Last Week in Event SPACE: FamilyMart, CDRs, SK Telecom, APN, Gateway, Rusal

Last Week in Event SPACE ...

• FamilyMart UNY Holdings Co Ltd (8028 JP) will be squeezy until something changes with the index construction
• Where does the CSRC compromise after pushing back on Xiaomi Corp (1810 HK)'s CDR?
• Hiving off "11st.com" is positive for SK Telecom (017670 KS)
• JCDecaux SA (DEC FP)'s proposal gets a boost after it appears oOh!Media Ltd (OML AU) edged APN Outdoor Group Ltd (APO AU) in the battle for Adshel

• Sirtex Medical Ltd (SRX AU)'s Scheme Deed with CDH Genetech & China Grand Pharma looks like a good deal for the company AND shareholders.

• There's likely (at least) one more bump in the competitive bidding situation for Gateway Lifestyle (GTY AU)

• United Co Rusal Plc (486 HK)'s HK leg is at 30% discount to the Moscow line, but ….

FamilyMart UNY Holdings Co Ltd (8028 JP) (Mkt Cap: $14.2bn; Liquidity: $59mn)

In late April, Itochu Corp (8001 JP) announced an intention to conduct a partial tender offer on FamilyMart to take its shareholding from ~41.45% to ~51.0% of shares out in order to consolidate the company in its accounts. But not at this price, and not at this shareholder structure.

• The stock will be squeezy until something changes with the index construction which keeps passive holdings at 37% of shares out. This is especially the case if the deal goes through, but would be the case even if it does not. There simply is not enough float out there. Or it simply does not happen.
• At 14.25x consensus Mar19E EV/EBITDA (assuming that the forecast 40% rise in EBITDA comes through), it is much more expensive than peers. To get to the same EV/EBITDA multiple as Lawson Inc (2651 JP) (7.25x consensus Mar19e EV/EBITDA), FamilyMart-UNY shares would have to fall .... 60%.
• If the Nikkei committee deciding on the Nikkei 225 Average methodology decides that that methodology should be changed so that the BOJ and others can continue using the Nikkei 225 Average into the future, there is a LOT of stock to sell, and those longs out there trying to squeeze the shorts will get run over.

(link to Travis' insight: FamilyMart UNY Tender - Will It Go As Planned?)

Baidu Inc (ADR) (BIDU US) (Mkt Cap: $90.8bn; Liquidity: $846mn)

Travis revisited the CDR Pilot Program announced by the CSRC. There had been suggestions in local media last week that Baidu would become the second to list CDRs (after Xiaomi Corp (1810 HK)), beating out Alibaba Group Holding Ltd (BABA US) andJD.com Inc (ADR) (JD US).

• The signposts are in a state of flux. Since that insight, Xiaomi has postponed its China CDR review and will list in Hong Kong first. Furthermore, its IPO valuation range is expected to be cut to US$55-70bn, according to various media reports. It was the CSRC which pushed back on the CDR with a massive feedback/questions document. This will bother everyone else.
• Elsewhere, Alibaba's shareholder/entity/vote/control structure is probably "too complex" to be first. JD.com may not have a long enough history of profitability. Do Baidu and NetEase Inc (ADR) (NTES US) want to undergo the exam Xiaomi did? And Tencent Holdings Ltd (700 HK) is already accessible to mainlanders through Connect.
• That leaves... China Mobile Ltd (941 HK) and China Telecom Corp Ltd (H) (728 HK)? The question now is perhaps also where does the CSRC compromise? They do not want to have created a situation where they have invited everyone to a party and nobody shows up. Do BIDU and NTES need to do this? Should they wait until China allows investors to buy shares overseas?

(link to Travis' insight: CDR Pilot Program Update - Xiaomi First, Baidu Next? BABA and JD Coming Behind)

SK Telecom (017670 KS) (Mkt Cap: $15.5bn; Liquidity: $46mn)

SK Telecom's 98.1%-held SK Planet will spin off (in the form of equity spinoff) the internet commerce business unit which operates "11st.com", one of Korea's leading online commerce website. SKT also said in a regulatory filing that SK Planet will re-merge with SKT's 100%-owned subsidiary SK Techx which was spun off from SK Planet in 2016.

• As part of the spin-off, 11st.com will receive a ₩500bn in investments for an 18.2% stake, which would value the company at ~₩2.7tn. As a result of this transaction, investors need not be concerned about SK Telecom needing to continue to fund the money-losing operations of 11st.com in the next several years.
• Sanghyun Park believes it is now a matter of time before we see real restructuring actions at SKT. Entering SKT now is tricky as local institutions may prefer LGU+ as part of their pair trading strategy. If investors are less excited about 5G and looking for a safer bet, then SKT wouldn't be a bad option. Douglas Kim agrees, adding 11st.com has been considered one of the weaknesses of SK Telecom.

links to:
Sanghyun's insight: SK Telecom Restructuring - 11st Spinoff & SK Planet & SK Techx Merger
Douglas' insight: 11st Receives a 500 Billion Won Investment & Competitor Analysis of the Korean E-Commerce Market

Hyundai Development Co Engg & Cnstn (012630 KS) (Mkt Cap: $813mn; Liquidity: $82mn)

HDC Holdings Co Ltd (012630 KS) (holdco) and Hyundai Dvp Co (opco) were listed on June 12 after a 6-month demerger process. Its pretty much guaranteed that HDC Holdings will do a tender offer for Hyundai Dev Co within about one month after the re-listing. This event is all about increasing the owner's (Chung Mong-kyu) controlling stake, which currently amounts to 18.56%.

• Chung needs to merge HDC Holdings with HDC I-Controls Co Ltd (039570 KS) to address the circular shareholding link issue involving i Controls' 3.4% stake in HDC Holdings. Chung himself is the major shareholder of i Controls with a 29.89% stake. An HDC Holdings+i Controls merger will have to be done no later than 6 months after the official date of demerger (May 1).
• For both these events, Chung needs weaker prices for HDC Holdings so that he can also get favorable swap ratios for tender offer and merger. HDC Holdings' share price has already been pulled down substantially since the June 12 re-listing day. One to watch in the coming months.

(link to Sang Hyun's insight: HDC Demerger - Local Institutions Trade Pattern Checkup & Short-Term Yield Calculations)

Fortis Healthcare Ltd (FORH IN)(Mkt Cap: $1bn; Liquidity: $0.41mn)

Kemp Dolliver, CFA discusses Fortis' sale/bailout process and concludes the short-term outlook for the stock is murky given the dynamics of the company are in dire straits and in a choppy regulatory environment. As a result, he doesn't think that bids will increase over the prior round and that there's no rush to build a position. The binding offer deadline is the 28 June with an announcement of an agreement potentially on the 29 June.

(link to Kemp's insight: Fortis Healthcare: Have You the Time?)

APN Outdoor Group Ltd (APO AU) (Mkt Cap: $791mn; Liquidity: $21mn)

JCDecaux SA (DEC FP) announced an indicative and non-binding proposal to acquire APN via a scheme at A$6.52/share, an 11.4% premium to the undisturbed price. The timing of JCDecaux ’s proposal is clearly to disrupt APN's ongoing negotiations to acquire Adshel. I don't see the regulator approving a merger if APN secures Adshel.

• Pricing looks okay. The question was whether APN brushes off JSDecaux and perseveres with Adshel. That was answered on Friday with an APN announcement it had bumped its offer (subject to DD) to A$540mn, from A$500mn previously. And the latest news, as I type, is that oOh!Media Ltd (OML AU)has won the fight for Adshel with an A$570mn bid. That outcome should bolster JSDecaux's proposal.

links to:
my insight: JCDecaux's Offer for APN Ads Up
Morningstar's insight: The Hunted Remains the Hunter as APN Outdoor Shells Out AUD 540 Million.

Sirtex Medical Ltd (SRX AU) (Mkt Cap: $1.3bn; Liquidity: $13mn)

Sirtex announced that it had terminated its previously director-supported Scheme with Varian Medical Systems Inc (VAR US) and had entered into a Scheme Implementation Deed with CDH Genetech & China Grand Pharma.

• China being the domicile of the bidder makes the deal look "tough" in an environment where CFIUS approval for Chinese deals drags on and on and everything to do with China looks political. But this Scheme is not contingent on CFIUS approval.
• This Scheme looks like it is designed to get CDH global ownership of the tech. China is home to half of the world's sufferers of liver cancer. Notably, the CDH-CGP scheme includes an A$200mn break fee should the transaction not proceed. This looks like a good deal for the company AND shareholders.
• Travis thinks this deal goes through. If it does not, Varian and/or others may provide a backstop. At A$31.75 and 3 months to Implementation, Travis believes this is trading too wide. He also expects the deal to trade slightly wide until CFIUS and the Australian Treasurer wave their hands at it, but sees little real impediment or reason to have this deal not go through.

links to:
Travis' insight: Sirtex Terminates Varian Scheme, Embraces CDH
Morningstar 's insight: Sirtex Board Deems China Bid Best for Shareholders and Accepts Higher Offer; Adjusting FVE

Gateway Lifestyle (GTY AU)(Mkt Cap: $519mn; Liquidity: $7.8mn)

Gateway announced the receipt of an indicative, non-binding proposal from Brookfield Asset Management Inc (BAM US) (via Brookfield Property Group), at an indicative price of $2.30/security by way of a scheme. The proposal edges out Hometown Australia Communities' (the local arm of US budget housing operator Hometown America) indicative A$2.10/security proposal announced last week.

• A$2.30/security is approaching full value after Gateway's BoD allows due diligence (a similar request by Hometown was turned down); while 17.7% of shares out had previously inked pre-bid agreements with Hometown at $2.10. Shares closed today at $2.28 and did not trade through terms.
• Hometown's pre-bid arrangements are interesting in that they are packaged as a call option. This gives Hometown the right to exercise should a competing proposal be announced; or if one of the security holders does not vote in the favour of the scheme. The agreements can be construed as a 17.7% blocking stake - something to think about for competing bidders in a scheme vote.

(link to my insight: Brookfield Trumps Hometown's Offer for Gateway... For Now)

Alpine Electronics Inc (6816 JP) (Mkt Cap: $1.3bn; Liquidity: $12mn)

Travis discussed "what to do and how to trade" Alpine ahead of the AGM last Thursday. Shareholders approved the three management proposals: final dividend of ¥15/share; election of directors (Komeya, Endo, Kabayashi, Taguchi, Ikeuchi, Kawarada, Inoue, Ishibashi, Kataoka, and Motokawa); & election/re-election of the 5 proposed audit committee members. All three proposals from Oasis were defeated: a special div of ¥325/share; a proposal to add Naoki Okada as director; & proposals to add director/audit committee member Nao Miyazawa.

(link to Travis' insight: Alpine AGM Upcoming - What To Do, How To Trade)

Astro Malaysia Holdings Bhd (ASTRO MK) (Mkt Cap: $2bn; Liquidity: $2mn)

Bloomberg recently reported Ananda Krishnan, the controlling shareholder of Astro (40.9%), is considering privatizing the company. Astro, previously known as Astro All Asia Networks (AAAN), was IPO'ed in 2003, taken private in 2010, then relisted in 2010.

• At the current share price of RM1.60/share, ASTRO trades at 6.6x FY19 EV/EBITDA, which is a 39% discount to AAAN's takeover. Assuming a takeover of 8x FY19 EV/EBITDA, Johannes Salim, CFA backs out a possible takeout price of RM2.07/share, or 30% upside from here.

(link to Johannes' insight: Astro Malaysia: Is Tender Offer/Privatization Coming?)

Glow Energy Pcl (GLOW TB)(Mkt Cap: $4.2bn; Liquidity: $27mn)

Athaporn Arayasantiparb, CFA discussed the (then) rumoured acquisition of Glow by Global Power Synergy Pcl (underPTT PCL (PTT TB)), how the GLOW/GPSC my pan out, and recommended picking up the stock. That call was prophetic as shortly after his insight, PTT said GPSC proposed to acquire a 69.11% stake in Glow, from Engie SA (ENGI FP) at Bt96.5/share.

(link to Athaporn's insight: Reality Check XV: How Might a GPSC-Glow Deal Look Like?)

United Co Rusal Plc (486 HK) (Mkt Cap: $4bn; Liquidity: $2.4mn)

Since March 2015, Rusal's shares traded on both the Hong Kong and Moscow exchanges. The spread between the two has been tight with the HK leg trading at a ~1% discount (on average) to Moscow's, up to 5 April 2018, when the US Treasury Department announced sanctions on the company. The HK leg now trades at a 30% discount to the Moscow line.

• Why the wider spread? There is no flat out "this cannot be done" feedback from Computershare HK (Rusal's registrar) on tranfering shares. The material spread suggests other exacerbating factors, primarily on the approval by CREST. Plus there is a cut-off - the transfer process is only valid up until 5 August, 2018.
• The discount to NAV has settled around the 80% discount level after the Treasury Department's announcement. As an aside, MMC Norilsk Nickel PJSC (ADR) (MNOD LI) is not sanctioned and the stake held is almost sufficient to de-lever Rusal completely.

(link to my insight: Rusal (HK) At 30% Discount to Moscow Line BUT….)

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. 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, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.