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Most Read: Kirindo Holdings, Aarti Drugs Ltd, JFrog Ltd, Asiana Airlines and more

By September 13, 2020 No Comments

In today’s briefing:

  • Kirindo (3194) – Another Cheap Bain MBO With Weak Adherence to Fair M&A Guidelines
  • India Small Caps: Position for Outperformance Vs Large & Mid Caps
  • India – Dark Times
  • JFrog IPO. Profitable Tech Unicorn With Substantial Post-IPO Upside
  • HDC Hyundai Development Gives Up on the Asiana Airlines Acquisition – Privatization on the Way?

Kirindo (3194) – Another Cheap Bain MBO With Weak Adherence to Fair M&A Guidelines

By Travis Lundy

At 9pm last night, basically a full day after Kyodo carried a news story that Kirindo Holdings (3194 JP) was going to be taken private by Bain, the company dropped a load of documents onto the TDNet exchange document filing system indicating that indeed Bain would conduct a Tender Offer to privatise the company and delist it. 

I imagine bankers spent all day putting the information together. It’s kind of a complicated document and structure – more so than normal. But at heart, it is an MBO where at the end, Bain Capital will have about 60% of the resultant enterprise, and the Teranishi family will have about 40%. Given that the two familymembers who will 

The founder and current chairman Teranishi Tadayuki (91) does not appear to be selling in the end, but his son Teranishi Toyohiko, the president (63) appears to be the solid leader through the next stage. This appears to be a kind of succession planning construct, not unlike the Nichii Gakkan Co (9792 JP) MBO and several others in the past couple of years.

Succession-planning MBOs are all the rage. There are good reasons for this. I expect this trend to only accelerate from here. 

More below the fold. 

India Small Caps: Position for Outperformance Vs Large & Mid Caps

By Brian Freitas

Late Friday evening, the Securities and Exchange Board of India (SEBI) published a blandly titled ‘Circular on Asset Allocation of Multi Cap Funds‘. The implications of the circular, however, are not as bland and will result in a big shift in allocation among market cap segments in Indian mutual funds and drive trading activity over the next few months.

SEBI has now mandated that Mutual Fund schemes classified as ‘Multi Cap Funds’ need to invest a minimum of 75% of their total scheme assets in equities and equity related investments with a minimum 25% allocation to each segment: large caps, mid caps and small caps. Currently, the top 11 multi cap schemes by assets (making up 85% of total multi cap assets) hold 78% of their assets in large cap stocks, 16.6% in mid cap stocks, and only 5.4% in small cap stocks.

All Multi Cap funds have till the first week of February 2021 to meet the new requirements. While there will not be a big impact on large cap stocks, there could be a very big impact on small cap funds. The Nifty Smallcap 250 index has underperformed the Nifty 100 and the Nifty Midcap 150 index over the last year and could outperform over the next few months.

India – Dark Times

By Sharmila Whelan

India is not technically in recession – defined as two back-to-back quarters of negative growth- and it plausible that one might be narrowly avoided. However any post-lockdown is likely to be weak at best and probably temporary. There is no getting away from the fact that the outlook is darkening. 

JFrog IPO. Profitable Tech Unicorn With Substantial Post-IPO Upside

By Andrei Zakharov

JFrog is one of the leaders in the software update industry. Tech unicorn helps developers and organizations to be more agile, faster, secure in the software release lifecycle and offers a universal set of DevOps tools that work with all major software technologies to accelerate the delivery of software packages or binaries through delivery pipeline. DevOps affects healthcare, politics, social interaction, food & water, transportation and energy. Just imagine, Facebook, LinkedIn and Netflix update software 7 times a day. That is why releasing and updating software is especially important in the era of digital transformation and the transition to cloud. Number of devices and applications is growing at unimagined rate as well as data – 175 ZB globally by 2025, mostly cloud.

JFrog is offering ~12 million shares at valuation range of $33-37 and we estimate net proceeds from the offering to reach $255 million at midpoint. Lead underwriters are Morgan Stanley, BofA Securities and J.P. Morgan

HDC Hyundai Development Gives Up on the Asiana Airlines Acquisition – Privatization on the Way?

By Douglas Kim

It was announced after the market close on Friday that HDC Hyundai Development Co-Engineering & Construction (294870 KS) has finally given up on its intentions to acquire Asiana Airlines (020560 KS), the second-largest airliner in Korea. Back in December 2019, HDC Hyundai Development initially agreed to acquire a 30.8% stake in Asiana Airlines, as well as new shares to be issued, and its affiliates for 2.5 trillion won (US$2.1 billion).

Following the cancellation of this M&A deal, the financial regulators approved a capital injection of 2.4 trillion won into Asiana Airlines to keep the company alive. The KDB and the Eximbank have already injected a combined 3.3 trillion won, including 1.7 trillion won this year, into Asiana Airlines in the past two years. HDC Hyundai Development paid 250 billion won in a down payment of this M&A deal. The company will file a lawsuit to recover part of this down payment but it is unlikely to recover them, in our view. 

The bottom line is that Asiana Airlines currently has a market cap of 0.9 trillion won and there is a looming probability of the creditors requesting for much bigger control of the company in return for 2.4 trillion won which could result in a sharp decline in the share price of Asiana Airlines in the coming weeks. 

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