mn shares), and people are still putting in their bids.
UPDATE: Vedanta has announced that the delisting offer has failed. The total number of Offer Shares validly tendered by the Public Shareholders in the Delisting Offer was 1,254,716,610 shares, which was less than the 1.34bn shares needed to cross the 90% shareholding threshold. The shares will continue to remain listed on the NSE/BSE and the ADRs will continue to remain listed on the NYSE.
HGH announced a pre-conditional Scheme from Shandong Gold Mining Co., Ltd. (1787 HK) (“SGM”). Under the terms of the Scheme, SGM is offering 0.17241 SGM shares (5/29) for every HGH share. A special dividend of HK$0.3585/HGH was declared on the 29 September, for which the record date will be 16 October 2020. The scrip terms will not be adjusted for the special dividend. The offer, inclusive of the dividend represents a discount to last close of 2.2%. Terms will not be increased.
The pre-conditions concern approvals from the NDRC and the Ministry of Commerce of the PRC or the Department of Commerce of Shandong Provincial Government, for outbound direct investment. Conditions to the Scheme are standard – at a Court Meeting, at least 75% of Independent Shares vote FOR the Scheme & not more than 10% of ALL Independent Shares against. The headcount test applies as HGH is Cayman incorporated.
SGM has received irrevocable of 75% of shares out from Ke Xiping (60%) and his son Ke Jiaqi (15%). No HGH shareholders are required to abstain. The vote appears a formality. This deal is effectively done. The only question mark is over the timing of the PRC regulatory approvals.
CIMC-Tianda announced an Offer by way of a Scheme primarily from China International Marine Cntnrs Gp (2039 HK) (CIMC). The cancellation price is HK$0.266/share, a 20.66% premium to last close. The price is final. CIMC, together with joint offeror concert parties hold 75.53% of CIMC-Tianda, following the conversion of a CB held by Wison Engineering Services Co (2236 HK). Therefore Scheme Shareholders will comprise 24.47% of shares out. Conditions to the Scheme are standard – at a Court Meeting, at least 75% of Independent Shares vote FOR the Scheme & not more than 10% of ALL Independent Shares against, or 2.447% of shares out. The headcount applies as CIMC-Tianda is Cayman incorporated.
In addition to CIMC’s indirect holding of 47.96% (after Wison’s CB conversion), Rollover Shareholders (primarily management) holding 27.57% will remain as shareholders of the CIMC-Tianda. Wison has given an irrevocable to convert its CB holding into 420.165mn new shares (2.52% of shares out on FD basis) at HK$0.366/share. These shares will form part of the Scheme shares, but Wison evidently will not block the vote.
This is not a slam dunk offer. CIMC-Tianda is estimated to have a 95% market share of airport facility equipment in China; and ~5% market share in China for fire-fighting and rescue equipment segment. With the major shareholders holding on for the back-end, some minorities may feel that are getting the short end. But this is not a terribly liquid arb situation, and there is no other suitor expected to come over the top.
Remarkably – the judge has declined to sanction the Scheme for Allied Properties (H.K.) (56 HK). No reasons were provided. And the judgment has yet to appear on the Judiciary website, so we are none the wiser. “APL, AGL and the Offeror are currently taking legal advice on the appropriate actions to be taken in relation to the Judgment“. The trading in the shares will not be resumed unless and until further notice. Total disaster. This is the first ruling of its kind, since PCCW Ltd (8 HK) was blocked by the Court of Appeal.
TICO is up 24% in the past three months compared to ~5% for 8.5%-held Toyota Motor (7203 JP) and ~6% for the TOPIX. As a result, the implied stub is at levels only (briefly) surpassed in 2H17 and 1Q2018.
Source: CapIQ. Lines for 6201 & 7203 are base 100 from 10 years ago
Massive adoption of online shopping from end-users, spurring major funding for the logistics & warehousing sector, has in turn, increased demand for material handling equipment. Moreover, stricter emission laws will underpin demand for electrical/battery-driven forklifts. TICO is a global leader in forklifts and shares of KION Group AG (KGX GR), a key competitor, are up 36%/85% in the past three/six months.
An EBIT ratio analysis gives some credence to investor support for TICO’s stub – but not, in my mind, Y380bn worth of support, which is how much the stub has expanded in the last three months. My guess is that market is assigning an elevated (and belated) value for the forklift/material handling segment.
The express bifurcation in the past three months between TICO and TMC is not justified however – there has been no earnings change from the street. If anything, there is a slight positive tilt toward TMC. If you are in the Stub, unwind it (sell 6201, buy back 7203). If you are out of the Stub/Holdco Trade, I would put it on in reverse. Alternatively, it should go on the watchlist as something to put on when the momentum stops.
Swire Pac has announced it intends to list its wholly-owned Swire Blue Ocean A/S (to be renamed Cadeler A/S) on the Oslo Stock Exchange. What would be the market cap for Cadeler? It currently operates two windfarm installation vessels (WIV). WIV appears a business in demand, one that industry reports suggest there is a global shortage. Listing now while this industry is “buoyant” is probably a good thing.
The actual words of the announcement is that the spin-off will provide SBO/Cadeler with access to external capital. This may suggest the issuance of new shares to fund Cadeler’s expansion plans, diluting Swire Pac’s stake. Or perhaps Swire Pac sells down its stake in the IPO. Either way, Swire Pac wants to avoid funding these ops going forward.
Nevertheless, this is not a particularly large spin-off – my back of the napkin calculations suggests a market cap upwards of US$250mn. – and is unlikely to move the needle on Swire Pac.
I would still avoid Swire Pac and Cathay Pacific Airways (293 HK) – Cathay requires its own rationalisation of operations if it is to survive. There are almost weekly reports from the CEO addressing its dire situation. Swire Pac is cheap at 0.2x P/B, but is an avoid on the expectations it throws more money at the airline.
I see Melco’s discount to NAV at ~32%, against its 12-month average of 26%. According to the HKEx, Lawrence has now added 2.7% in Melco or 39.2mn shares year-to-date, taking his direct take in Melco to 58.42% and elevating his look-thru stake in MLCO to 33.2%. Lawrence cleared 50% in Melco back on the 6 Jan 2015, and is no longer subject to the “creeper rule“, and is now free to take his stake up to 75% without restrictions, provided no other shareholder has 10% of shares out. It is worth noting the acquisition of shares Melco by Lawrence this year has primarily occurred at an implied stub higher the current level.
This is very little reason for the parent to exist as a separately listed company. But would Lawrence stump up ~US$4.4bn to take MLCO private – assuming a 30% takeover premium to last close? That’s a lot of cash. My bet is Lawrence continues to chip away at minorities.
Online financial information provider Morningstar announced (J-only) on 29th September they had received approval to move to the First Section of the Tokyo Stock Exchange as of 19th October 2020. The TSE Section Transfers page says the market section is “undecided”. However, the company’s announcement says that they are expecting a move to the First Section. This might be because the TSE1 could be contingent on the success of the company’s equity offerings that were launched in conjunction with the Section Transfer announcement. TSE1 reassignment would trigger inclusion into the TOPIX Index and if they successfully move to TSE1 in October (as planned) the Inclusion Event can be expected to be at the close of trading 27th November 2020.
This is a very large impact TOPIX Inclusion Event but the offerings announced in conjunction make it less interesting. Janaghan Jeyakumar estimates the Inclusion Size to be ¥2.46-2.95bn and the impact of the Inclusion to be estimated to be 53-64 days of volume based on 3-month ADV. After Nippon Rietec’s (1938) Gangbusters TOPIX Inclusion (~250 days) and Kawanishi Holdings (2689 JP)(~106 days) this is the third largest impact estimated for 2020.
Fundamentals do not seem to raise any serious concern of overvaluation. At present, Morningstar Japan is trading at LTM EV/Rev, EV/EBITDA, and PER multiples of 5.9x, 20.9x, and 35.5x, respectively, which are lower than our estimated averages of 11.0x, 30.6x, and 43.5x for peers (online providers of financial/business information). More importantly, Morningstar Japan K.K. remains at a steep discount to its closest comparable peer – MINKABU THE INFONOID, Inc. (4436 JP): 12.3x, 39.7x, and 75.2x.
Ed-Tech company Edulab announced (Japanese-only) last week they had received approval to move to the First or Second Section of the Tokyo Stock Exchange as of 19th October 2020. In conjunction, they also announced an equity offering (J-only). The decision as to whether the stock will be permitted to join the First or Second Section could depend on the success of this offering. If the company moves to the First Section, it would trigger inclusion into the TOPIX Index and the Inclusion Event could be expected to be at the close of trading 27th November 2020.
Despite the attractive Index Inclusion Parameters, the size of the equity offerings make this event less interesting. Janaghan estimates Inclusion Size to be ¥4.70 – 5.64bn and the impact to be 15-18 days going by 3-month ADV – both well above historical medians for TOPIX Inclusion Events.
The business is growing fast but there may be some serious concern of overheating. Capital IQ consensus projections translate to Revenue, EBIT, and NP CAGRs of 24%, 25%, and 32% respectively from 2019-2020E. However, the company’s EV/Rev, EV/EBITDA, and PER multiples are well above the estimated means and medians for peers.
Janaghan recommends avoiding this Event despite the tempting Index Inclusion Parameters. He would also refrain from going short until the Inclusion Event is complete.
Japan Investment Advisers announced on 30th September, they had received approval to move to the First Section of the Tokyo Stock Exchange as of 8th October 2020. TSE1 reassignment triggers inclusion into the TOPIX Index and the Inclusion Event can be expected to be at the close of trading 27th November 2020.
The Index Inclusion Parameters are reasonably attractive. Janaghan estimate Inclusion Size to be ¥3.06-3.67bn and the Impact of the Inclusion to be 3-4 days of volume going by 3-month ADV.
Fundamentals raise some concerns but they do not seem very significant. The company’s latest expectations for FY2020 translate to revenue, EBIT, and NP CAGRs of +29%, +18%, and +13% respectively. The stock is trading at a PER of 7.5x which is lower than the estimated mean and median for peers. More importantly, the company has mostly traded at a significant premium to the selected group of peers and its current spread to peers in terms of PER (LTM) is close to its all-time low.
Janaghan would be LONG between now and the Inclusion Date (27th Nov).
WSG announced Dalian Wanda Group (DWG) had submitted a preliminary non-binding proposal at US$2.50/ADS, a 38.9% premium to last close. DWG currently owns all the Class B ordinary shares of WSG, representing ~71.68% of all the issued shares, and ~91.01% of the voting power of the Company. At this juncture, one would assume a “going private transaction” would be done via a short-form merger – therefore there will be no shareholder vote and no dissenting. But the twist here is that WSG is incorporated in Hong Kong (one of the very few US-listed Chinese companies incorporated in HK), therefore a take-private transaction must adhere to the law of their jurisdiction of incorporation. That raises the bar on DWG taking WSG private.
My discussions with DWG’s IR team confirm that DWG would be required to abstain at a shareholder meeting to take WSG private. I’ve always been of the opinion an Offeror, who holds a position in a target company, should abstain from voting anyway. But that is the advantage of being a “foreign private issuer“, the nomenclature for most US-listed Chinese companies, which in simplistic terms, means U.S. federal proxy rules do not apply to such issuers, who instead must follow the rules of their local jurisdictions.
An Offer, should it unfold, is likely to be tabled as a Scheme, therefore at least 75% of Independent Shares of WSG are required to vote FOR the Scheme at a Court Meeting, and not more than 10% of ALL Independent Shares vote against. blocking stake at a Scheme would be 5.806mn shares which is 2.83% of shares out or US$14.52mm. No single shareholder has such a holding. There would be no headcount test.
I’d buy around these levels. This remains an indicative Offer. And timing is uncertain. However, a take-private deal makes sense for DWG, and is a preferable course of action to leaking cash on hand to minorities via a buyback or a special dividend.
GardaWorld, a privately-held security services company, has made an hostile formal cash offer for G4S at 190p per share. This represents a 30% premium to the close price of G4S on 11 September, the day prior to GardaWorld announced its intention to launch an offer. The offer is subject to valid acceptance of 90% shares, government, statutory, regulatory, environmental or investigative body, court approvals, right of pre-emption, first refusal or similar right, EU Antitrust Clearance and US Antitrust Clearance and regulatory clearances. G4S is trading through terms on expectations of a higher bid.
Schroders (10.53% stake) says that the current bid “significantly undervalues” G4S, but they are “prepared to engage and are open to a deal at a fair price”. Harris Associates (5.11% stake) says it values the company “substantially higher than the 190p bid, especially given the operational improvements over the past few years.” Sachem Head Capital Management (5.3% stake) also would like to see a higher price.
Britain’s fourth-largest broadband company Talktalk announced that it has received a preliminary and non-binding proposal from Toscafund Asset Management LLP to acquire the remaining ~70% it does not own. A pre-condition is that TalkTalk’s executive chairman and co-founder Charles Dunstone, who owns ~30% stake, provides an irrevocable undertaking for an unlisted share alternative (i.e. a new private company under Toscafund) in respect of the Offer. David Ross, the other co-founder, owns 11%. Trading through terms at 99p. Jesus reckons a higher bid of 108p. But Talktalk is willing to engage with Toscafund suggesting pricing is looking full.
Of the five cases decided to date, the weighting assigned to DCF in TSL’s was the lowest. This also implies 75% of the “fair value” is already known. If this judgment is indicative of the way forward, the incentive for dissenting shareholders to pursue appraisal rights under s.238 will be greatly reduced.
Summary of Cases (to date) – How Fair Value Was Assigned
Minority discounts remain contentious. The discount of 2% – as put forth by the Dissenting Shareholders – still comes across as arbitrary. In any event, the decision on minority interest by the Privy council in the Shanda Games Ltd Spons Adr (GAME US) case does not reign supreme.
The fact TSL is trading where it is now on the Star Market is evidently a moot point. In the Shanda case, the court took the view that relying on the potential valuation under a Chinese listing did not arise for the purpose of section 238. Presumably, the Dissenting Shareholders chose not to retest this decision.
PCCW Ltd (8 HK)‘s partial is now unconditional in all respects and will remain open for a further 14 days. On the 19 October, the results of the partial Offer will be known. So far, 1.288bn shares have tendered vs. 154.59mn to be bought.
Mittleman bumps stake to 10.09% (from 8.50% previously) in Village Roadshow (VRL AU) and according to media reports, opposes BGH’s Scheme. RL said it would proceed with the Scheme – and is engaged in correspondence with Mittleman.
Metlifecare Ltd (MET NZ) has announced a “shareholder has lodged a Notice of Opposition to the High Court application for the Scheme of Arrangement with Asia Pacific Village Group Limited“. It is doubtful this will have any bearing on the outcome – shareholders had already approved the deal on the 2 October and the next High Court hearing is on the 15 October.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.