Last Week in Event SPACE: Fuji Film, Sichuan Swellfun, Daeduck, Suzuki, Energy Dev, Tesla

Last Week in Event SPACE ...

• Fujifilm Holdings (4901 JP)'s buyback should have a non-negligible positive impact
• Diageo Plc (DGE LN) gets a taste for more Sichuan Swellfun Co Ltd A (600779 CH)
• Daeduck Electronics Co (008060 KS)'s merger ratio with Daeduck Gds (004130 KS) appears opportunistic
• Suzuki Motor (7269 JP)'s recent outperformance doesn't gel when Maruti Suzuki India (MSIL IN) is driving growth
• Energy Development (EDC PM)'s voluntary delisting offer price pleasantly matches last year's Tender Offer
• Driven to distraction by Elon Musk's Tesla Motors (TSLA US) tweets

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events - or SPACE - in the past week)

Fujifilm Holdings (4901 JP) (Mkt Cap: $18.7bn; Liquidity: $56mn)

Subsequent to its recent travails with regard to its ill-fated merger of Xerox Corp (XRX US) with the Fuji Xerox joint venture, Fuji Film has now announced a large buyback of up to 32mn shares ( 7.4% of shares out) and/or up to ¥100bn, to be executed between 10 August 2018 and 30 April 2019. The company currently has 16.4% of shares outstanding as Treasury shares.

• It is likely that Fuji Film shares will see buying of 8-10% of eligible volume and a total of 6-8% of float from Friday through end-April 2019. Ceteris paribus, this should have a non-negligible positive impact on the stock's trading over time.
• With unchanged forecasts and expected benefits from last year's restructuring and 'cleaning house' at Fuji Xerox overseas, at roughly 5.8x EV/EBITDA, the current price is not overly demanding.
• The potential unwind of the Xerox/Fuji-Xerox tech arrangement would effectively put Xerox in competition with Fuji Xerox/Fuji in Asia, Europe, and the US. It is not clear what competitive edge Xerox would have in Asia sourcing from elsewhere and selling on its own.

(link to Travis Lundy's insight: Fuji Film (4901 JP) - Cancelled Xerox Merger Leads to BIG Buyback)

Briefly ...

Sanghyun Park discussed HMG's restructuring plan redux. The market speculation is that both Hyundai Mobis (012330 KS) entities (Mobis surviving entity and Mobis spun-off entity) will be listed to get their respective fair value from the market. It is being said that HMG will likely finalize and announce this new plan sometime next month.

(link to Sanghyun's insight: Hyundai Motor Group Restructuring Update - Revised Plan Summary)

Tesla Motors (TSLA US) (Mkt Cap: $60.2bn; Liquidity: $3bn)

No fewer than six Smartkarma insights addressed/tackled Elon Musk's unusual tweet suggesting Tesla could be taken private. The head-scratching on funding (& probably the SEC investigation) is largely moot. Elon Musk knows everything he needs to know about his own tweet and what follows.

links to
Mio Kato, CFA's insight: Tesla: We Don't Buy the Buyout
SC Capital's insight: Tesla--The Issue of Stock Manipulation by Elon Musk Seems Like Porsche Redux.

Sichuan Swellfun Co Ltd A (600779 CH) (Mkt Cap: $3.7bn; Liquidity: $49mn)

On June 25 this year, Diageo Plc (DGE LN) announced a possible tender offer to buy up to 20.29% to own a 60.00% position in baiju maker Sichuan Swellfun and the Partial Tender Offer was officially announced on July 11th. The Partial Tender Offer (PTO) was launched at RMB 62.00 a share, which was a 22.6% premium to the then-current share price. The Tender Offer ran until August 11th (yesterday). The PTO gives a minimum pro-ration of 36.65%.

• If 85% of all holders tender, that results in 40% pro-ration, and those who bought at RMB 51.0 on Monday or Tuesday when the insight was written would have had a "breakeven' exit price of RMB 44.30 (essentially, that is where they net purchase shares if they want to get long).
• Sichuan Swellfun products are not directly affected by US-China tariff wars, and as a purely domestic demand domestic brand name, could benefit from any patriotic tendencies that arise.
• Travis believes the pro-ration will imply a lower-than-market-implied breakeven price, and expects a pro-ration anywhere from 45% upwards.

(link to Travis' insight: Diageo / Sichuan Swellfun Partial Tender - A Last Minute Deal in China)

Energy Development (EDC PM)(Mkt Cap: $2.5bn; Liquidity: $0.5mn)

EDC's BoD approved the voluntary delisting of EDC at a Tender Offer price of P7.25/share for up to 2,040,006,713 shares or 10.9% of issued shares. The Tender Offer price is a 46% premium to the last close, a 30% premium to the value from last year's fairness opinion report, and matches last year's partial Tender Offer price, something the Bidders were not obligated to do so. The Tender Offer is expected to commence on the 25 September and remain open until 22 October 2018, with an expected payment on the 7 November 2018.

• This looks like a plain vanilla offer and will likely trade tight to terms - it closed Friday at a gross/annualised spread of 3.7%/16.4%.
• The completion of the Tender Offer is subject to a minimum of 1,162,000,000 shares being tendered. Around 10.3bn shares participated in last years' Tender Offer resulting in a ~15% scaleback for everyone at that time. Assuming those scaled-backed shares are re-tendered at P7.25, that would take care of the minimum.

(link to my insight: Energy Development's Voluntary Delisting)

Mitsui Home (1868 JP (Mkt Cap: $585mn; Liquidity: $10mn)

Mitsui Fudosan (8801 JP) announced (link) it was launching a Tender Offer to purchase the shares it does not own in subsidiary wooden home residential construction company Mitsui Home, at a price of ¥980/share.

• This is probably a done deal because of the significant holding already controlled. It looks like a big premium but it is a lousy price. The company has a big pile of net cash, unlike its comps which are net debt.
• Travis expects the deal to trade tight to terms immediately. Liquidity will be early in the trade. If you want a lot of stock, you need to buy in the first few days.
• This deal will be hard to block, and therefore any noise made will not result in a bump unless the deal is covered in the media as being done at the wrong price.

(link to Travis' insight: Mitsui Fudosan Tries to Steal a Deal on Mitsui Home)

Daeduck Electronics Co (008060 KS) & Daeduck Gds (004130 KS)

Daeduck Electronics announced a merger with Daeduck GDS with a merger ratio of 1 to 1.6072 (Daeduck Electronics to Daeduck GDS). Shareholders (if on the register by Aug 23rd) will vote on this deal on October 30th and once it is approved, the two companies will finalize the merger on December 1st, 2018.

• Douglas Kim believes this merger is likely to have a positive impact on both Daeduck Electronics and Daeduck GDS shares due to synergies that could be accrued in terms of sales - the two companies have a similar customer base - as well as sharing production and R&D.
• Some of the Daeduck GDS shareholders may not like the merger ratio. At the time of the announcement, Daeduck Electronics shares were down 11% YTD and Daeduck GDS shares down 49%. The major shareholders of Daeduck Electronics (Kim Young-Jae and Kim Jung-Sik) combined own a 17.4% stake, which is bigger than their combined stake of 10.7% in Daeduck GDS. It is in their best interest to get this deal done when Daeduck Electronics shares are doing comparatively better than Daeduck GDS.

(link to Douglas' insight: Daeduck Electronics Announces A Merger with Daeduck GDS)

DA Consortium Holdings Inc (6534 JP) (Mkt Cap: $1.9bn; Liquidity: $10mn)

Through its wholly-owned subsidiaries Hakuhodo DY Media Partners and Hakuhodo Incorporated, Hakuhodo Dy Holdings (2433 JP) owns 50.54% of listed subsidiary DA Consortium (Hakuhodo DY owns 42.85% and HI owns 7.69% of voting rights), which is a joint holding company specialising in internet advertising, SEO and advertisement services from the integration of DA Consort and Irep Co Ltd (2132 JP)announced in May 2016 and consummated in October 2016. Hakuhodo DY decided to launch a Tender Offer for the remaining shares of DA Consortium Holdings and the Tender Offer was launched at ¥3,700/share.

• This is highly likely to be a successful deal. It looks like a decent premium and looks expensive at 20x TTM EBITDA. Travis expects the deal is 40% of the way towards the minimum - or more - because of cross-holders and director positions.

(link to Travis' insight: Hakuhodo DY (2433 JP) Launches Tender Offer for DA Consortium (6534 JP))

Bank Tabungan Pensiunan Nasional (BTPN IJ) (Mkt Cap: $301mn; Liquidity: $0.5mn)

Johannes Salim, CFA discussed the merger of BTPN and Sumitomo Mitsui Banking Corporation Indonesia (SMBCI) and believes it is likely to go through despite the 40% foreign ownership cap.

• Given what has transpired to this point he believes that OJK's verbal approval or a hint of approval at the very least has been obtained.
• Johannes also delves into the nuances of the merger, in that it provides an opportunity (should it be approved) for minority shareholders to sell their shares through a cash offer, not a voluntary tender offer (OJK regulation No.54/POJK.04/2015) nor a mandatory tender offer (the Bapepam's rule).

(link to Johannes' insight: Bank Tabungan Pensiunan Nasional: Deciphering the Merger and Arbitrage Trade)

Suzuki Motor (7269 JP) / Maruti Suzuki India (MSIL IN)

Suzuki's discarded its strong correlation with 56.2%-held Maruti since the beginning of the month, materially outperforming its sub, touching a discount to NAV of 17.4%, its narrowest inside a year, and compares with a 52-week average of 31.5%. The implied stub was similarly at a one-year extreme.

• Suzuki did report strong 1Q19 earnings, however, most of the growth was generated by the Indian operations. Suzuki's deconsoldiated EBITDA is forecast to grow at ~5% p.a. in each of the following three years, versus 15% for Maruti; while Suzuki's stub EBIT margins are forecast to be flat at ~9% compared to 12-13% for Maruti.
• I recommended a stub unwind trade. The pushback is that Maruti trades rich. Suzuki closed 5.5% down from its mid-week high.

(link to my insight: StubWorld: Suzuki Looks A Short Here As Maruti Drives Growth)

Toyota Industries (6201 JP) (Mkt Cap: $17.4bn; Liquidity: $25mn)

Curtis Lehnert delved into Toyota Industries' stubs ops and believes the market is not fully digesting the changing nature of the core business in its shifting focus on the high growth logistics equipment segment; and that this represents an opportunity for those that are able to see past the noise into the long-term growth prospects.

• The closest competitor in the materials handling business is KION Group AG (KGX GR), currently trading at EV/Sales of 1.4x, The peer group trades around 1.3x EV/Sales. Looking at the stub business of Toyota, Curtis calculates that it is trading at a 0.82x - over 40% lower than the #2 player in the market despite Toyota having the #1 market share.
• Toyota Motor (7203 JP) has been buying back shares as part of a ¥300bn buyback from May 16 - Sept. 16, 2018. Toyota Motors has announced four buybacks in the past two years and it is very likely this will continue.
• Still, according to Smartkarma's HoldCo Tool, Toyota's NAV discount has ranged between 34% - 12% since 2015, and is currently towards the upper end of that range at 28.5%.

(link to Curtis' insight: Toyota Industries (6201 JP): Stub Business Expanding into High Growth Segments)

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.