Last Week in Event SPACE: Capitaland, Languang Justbon, Fast Retailing, Crown Resorts, Adani Power
Last Week in Event SPACE ...
- The question Capitaland (CAPL SP) investors will need to ask themselves is whether this restructuring is a good thing for them.
- The MGO price for Sichuan Languang Justbon Service Group (2606 HK) is all but assured. The delisting offer price less so. But it does avail investors to a possible free option.
- The problem is that there is now net-selling without a BOJ offset. Stay bearish on Fast Retailing (9983 JP).
- Blackstone's Offer for Crown Resorts (CWN AU) is non-binding. Regulatory risks are considerable. Investors may feel $11.85/share is reasonable given Crown's plight. Yet Crown is worth significantly more if there is a reset and Blackstone assumes the licencee mantle.
- If we are getting down to the wire on timing, expect some of the friends of the family might assist Adani Power Ltd (ADANI IN)'s stock price lower.
- Plus, other events, CCASS movements, and Mood Spins.
(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)
M&A - ASIA
Capitaland (CAPL SP) (Mkt Cap: $15bn; Liquidity: $26mn)
Capitaland has announced a restructuring whereby Capitaland will split itself into three pillars - Fund Management, Lodging, and Development. It will spin off its fee-earning and finished asset ownership business into Capitaland Investment Management (CLIM) which will be listed, spin out 6% of Capitaland Integrated Commercial Trust (CICT SP) to shareholders, and pay S$0.951/CAPL share in cash, and in consideration for that, will take the 48.24% of the Development business in-house to be owned by the parent. At the end, the CLA parent is ridding itself of CICT shares, and paying cash to get the minority of the developer. It will keep 52% of the newly-listed CLIM. It is not unlike the Wharf-Wheelock deal in construct.
- It is too early to say whether it is fair. The nice high P/NAV and PER multiples the company says are enjoyed by peers of the future CLIM are a) too high, may apply differently because of the asset location or peer business/asset mix, b) will be a ceiling, not an average because they will be for a minority - CAPL/CLA/Temasek will still be the CLIM parent, and the entire construct will have more, not less, related party transactions going forward, c) may be spurious because of the timing of the Peers' expected rebound (some names are Australian so FY-end doesn't match, and with covid-19 as a basis risk, aligning fiscal periods is key on the back end.
- This could have been done differently. Shareholders in CAPL could have received shares in CLIM as a spinoff. It wasn't done that way. It makes Travis Lundy wonder why.
- CLIM will likely be seen as desirable, and will likely garner a higher multiple than CAPL, but it is not clear it will be high enough to make this a total homerun. The bulk of its NAV stems from S$11bn or so of investment property that it will directly own. Some of these investment properties might even be under construction, like for the lodging business, this means analyst aren't going to value this part of the business at a multiple of its book value.
- CAPL has its own list of investment assets that it holds, which include CapitaSpring and Jewel in Singapore. Therefore, in the future it remains unclear what assets will go under CLIM and which will go under the private entity and when will these assets change hands?
links to:
Travis' insight: Capitaland (CAPL SP) Restructuring Is Big But Still Vague. Lots of Fine Print to Read
Sumeet Singh 's insight: CapitaLand Restructuring - CLIM Should Have Been a Pure Fee Business
Sichuan Languang Justbon Service Group (2606 HK) (Mkt Cap: $1.2bn; Liquidity: $4mn)
SLJS announced a possible unconditional mandatory general Offer (MGO) from CGS for the H shares (at HK$51.0571/share) and domestic shares (at RMB42.8547/share). Country Garden Services Holdings (6098 HK) (CGS) has also proposed a voluntary delisting, and if the delisting resolution is approved by independent H-shareholders and the listing acceptance condition (yep, one with an infamous 90% handle) is satisfied, H-shareholders will receive HK$54.30/share and domestic shareholders RMB45.5768/share. The MGO appears a lock, so you have an effective floor of HK$51.0571. The question, therefore, is: do you chase the delisting bump?
- CGS has entered into three agreements, with three vendors (Sichuan Languang Development (600466 CH) ("SLD"), Ningbo Jiaqian, and Chengdu Jiayu) representing approximately 71.17% of the entire equity interest in SLJS. The shares acquisitions by CGS appear relatively straightforward. Once the agreements are completed, CGS will be obligated to make an MGO for all H-shares and domestic shares it does not own. These MGOs will be unconditional in all respects.
- The delisting Offer is another matter. Investors will be wary of this delisting offer securing the necessary acceptance condition, given Harbin Electric Co Ltd H (1133 HK)'s failure (Post-Mortem on Harbin Electric) and more recently, Beijing Jingneng Clean Energy (579 HK) ( Beijing Jingneng (579 HK): And That's a Fail).
The MGO price is all but assured. The delisting offer price less so. But it does avail investors to a possible free option, and if people pay through terms, they are paying for that option. Without considering interest rates or opportunity cost or commissions, if one buys at HK$52.68/share, one is betting that there is a better-than-50% chance that the delisting will be approved.
(link to my insight: Languang Justbon (2606 HK): Be Wary Of Chasing The Delisting Bump)
Adani Power Ltd (ADANI IN) (Mkt Cap: $5bn; Liquidity: $16mn)
On 29 May 2020, the promoters of Adani announced a proposed Delisting Offer. It was duly put to the board, approved, then put to shareholders, and shareholders approved the move to allow progress on the Delisting Offer and concomitant Reverse Book Build auction. Adani Power shares are up. A lot - 99% year-to-date. Perhaps because the float is small and the other Adani group company shares are also up a lot - an average of 78% year-to-date and as a daily-rebalancing basket, up nearly 75% through 25 March.
- Travis expects now is not a bad time to take profits on the buy-the-dip from early December. For now, it is a return greater than 100% and not quite 200% from the long-term low end of the range of this past summer. The point of the trade at the beginning was that the very high leverage on the company allowed the stock price to move significantly and not move EV/EBITDA that much.
- Travis remains "concerned" that the Delisting Offer is more about re-arranging the Adani assets and owning base load power generation as renewables are all the rage. As Indian power consumption increases, base load becomes that much more important and there is a fair bit of headroom to capacity utilization at the IPPs like Adani. That will lead to substantially better profitability.
- Coverage is minimal. Real World Float is minimal (9%?). It appears as if family-friendly parties sold close to 1.0% in December. They may not sell a lot more, but Travis expects that is a sign they were OK to take profits. And that would have been at Rs 60 or below. And if the family decides to do this at Rs 80/share, he expect it can get done there.
(link to Travis insight: Adani Power: How Much Is Too Much?)
Crown Resorts (CWN AU) (Mkt Cap: $6.1bn; Liquidity: $12mn)
Back on the 29 April 2020, Melco International Development (200 HK) announced Melco Resorts & Entertainment (MLCO US) had sold its 9.99% stake in Crown to Blackstone. Media reports were that Blackstone's acquisition was opportunistic in nature, and that they had no plans to increase their stake. "For now, maybe" was my assessment at the time, and that once the casino inquiry by NSW Independent Liquor and Gaming Authority was completed, and taking the view Crown remained on as the licensee, Blackstone would make its move. Crown has now announced it has received an unsolicited, non-binding and indicative takeover proposal, by way of a Scheme, from Blackstone, at $11.85/share - a 19% premium to the average price of Crown's shares since the release of its 1H21 results.
- The Offer price is pitched around the COVID-cliff level. Provided it can retain its licences in Sydney, Melbourne, and Perth, removing the 18-month overhang, Crown should re-rate and be worth materially more than where Blackstone has tabled its non-binding Offer.
- Both Victoria (announced on the 22 Feb this year) and Western Australia (5 March) launched royal commissions to examine whether Crown should keep its casino licences in each state. On the 19 October, Crown announced that anti-money laundering regulator AUSTRAC by investigating the company for various non-compliance issues. AUSTRAC investigations can take months, up to years, to reach a conclusion. As do royal commissions. Blackstone will be playing off this uncertainty and hope shareholders, especially Packer, take the cash.
- One of the conditions to Blackstone's proposal is the provision of due diligence. This would provide Blackstone some visibility on negotiations with the NSW regulator on the Sydney licence, the status of the AUSTRAC investigation, and any ASIC action, all of which will better inform Blackstone and how it may proceed with a firm offer.
- Pricing under the indicative Offer appears okay with respect to peers. COVID threw a spanner in the works on a forward EV/EBITDA valuation. Crown traded at a discount to peers of 18% using a three-year average to 31 December 2019. It is currently at an estimated 30% discount. I estimate a forward EV/EBITDA under the Offer of 10.6x. Wynn Resorts (WYNN US) reportedly was offering $14.75/share in 2019 and Melco $13. Crown’s shares closed at $12.07 on the 23 January 2020, the day of the Wuhan lockdown, and before the onset of the ILGA inquiry.
Funai Electric (6839 JP) (Mkt Cap: $0.3bn; Liquidity: $3mn)
Japanese Electronics manufacturer Funai announced that they had received a Tender Offer from Shuwa System Holdings. The Offer Price is ¥918/share in cash and the Offer Period will be open from 24th March 2021 to 10th May 2021. This is a friendly all-cash Deal. The Target Board has recommended Shareholders to accept the Offer. There is a minimum acceptance condition and the Acquirer is quite close to being able to achieve this.
- The Offer Price is +40.3%, +51.6%, +58.5%, and +64.7% higher than the stock's 1-month, 3-month, 6-month, and 1-year VWAPs and that might be enough to get this Deal over the line. However, strictly from a fundamental angle, Janaghan Jeyakumar feels the Offer Price is light. The Offer Price translates to a negative enterprise value.
- The Offeror appears to have an agreement with the top shareholder to buy his portion at a much lower Acquisition Price of ¥403/share. From the Offeror's angle, that should be a very good deal. For this reason, if a bump is demanded by the shareholders other than Funai Tetsuro, the Offeror might oblige.
(link to Janaghan's insight: Funai Electric (6839 JP): Tender Offer Price Seems Light)
McPherson's Ltd (MCP AU) (Mkt Cap: $0.1bn; Liquidity: $1mn)
The Offer period closes on the 9 April - unless extended. Unlisted Kin Group also announced it held 6.35mn shares or 4.95% of shares out. The Kin Group has an MO for these types of Offers. And not always with runaway success. That may be the case again here - MCP has recommended shareholders take no action, and that the Offer is "utterly opportunistic and profoundly undervalues" the company.
- Back in October last year, MCP completed a $36.5mn initial placement with an issue price of A$2.27/share. A share purchase plan of A$9.4mn at A$2.15/share was announced the following month. The proceeds from the placement were applied to the acquisition of medicine maker Global Therapeutics from Blackmore, which was completed on the 1 December.
- Two months after the placement, MCP provided a trading update, in which it reduced its 1H21 profit before tax forecast to A$6.5mn-$7.5mn, down from $10.2mn-A$11.1mn previously. MCP concurrently withdrew FY21 guidance. The downgrade largely pivoted off lower-than-expected sales of Dr. LeWinn through its Chinese JV parent, Access Brands Management (ABM), on the 11/11 day. Shares promptly closed down 34.5%. On the 10 December, CEO Laurie McAllister resigned.
- Currently trading through terms. You have a hard floor for the next fortnight - and potentially through to early July if using its Kin Group's 2018 Offer for Reject Shop (TRS AU) as a guide. Buy shares on any weakness near term. However, this is not a particularly liquid arb situation.
(link to my insight: McPherson (MCP AU): Unconditional On-Market Offer)
Singapore Reinsurance (SRE SP) (Mkt Cap: $0.2bn; Liquidity: <$1mn)
Fairfax Asia Limited launched a Tender Offer for SRE valuing the company at a market cap of around S$210mn (~US$156mn). The Offeror has control of 28.18% shares in the company and plans to acquire all the remaining shares in this Tender Offer. The Offer Price is S$0.3535/share in cash. This is a friendly cash Deal. As at the Announcement Date, the Offeror and the Concert Group collectively hold an aggregate of 168,035,957 shares representing 28.18%. Regulatory clearances (SIC, MAS) have been obtained.
- The only remaining condition is a minimum acceptance condition. In order to satisfy the minimum acceptance condition, the Acquirer must reach a shareholding of 50% or more. No irrevocable undertakings have been received. The Offeror does not intend to maintain the listing status of the company. If eligible, the Offeror intends to exercise its right of compulsory acquisition.
- There might be a bump. The minimum is 50% but they want to delist. That might require a higher price. The Offer is explicitly not final (Clause 2(e) on p3 of the Announcement)
(link to Janaghan's insight: Singapore Reinsurance (SRE SP): Tender Offer Trading Tight)
2GO Group Inc (2GO PM) (Mkt Cap: $0.4bn; Liquidity: <$1mn)
SM Investments (SM PM)("SMIC") currently holds a 30.49% stake in 2GO. On the 18 March, SMI entered into an SPA with KGLI-NM Holdings to acquire its 22.36% stake in 2GO. The transaction will result in SMIC’s shareholding in 2GO increasing to 52.85%. As the resultant ownership will be >50%, this triggers a Tender Offer for the remaining 47.15% of shares out not held by SMIC. The Tender Offer Price is ₱8.50/share or ₱8.447215 net of selling charges. The Tender Offer is now open and will close on the 21 April (unless extended with prior approval of the SEC).
- The offer price is a 12% discount to the closing price on the 18 March, although shares had gained 17% in the week leading up to the announcement SMIC was to make an MGO. There are no approvals needed here. You tender and get the Tender Offer price. You can untender your shares at any time while the Tender Offer period is open.
- Is the Offer fair? Yes. And No. 2GO has not made a profit since FY16. That doesn't endear itself with valuation metrics. But optically, this is priced near the COVID-drop-off. This is a mandatory takeover. There is potential for structural changes as a consolidated subsidiary of SMIC. And potentially a more favourable delisting offer down the track.
Currently trading through terms - adjusted for selling fees. This may well trade down below terms near term - it closed at ₱8.25/share on the 10 March.
(link to my insight: 2GO Group (2GO PH): SMIC's MGO)
BeNEXT Group (2154 JP) (Mkt Cap: $0.7bn; Liquidity: $5mn)
Japan-based temporary staffing companies BeNEXT and Yumeshin Holdings (2362 JP) announced on 29th January 2021 that they had agreed to merge. Following the completion of this transaction BeNEXT will be the surviving entity and Yumeshin will be the extinct entity. The exchange ratio was 0.63 shares of BeNEXT Group for each share of Yumeshin Holdings.
- The shareholder meetings for the approval of this Merger have been confirmed to be on 26th March 2021. If approvals are received from both shareholders as expected, the last day of trading for Yumeshin will be 29th March 2021 (the next trading day) and the effective date of the merger will be 1st April 2021.
- The potential index inflows are still the most interesting part of this Deal in the short term. Since Yumeshin is a Jasdaq-listed company, when they merge with BeNEXT (which is a TSE1-listed company), a TOPIX Inclusion event could be expected to account for the new shares to be issued by BeNEXT for the merger which could encourage more Target Co shareholders to accept the Deal.
- Between now and the end of April, there is 6-7 days of current combined volume to be bought by Index trackers (TOPIX and FTSE) and considering the growth prospects of their business and the potential synergies of the transaction, I do not think there is significant overheating (yet) from a fundamental viewpoint. There may be a chance to put on the BeNEXT/Yumeshin risk arb on the 29th near the close at a decent spread as index funds are purchasing BeNEXT.
(link to Janaghan's insight: BeNEXT - Yumeshin Merger: FTSE Upweight Is a Positive Surprise)
On the 6 December, fashion wear and accessory player I.T Ltd (999 HK) received a pre-conditional Offer, by way of a Scheme, at HK$3.00/share, a 54.6% premium to last close. The Offer price is final. The Offeror was Brooklyn Investment Limited, which is 50.65% owned by the Founder Holdco and 49.35% by CVC Holdco. Founder Holdco is held by Sham Kar Wai (Chairman and founder of I.T.), Sham Kin Wai (ED and CCO), and family members. The pre-condition, which referred to approval from the State Administration for Market Regulation of the PRC, the anti-monopoly watchdog, was satisfied on the 19 January. I.T has now despatched the Doc. The Court Meeting will be held on 16 April. The joint IFAs (Challenge Capital & China Tonghai) considered the Offer price to be fair and reasonable. (link to my insight: I.T. (999 HK): Scheme Meeting 16 April. IFA Says Fair)
Late on 23 March 2021, Fubon Financial Holding Co (2881 TT) announced that it had purchased 2,030,999,369 shares of Jih Sun Financial (5820 TT) in the Tender Offer, exceeding the minimum purchase amount of 1,886,603,386 shares. It's done. Payment should be made within five business days (i.e. by March 30 2021). It also means that one of the two large shareholders did not tender. (link to Travis' insight: Jih Sun Tender Offer Successful - Now the Squeezeout)
In Penguin International (PBS SP): Friendly Privatization Deal Might Need A Bump, Janaghan recommended being LONG with an expectation for a Bump. Penguin International (PBS SP) was trading at terms and considering the fact that the valuations were reasonably inexpensive and that the fall to undisturbed price was not too significant, the situation was suitable for Bumpitrage. However, as per the latest announcement, a Bump has now been ruled out. Time to unwind. (link to Janaghan's insight: Penguin International (PBS SP): Offer Extended, No Bump, Time to Unwind)
Kunlun Energy (135 HK) announced FY20 profits were up 9.2% vs 2019, beating consensus Net Income by 6.7%. Amazingly, this was with Profit from Continuing Operations up 47.8% on the year and the Sale Assets -20.6% on the year. As discussed by Travis in Kunlun Energy (135 HK) - Results & Big Divs Get You Closer to Shangri-La, he hopes investors are long. If not, it is still worth getting in. There should be upside from here. The stock should be traded as if one were investing HK$5.20 (at the close of 23 March). When you buy $8.00 of shares, you are buying stock of HK$5.20 and cash of HK$2.80.
After more than a year of negotiations and preparation, Matsumotokiyoshi Holdings Co., Ltd. (3088 JP) and Cocokara Fine (3098 JP) finally confirmed their agreement to merge in October this year. The new company will be by far the largest in the drugstore sector. A lot of work has been done already to consolidate operations and the aim is to complete integration by 2023. The combined company will target sales of ¥1.5 trillion by 2026. Private brands will be a crucial competitive weapon for the merged chain and also provide opportunities to offer wholesale toiletries and cosmetics floors at supermarkets. In Matsukiyo-Cocokara Merger Heralds New Era for Drugstores, Michael Causton reckons the growing competitiveness in the sector amidst increased saturation demands greater scale and will spur the leading players like Welcia Holdings (3141 JP) and Tsuruha Holdings (3391 JP) to make further acquisitions to catch up with the new leader.
With Hitachi restructuring its listed holdings, the fate of Hitachi Metals (5486 JP) has been speculated on for some time. Mio Kato's take on it has been that the unit would be sold and probably to a fund rather than a strategic buyer. This has implications for the potential valuation and in Hitachi Metals – If You Still Own This It May Be Worth Selling Prior to an Acquisition Announcement, he reiterates his stance that current valuations may not offer much upside in the event of a purchase.
STUBS
PCCW Ltd (8 HK) / HKT Ltd (6823 HK)
I estimate PCCW's discount to NAV at ~23% compared to a 12-month average of ~18%. For perspective, the one-year average up to 31 December 2019 was around 37%. The implied stub has drifted back down to levels around the time PCCW reduced its holding in HKT to 51.97% from 63.07% on the 13 February 2017. The simple ratio - PCCW over HKT - is around March 2019 levels.
- PCCW's NAV discount narrowed in the second half of last year following a partial offer from Richard Li (PCCW: Partial Offer To Lift Li Above 30%), lifting his stake above the general Offer threshold level of 30%; partially in-specie-ing its stake in PCPD, such that the property developer is no longer consolidated; selling NOW TV to HKT; and selling non-core related investments in Malaysia. Despite cleaning up the holding company structure, and Li's move to consolidate greater control, PCCW's stub ops - ex-HKT - remain steadfast in the red (on an EBITDA basis).
- The bigger picture would suggest one of the incumbent Chinese telco operators - such as Unicom, as it already has an 18.46% stake in PCCW - takes out HKT, and Li would want to be along for that ride. Timing is everything.
- Despite the widening NAV discount, it remains at a narrower level compared to that prior to the partial Offer, and significantly narrower than pre-COVID levels. There exist few positives in PCCW's stub ops. To note - there has been an increasing trend since mid-2018 of a widening net debt position at the parent level. I would look to reverse the stub - Short PCCW, Long HKT. I believe a more suitable discount to NAV is closer to 30%.
(link to my insight: StubWorld: PICC (1339 HK) / PICC P&C (2328 HK))
People's Insurance Co. (PICC) (1339 HK) / PICC Property & Casualty H (2328 HK)
I estimate the discount to NAV at ~45% against a one-year average of ~44%; however, there was a significant narrowing in early July last year. The current NAV discount and implied stub are closing in on all-time low levels, outside the Covid-low in March last year.
- PICC's improving stub earnings reflect better product mix/selling distribution. Yet the company faces challenges given its small size - the dip in the life insurance segment's market share IN fy20 illustrates this.
- A setup here - long PICC G, short PICC P&C - appears reasonable, with a target discount of ~35%, around its long-term average.
- One pushback is that as the A-share premium trends lower, the Hs could similarly drift lower.
(link to my insight: StubWorld: PICC (1339 HK) / PICC P&C (2328 HK))
EVENTS
Quantifying the BOJ Change in ETF Policy
The BOJ has changed its ETF Buying Program. It will stop buying regular ETFs and J-REITs with a target amount to buy over the course of the year, but will use the current covid-special "Target Rates" of ¥12trln and ¥180bn/yr as maxima. The BOJ will continue its ¥1.2bn/day purchases of "ETFs to Support Firms Proactively Investing in Physical and Human Capital" separately, but the universe of possible ETFs is more restrictive. The BOJ will execute its "regular" ETF purchases ONLY using TOPIX. JPX Nikkei 400 and Nikkei 225 ETFs will no longer be in the arsenal.
- The future purchasing methodology should be understood in the context of the hypotheses of the study conducted. Watch TOPIX vs its 100-day Moving Average. Watch volatility. The cap of ¥12trln a year and the parameters of market movement will determine how much gets bought when. The past will likely create limits. I expect if the BOJ feels "constrained" at some point in the future, they may take a more flexible stance towards the limits.
- ¥12trln when the market is down is a LOT of buying. Roughly, when the market is down, that is 3% of shares out per year at this level, and likely more like 6% of TSE Float and 7-8% of Real World Float.
- The changes of BOJ ETF-buying policy are not to sell, but to buy less of stocks relatively speaking, when they have a substantially higher Nikkei 225 weight than TOPIX weight. That means less Fast Retailing (9983 JP), less Tokyo Electron (8035 JP), less Fanuc Corp (6954 JP), less Kyocera Corp (6971 JP).
- For the really big stocks in Nikkei 225, it means that the BOJ will buy 1.5-2.0% less of ADV under the new plan than it would have under the old plan for every ¥100bn buy day. That is not a lot. For TOPIX stocks, it means the BOJ will buy a maximum of 10% more of each name (assuming they are not in Nikkei 225 or JPX Nikkei 400. That also is not a lot.
links to Travis' insights:
Quantifying the BOJ Change in ETF Policy: Assessing Future ETF Buying Methodology
Quantifying BOJ Change in ETF Policy: Affecting Single Stocks
Toyota Motor (7203 JP), Hino Motors Ltd (7205 JP), and Isuzu announced a new partnership to accelerate the development of commercial vehicles utilising CASE technologies. The move is something of a surprise given that Toyota and Isuzu previously ended their capital tie-up (formed in 2006 to develop diesel engines) in 2018 without anything of real substance coming to fruition. As discussed by Mio in Toyota – Isuzu Re-Tie-Up Drives Further Japanese Consolidation, it is, however, an indication that the Japanese auto sector will continue to consolidate around Toyota.
With Effissimo winning an important victory for shareholder governance at Toshiba Corp (6502 JP)'s GM and helping to sustain the momentum for corporate governance in Japan, in LG Corp – The Whitebox Case in Light of Activist Victory at Toshiba, Mio examined what was happening in Whitebox Advisors’ opposition to LG Corp (003550 KS)'s proposed spin-off. Spoiler - he is slightly less optimistic of an outright victory here.
On 25 March in the AGM, SK Telecom (017670 KS)'s CEO Park Jung-Ho emphasized that a major corporate governance reorganization will be completed this year. Following this announcement, SK Telecom's shares were up 8% on Friday. AS discussed by Douglas Kim in SK Telecom's CEO Confirms A Major Corporate Governance Reorganization Will Be Completed in 2021, SK Telecom has hinted about this move for the past 5+ years.
On 19 March, Doosan Infracore (042670 KS) announced that it will split the operating division (surviving company) and the investment division (Newco company that is being split off). The split off Newco will then be merged with Doosan Heavy Industries & Construction (034020 KS). In Doosan Infracore: Investco Split Off & Merger Ratio Announced, Douglas expects the spin-off and merger of Doosan Infracore's investment assets to DHIC is likely to result in a higher re-rating of the company's core operating business (construction equipment). This transaction was also discussed by Sanghyun Park in Doosan Split/Merger: Infracore in Overshooting.
M&A - EUROPE
IFM has adjusted the consideration of its partial offer for Naturgy Energy Group SA (NTGY SM) down to € 22.37 per share to account for the dividend payment. The Spanish government's lukewarm reaction and lack of definition regarding IFM's partial bid on Naturgy, which the government may veto, is beginning to unsettle investors. The price represents a 28.9% premium compared to the H2 2020-VWAP. (link to Jesus' insight: Suez - Veolia Tussle: Ardian and GIP Enter the Fray)
On 24 March, Bally's Corporation (BALY US) reached an agreement in principle to acquire Gamesys Group (GYS LN) for c. £2 bn implemented by a scheme of arrangement. Consideration is 1850p per share, in cash, for an implied equity value of £2,022 mn and an implied EV of £2,342 mn. This represents 2.9x EV/ 21e revenue, 10.4x EV/21e EBITDA and 11.8x P/21e E. On this basis, the offer from Bally's does not look particularly generous, and Gamesys closed on 25 March 5.4% above the prospective offer. In Bally's - Gamesys: Betting on US Online Gambling, Jesus is long Gamesys.
On 26 March, the last day to revise the previous bid under UK takeover rules, Nova Resources increased its offer from 780p to 850p for the 60.62% of KAZ Minerals (KAZ LN) it does not already own, the offer includes a special dividend of $0.27 subject to the final increased offer becoming unconditional. The Final Increased Offer represents an aggregate amount of 869p. The financial terms are final and will not be increased. In Kaz Minerals: Time to Cash In, Jesus reckons go Long KAZ TP 869 and tender.
M&A - US
INDEX REBALS
JPX-Nikkei 400 Rebalance. JPX-Nikkei 400 is composed of common stocks listed in the First Section, Second Section, MOTHERS Market, and the JASDAQ Market of the Tokyo Stock Exchange. This is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents that are selected based on several factors including market capitalization, trading value, operating profits, and ROE. A periodic review will be conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. This review will be conducted using the final business day of June as the base date. In JPX-Nikkei 400 Rebalance: 2021 Preview, Janaghan discusses stocks that are shaping up to be potential Inclusions/Removals for the upcoming 2021 Rebalance of the JPX-Nikkei 400 Index.
MSCI May 2021 Index Rebalance Preview. A large selection of companies subject to passive buying and selling, although these names mentioned in the insight could change over the next month as prices move around. (link to Brian Freitas' insight: MSCI May 2021 Index Rebalance Preview: Early Look at Potential Changes)
SET50 Index - Proposed Methodology Changes. The market consultation document is short on detail, but the main points are the change in index calculation from full market-cap-weighted to free-float market cap-weighted, implementation of the changes in two tranches at the June and December reviews, and implementation of quarterly changes in free float for moves of +/-5%. The biggest uncertainty for us is whether the selection of the stocks for inclusion/exclusion will use the full market cap or the free-float market cap. (link to Brian's insight: SET50 Index - Proposed Methodology Changes: Scenarios, Names Affected & Impact)
Baidu (9888 HK): HSCEI, HSTECH & HSCI Fast Entry. The high possibility of an inclusion in the Hang Seng China Enterprises Index (HSCEI INDEX) and Hang Seng Tech Index (HSTECH INDEX) could result in Baidu starting to trade at a premium to Baidu (BIDU US) over the next few days. The Fast Entry inclusion of Baidu in the HSCEI coupled with the potential deletion of China Unicom Hong Kong (762 HK) in June will have a minimal impact on the HSCEI 2021 dividend futures but the HSCEI 2021/22 steepener could trade lower from current levels. (link to Brian's insight: Baidu (9888 HK): HSCEI, HSTECH & HSCI Fast Entry)
Global Clean Energy Index. The S&P Dow Jones announced that all the proposals of the latest market consultation would be implemented at the close of trading on 16 April to reduce constituent concentration, ease liquidity limitations, and improve index replication further than would have been achieved from the result of the prior market consultation. Brian expects there will be 37 additions to the index taking the number of index constituents up to 67. This number will increase over the next few rebalances as the target is to get up to at least 100 constituent stocks. (link to Brian's insight: Global Clean Energy Index: All Proposals to Be Implemented; 48% One-Way Turnover)
HSCEI Dividend Futures. Brian sees little downside from the current market on the HSCEI 2021 dividend futures, but believes that the HSCEI 2021/22 dividend steepener is trading too high. Potential changes to the index constituents should put downward pressure on the 2022 dividends with low dividend yield or zero dividend paying companies joining the index at high index weights, and high dividend paying companies being deleted from the index. (link to Brian's insight: HSCEI Dividend Futures: June Index Review, Bank Divs, HFCAA - Sell the 2021/22 Steepener)
OTHER M&A & EVENT UPDATES
- The Tender Offer for Being Co Ltd (4734 JP) was successful. The bidder now has 88+%.
The Tsukui Corp (2398 JP) Tender Offer/MBO was completed successfully. The minimum hurdle was 29.316mm shares. The actual shares received in the Tender was 45.719mm or 64.07% of shares out. This will get squeezed out in the EGM as the non-tendering parties join with MBK and they have close to 90% together.
After the bidders made a very weak bump, the Tender Offer for Sakai Ovex (3408 JP) did not get up. There was a minimum hurdle of 4.1278 million shares, and they only got to 3.9392mm shares. Given they only needed about 9% of those who had not yet tendered to tender, the fact they did not bump again is telling/disappointing. Both were the wrong price.
The Unimat Retirement Community (9707 JP) Tender Offer was successful. The bidder got to 80.53%. An EGM will follow along with a squeezeout/delisting. The cowbell has not been very loud.
Guoco Group Ltd (53 HK) ups its stake in GL Ltd (GLL SP) to 93.93%.
CCASS
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.
Name | % chg | Into | Out of |
| Lai Group (8455 HK) | 50.00% | Supreme | Outside CCASS |
| Sichuan Energy (1713 HK) | 11.27% | CMB | Bocom |
| Sterling (1825 HK) | 34.00% | Yuzhou | Outside CCASS |
| HM Int'l (8416 HK) | 18.07% | HSBC | Outside CCASS |
| Janco (8035 HK) | 25.00% | Silverbricks | Outside CCASS |
| Source: HKEx | |||
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