This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. SK Hynix (000660 KS; SKHY US): Buyback Provides More Optionality than a Special Div
- SK Hynix (000660 KS) / SK Hynix (SKHY US) announces earnings on 29 July. Expectations are for the company to announce a buyback or a special dividend.
- A buyback will provide SK Hynix (000660 KS) with an option to issue more ADSs, something that they cannot do as things stand.
- A buyback and the subsequent issuance of ADSs will help keep the ADS premium under control and reduce volatility transmission from the US markets to the local listing.
2. Hynix ADR Conversion Pool Opening: The Only Realistic Path Forward
- The prior base case was a late October 3Q earnings buyback announcement, followed by a 2~2.5% SO repurchase over six months, but that view is starting to lose traction.
- Hynix may avoid it due to cash burn risks amid memory pivot concerns, meaning the expected buyback announcement may not happen.
- Hynix may use ADR arb flows to support local shares, with KRW 1.46 million to KRW 1.50 million viewed as the trigger zone at around 2.0x forward PBR.
3. [Japan M&A] Nippon Yusen (9101) To Buy Out NS United Kaiun (9110) At ¥10,600/Share
- Nippon Yusen has agreed to buy super-majority control of Ns United Kaiun Kaisha (9110 JP) from erstwhile controller (and shareholder partner) Nippon Steel Corporation (5401 JP).
- The price is a nice premium, and an all-time high, and well above book – which is not bad for a shipping company. But it isn’t a super-high multiple.
- Together, friendly corporate and financial holders own near 60%. Domestic passive enough to get past 67%. This should be OK. Not much need or purpose for activism here.
4. [Japan M&A] Bain Overbids EQT by 2+% and 5.5+% Depending on KDDI Agreement. Market Wants More
- In the latest salvo, Bain+LY have come back with a counter to the last overbid by EQT+DG at ¥3,450. That bid needed a bump because ¥3,500 was <2% higher.
- Bain+LY have bid ¥3,520 standalone and ¥3,640 with KDDI agreement. I expect this is enough to get Kakaku’s support if EQT don’t match.
- The market had priced this outcome PLUS another overbid. I wouldn’t be surprised to see two more but we’re closer to the end than the beginning.
5. A Tender Offer of a 46.5% Stake in SK Signet by SK Inc
- On 24 July, SK Inc (034730 KS) launched a tender offer for common shares of SK Signet (260870 KS), a subsidiary listed on the KONEX market.
- The tender offer is for a 46.5% stake in SK Signet. Post a successful tender offer, SK Inc plans to delist SK Signet.
- Overall, I am negative on this tender offer and on SK Signet. I think the more realistic scenario is for investors to tender about 10-15% of outstanding shares.
6. Future Corp (4722 JP): A Chairman-Led MBO Could Invite Activism
- Future Corporation (4722 JP) announced a Chairman-led MBO at JPY2,451, a 2.9% premium to the last close of JPY2,382.
- The low takeover premium could be explained by the mysterious 65.13% share price surge from 24 June to 27 July. Also, the offer represents an all-time high.
- However, the offer is below the midpoint of the special committee’s IFA DCF valuation range and is light relative to precedent transactions, potentially attracting activists.
7. Merger Arb Mondays (27 Jul) – Skyworth, Changhong Jiahua, Z Fin, Con Aero, OFX, Cygnus, Kakaku
- I summarise the latest spreads and newsflow for the merger arb situations covered across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, the Philippines, Thailand, and Chinese ADRs.
- Highest spreads: Skyworth (751 HK), Changhong Jiahua (3991 HK), OFX Group (OFX AU), Cygnus Metals (CY5 AU), Atlantic Lithium (A11 AU), Tourism Holdings (THL NZ), Z Fin (1168 HK).
- Lowest spreads: Accent Group (AX1 AU), Australian Strategic Materials (ASM AU), Kakaku.com Inc (2371 JP), Shinko Shoji (8141 JP), Taiyo Holdings (4626 JP), J.S.B (3480 JP), Clearview Wealth (CVW AU).
8. Samsung Likely Pivots to ADR Driven Buybacks to Conserve Cash Amid Memory Turn and Capex Pressure
- Compression not driven by memory multiple derating but FX flows. KRW strength vs JPY from Hynix ADR inflows drove futures rotation. As FX normalizes, positioning unwinds, implying pref discount reversion.
- Key trigger is special div timing under 50% FCF. Samsung wary of cash outflow amid memory pivot and capex push, likely shifting to buybacks via ADR to retain cash.
- Pref compression near pivot as KRW normalizes. Low odds of special div. Aggressive buyback plus ADR flow could trigger sharp reversal.
9. Perpetual (PPT AU): EQT Lifts Its NBIO To A$22.50/Share
- Following its curious A$22.07/share self-destructing NBIO on the 15th July, EQT has returned with a A$22.50/share NBIO for Perpetual Ltd (PPT AU), by way of a Scheme.
- That’s a 4% bump to its initial NBIO of A$21.64/share on the 1st July, which was rejected as being inadequate. $22.07/share was similarly deemed inadequate.
- PPT’s board is assessing the revised tilt. Optically, terms appear fair. Ot at least sufficient to engage. A$22.50/share is a 45.2% premium to undisturbed.
10. SK Chairman Chey Tae-Won To Pay 944 Billion Won to Roh So-Young in Divorce Payment
- On 24 July, it was reported that the Seoul High court finalized the divorce case between SK Group Chairman Chey Tae-Won and his estranged wife Roh So-Young.
- The final verdict was that Chairman Chey will need to pay Roh 944 billion won ($638 million) in cash which is the largest divorce case amount in Korea’s history.
- If an appeal is filed, the Supreme Court determines final asset division. However, both parties will likely accept this decision by the Seoul High court, in my view.
