Last Week in Event SPACE: Alpine, Hyundai Motor, Sprint, Infratel, ASM

Last Week in Event SPACE ...

• The share swap ratio is simply egregiously bad arithmetic on the part of Alpine Electronics Inc (6816 JP) and Alps Electric Co Ltd (6770 JP) management
• Is Elliot's demand forHyundai Motor Co (005380 KS)establishing a holding entity a violation of Korean laws or just good business sense?
• Third time's the charm for Sprint Corp (S US) and T Mobile Us Inc (TMUS US) ... maybe
• Minorities lose out in Bharti Infratel Ltd (BHIN IN)'s no-premium merger of Indus.
• Bounty's not-so-fowl offer for Tegel Group Holdings Ltd (TGH NZ)
• And the expiry of the 180-day lock-up period for Asm Pacific Technology (522 HK) coincides with ASM International NV (ASM NA) plumbing NAV discount lows

Alpine Electronics Inc (6816 JP) (Mkt Cap: $1.3bn; Liquidity: $8.4mn)

Travis Lundy doubled down on Alps Electric Co Ltd (6770 JP's share swap for Alpine. The 0.68x ratio was wrong back then. It is more wrong now. The deal announcement included forecasts for Alpine which were very conservative. The company raised those forecasts all year long, and beat the final forecast soundly. Then Alpine raised its forecast for next year.

• Alpine and Alps want to get this done. But where there are synergies, Alpine management should demand that Alpine shareholders get paid for it. A fairer ratio would be in the range of 1.1-1.25 Alps shares per Alpine share, at a minimum.
• There is also a lack of clarity on the dividend proposal (¥325/share), placing investors at risk who buy now and then lose out on a dividend which is not priced into the market.
• Shares are inexpensive - on an adjusted EV/EBITDA basis the stock is trading below 2x. With Alpine trading 25% through terms, Travis continues to believe this is a good long here.

links to the pair of Travis' insights:
What To Do With The Alpine/Alps Ratio Part I: This One Went To 11! And Beyond!
What To Do With The Alpine/Alps Ratio Part II: Where To From Here?

Hyundai Mobis Co Ltd (012330 KS) (Mkt Cap: $21.2bn; Liquidity: $60.6mn)

HMG wants to continue to operate its own leasing business which is an integral part of the automotive business around the world. Under the Korean Holdco laws, this isn't possible, so understandably Hyundai Motor Group (HMG) doesn't want a Holdco structure. But Elliott reckons the benefits of converting HMG into a Holdco - and potentially giving up the leasing business - outweigh the potential loss resulting from not having an in-house leasing business.

• Korea's FTC is onboard with HMG and its head, Kim Sang-jo has said Elliott is over-extending its shareholder rights, and that under Korean antitrust law, a non-financial group cannot have financial units under its arm.
• Yet it is apparent HMG's restructuring proposal purposely leverages the Chung family's stake in Glovis, wherein the Mobis spun-off business-Glovis merger delivers a materially favorable merger ratio for the Glovis shareholders (i.e. the Chung family).

(link to Sanghyun Park's insight: Elliott Vs. Hyundai Battle with Korea FTC's Weird Refereeing)

Sprint Corp (S US) (Mkt Cap: $20.8bn; Liquidity: $92mn)

On the 29 April, Sprint Corp (S US) and T Mobile Us Inc (TMUS US) reloaded their merger for the third time, with T-Mobile offering to pay 0.10256 shares of its stock for each Sprint share (9.75 Sprint shares for each T-Mobile share), then valuing Sprint at a stock price of ~$6.62 (a 2% premium to the prior close), a market cap of $26bn, and an enterprise value of $59bn. This deal is not done by a long way and regulatory approvals are key.

• Travis believes this deal has a better shot of getting regulatory approval than the last two times it was looked at (and better than the AT&T/T-Mobile attempt in 2011) because of the emphasis of 5G increasing competition across all markets, rural broadband rollout, and the admission the DOJ and FCC will at some point have to agree that if they don't get together, there will be 2.5 competitors in most markets, rather than three. This gets them to three in a 5G world.
• Morningstar has a 50:50 bet on reg appovals. T-Mobile and Sprint claimed that the deal will not take the number of wireless operators from four to three because cable television operators Comcast and Charter have entered the wireless market. However, the cable TV operators are competing as mobile virtual network operators and don’t actually own their own networks.

links to:
Travis' insight: Sprint & T-Mobile Agree To Merge - Game On!
Morningstar's insight: Sprint and T-Mobile US Attempt to Merge Again, but Regulatory Approval Is No Shoo-In.

Very, very briefly ...

FamilyMart UNY Holdings Co Ltd (8028 JP)'s past outperformance may be due to Itochu Corp (8001 JP) and BOJ buying. Shares are expensive vs its peers, and the embedded returns from the instantiation of a position for the arb here are not good. (link to Travis' insight: Did Itochu & BOJ Buying of FamilyMart-UNY in the Past Year Squeeze It Vs Comps?)

There is currently no financial incentive for the shareholders of either Lotte Confectionery Co Ltd (280360 KS) and Lotte Chilsung Beverage Co (005300 KS) to tender their shares into Lotte Holdings (004990 KS)'s offer. This implies Holdings share price should be adjusted downward during the May 24-28 price determination period, possibly opening the door a whisker for short sellers. (link to Sanghyun's insight: Lotte Holdings Tender Offer to Confectionery & Chilsung - Key Details)

Tegel Group Holdings Ltd (TGH NZ) (Mkt Cap: $282mn; Liquidity: $1.4mn)

Bounty Fresh, one of the Philippines' largest poultry companies, made a takeover approach for Tegel at an effective NZ$1.271/share, a 55% premium to the previous close. The offer has the support of Affinity Equity Partners, the largest shareholder with 45%. Bounty subsequently acquired an additional 5% on market, taking its interest, including Affinity's, to 50%.

• This is the first major transaction Pranav Rao is aware of (to the exclusion of the UDC Finance/HNA Group Co Ltd (HNAGRZ CH) transaction) that will test the new government's stance on foreign investments under the Overseas Investment Office ("OIO"). Should Bounty deliver what is promised, it can lead to significant benefits for the Kiwi economy, and that should pass the OIO's requirements of foreign investments.
• Given the OIO risk, Pranav believes a gross spread of ~12% is fair, especially with the large downside if the deal were not to culminate.

(link to Pranav's insight: Tegel Foods: To Chicken Out or Not to Chicken Out?)

Sirtex Medical Ltd (SRX AU)(Mkt Cap: $1.2bn; Liquidity: $9.5mn)

At the 11th hour, Chinese PE/VC outfit CDH announced an unsolicited, non-binding, indicative and conditional A$33.60/share proposal for Sirtex, 20% above Varian's Scheme offer of A$28/share. The Scheme Meeting, previously tabled for this Monday, has been delayed.

• Pre-events in Australia have been a graveyard. CDH has walked away from one transaction in the past 6 years, but that was a small transaction (~US$79mn), and not in Australia.
• Sirtex closed at $29.42. That's 4.8% downside to a floor of $28, vs 14.2% upside to the indicative offer. CDH is a large shop, one that probably has the necessary clout to get such a deal past internal Chinese hurdles; or it would never have made such a last minute offer. I would get involved around these levels, ideally closer to $29 (3.5% downside vs. 15.8% upside).

(link to my insight: Sirtex- CDH Gatecrashes Varian's Party)

Bharti Infratel Ltd (BHIN IN) (Mkt Cap: $8.9bn; Liquidity: $25mn)

New Street Research discussed the long-awaited deal between Bharti Infratel (BHIN IN), Vodafone India and IDEA (IDEA IN) to merge Indus Towers with Infratel. The transaction creates a giant in the Indian tower space, with around 35% market share. New Street previously discussed the deal in its insight Bharti Infratel Vulnerable to Further Telecom Consolidation. A Two Player Market Would Be Painful.

• The price being paid by Infratel is lower than previously anticipated but it does not lead to any operational synergies as Infratel and Indus operate in different regions in India.
• This deal is also not a positive outcome for minorities as there will be no buyout of minority interests nor any positive read-across from a transaction at a premium. The fact private equity appears to be exiting at a discount doesn't instill confidence.

(link to New Street's insight Bharti Infratel: No Premium Merger Announced with Indus Towers. Indian Towers Are Struggling)

Very, very briefly ...

• OZ Minerals Ltd (OZL AU) extended the offer for Avanco Resources Ltd (AVB AU) to 1-Jun-18, and stated that the offer is final.
• LifeHealthcare Group Ltd (LHC AU)'s shareholders approved the scheme.

ASM International NV (ASM NA)/ Asm Pacific Technology (522 HK)

ASMI's discount to NAV of ~13%, having just bounced off a 52-week low of 16%, which compares to the 12-month average of 7%.

• On balance, ASMI appears to have overshot versus ASMPT. There is also a potential placement in ASMPT upon the expiry of the 180-day lock-up period earlier this week. Furthermore, ASMI will apply the ~€245mn in proceeds from the November share sale to a new share buyback program, which works out to a little under 10% of the float using ASMI's last closing price.

(link to my insight: StubWorld - ASM International)

My ongoing series flags large moves in CCASS holdings over the past week or so (~10%), moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers - like Food Wise Holdings Ltd (1632 HK)'s recent takeunder, previously discussed in SPACE.

Often these moves can easily be explained - the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.

Jinchuan Group Internationl Rsrcs Co Ltd (2362 HK) is odd. Those same shares moved out of CCASS (May 2017), then in again, then out again, and as of this week, back in. This stake is SD Hi-Speed Investment HK Limited's (under Taikang Asset Management, page 80 of the 2018 AR). SD subscribed for new shares in 2Q17. You needn't move shares in to pledge. And it doesn't appear tied into exercising rights at an EGM.