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. CATL (3750 HK): Reassessing Index Fast Entry; Need Overallotment Exercised by Tomorrow
- CATL (3750 HK) is trading at a 6.9% premium to Contemporary Amperex Technology (CATL) (300750 CH) – if that is due to expectations of Fast Entry, that premium could drop.
- CATL (3750 HK) has not announced the overallotment option as exercised and that puts Fast Entry at risk. An announcement prior to the close tomorrow could lead to Fast Entry.
- The earliest inclusion could be at the close on 30 May while the other global index inclusion looks likely in December.
2. [Japan M&A/Activism] Toyota Industries (6201) Deal Could Be Announced Near-Term
- Friday 25 April, Toyota Industries (6201 JP) released earnings for last year, guidance for this year and a Bloomberg scoop suggested Toyota Motors chairman Akio TOYODA would launch an MBO.
- In some ways surprising, but activists/”noisy shareholders” and TSE guidance on dual listings caused pressure, and Toyota Motors was trying to walk the good governance walk.
- I discussed the situation here on Day 1, and here a few days later. Long-only shareholders sold. Today, Kyodo had a follow-up article. Then Nikkei. Looks more solid now.
3. CATL (3750 HK): The Tail Wags the Dog
- The buying in Contemporary Amperex Technology (3750 HK) over the last couple of days has dragged Contemporary Amperex Technology (CATL) (300750 CH) higher as the arbs trade the AH spread.
- The Fast Entry into a global index could keep CATL (3750 HK) supported over the next few trading days, but reality will take hold pretty soon.
- Short CATL (3750 HK) / long CATL (300750 CH) offers great risk/reward, while an outright CATL (3750 HK) short offers higher return albeit at a much higher level of risk.
4. CATL (3750 HK)’s Concentration Warning
- Contemporary Amperex Technology (3750 HK) (CATL H), a global leader in providing battery solutions, was listed on the 20th May at $263/share. Here is the prospectus.
- Via the H-share listing, CATL raised ~US$5.2bn. Shares have since gained ~26% and trade at HK$330/share, as I type.
- It is worth noting the HKEx issued a high concentration warning in CATL’s H shares the day before shares were listed.
5. [Japan Activism/M&A] – Thinking About Positioning Around the Tsuruha/Welcia Vote
- The Tsuruha Holdings (3391 JP) and Welcia Holdings (3141 JP) AGMs to elect directors and approve the share exchange agreement to merge the two.
- 10% Tsuruha shareholder Orbis objects to the merger ratio AND the later tender whereby Aeon goes to 51%, saying everything is underpriced. ISS/GlassLewis recommend voting against the merger.
- I haven’t seen the proxy reports but I’ve done the math. Investors/arbs should look at the possibilities/probabilities and understand what dependencies exist. Shareholders are not helpless, no matter the outcome.
6. [Japan M&A] Mitsubishi Logisnext (7105) – The Deal Still Looks Mighty Good
- On 9 May Mitsubishi Logisnext Co., Ltd. (7105 JP) delayed earnings by 30 minutes. Shares popped. Then earnings were released, no deal, and shares crashed. Now they are rebounding.
- But they remain volatile and subject to dips like the one this AM -5% at one point. Fears may be due to the idea that first smoke here was Dec-2024.
- 5 months later, no deal yet. Bids were due pre-earnings but with tariffs and writedowns, one wonders if bidders were waiting for results.
7. Melco (200 HK) Trading “Cheap” Into Rights Issue
- In my stub monitor flagged in StubWorld: Toyota Industries/Motors, GMO Internet, I see Melco International Development (200 HK) is trading “cheap” to Melco Resorts & Entertainment (MLCO US).
- Last month, Melco proposed one new rights share for two existing shares at a subscription price of HK$1.0286/share, a 72.93% discount to undisturbed, and a 64.28% discount to the TERP.
- Lawrence Ho will backstop ~54% of the rights, if need be. Depending on the level of support for the rights, expect Lawrence to further chip away against minorities.
8. Toyota Industries (6201 JP): A Potential Privatisation Sooner than Expected
- Kyodo news agency reported that Toyota Industries (6201 JP) plans to accept a tender offer by Toyota Motor (7203 JP) and Toyota Chairman Akio Toyoda, potentially in May or June.
- The Nikkei reported that Toyota plans to borrow JPY3 trillion to fund the acquisition. These articles provide more clarity on price, composition of the offeror, financing structure, and timeline.
- These articles increase the probability of a tender offer around JPY18,515 (JPY6 trillion market cap). At the last close, the gross spread was 12.1%.
9. [Japan Buybacks] ShinEtsu Chem (4063) – How the FCSR Works
- Late April, Shin Etsu Chemical (4063 JP) announced a huge ¥500bn 200mm shares (10.2%) buyback. That was never ever going to happen. That needed a ¥2500 share price, not ¥4300+.
- But it was big, and started in late May. Today, they announced how. It is a “Japan ASR”, the Nomura version, this time with an interesting twist.
- In response to a couple of reader questions today, I provide a brief overview of how these things work.
10. Soundwill Holdings (878 HK): An Opportunity or Another HK Arbageddon?
- The spread to the Foo family’s HK$8.50 offer for Soundwill Holdings (878 HK) has materially increased to 15.8% over the last two trading days. The vote is on 23 May.
- Several readers have asked if the Soundwill offer will mirror the Goldlion Holdings (533 HK) deal break. The two schemes share similarities but are also different in several ways.
- The share price action either reflects an imminent deal break or a result of a negative feedback loop. Tread carefully as this is a high-risk/high-reward situation.
