Last Week in Event SPACE: Leyou, FamilyMart, Softbank, Ootoya, Bank Permata, Naspers, Haw Par/UIC

After a trading halt on the 10 July, Leyou announced Charles Yuk - its largest shareholder - had entered into a privatisation exclusivity agreement with Tencent Holdings (700 HK). No price was mentioned. Leyou has now announced a Scheme from Tencent at $3.3219/share. That was only a 4.46% premium to last close, and a 30.27% premium over the closing price of HK$2.55/share on 19 September 2019, which was the last trading day prior to Leyou's announced it was in preliminary discussions with various independent potential investors. However, irrevocables (in favour of the Scheme) total 69.21% of shares out - primarily comprising Yuk's stake - and the Scheme is conditional on 75% of shares out voting in favour of the Scheme.

• There are no shareholders acting in concert with Tencent, therefore Disinterested Shareholders comprise all shares out. Therefore the blocking stake at the Scheme Meeting is 308.5mn shares or 10% of shares out. No single shareholder has such a blocking stake. The headcount test applies as Leyou is Cayman-incorporated.

• Concerns have been raised to other conditions such as obtaining authorisations from the relevant governmental authorities in Canada, the United States of America, Germany, Austria and any other relevant jurisdiction. The national security review in Canada under the Investment Canada Act (Canada) has specifically been singled out. Yet Leyou's assets are sold globally, the market share should probably be looked at on that basis. According to Mio Kato, "You would have to really segment gaming into an absurdly small niche to run into any issues. Too many alternatives."

• The key concern attached to this transaction is whether there is a political bent to halt the deal - Tencent is already in the cross-hairs over WeChat. But to date, even though messages are present on gaming sites, gaming companies themselves have yet to face political confrontation. I don't perceive any serious pushback from regulatory authorities. Digital Extreme is already in Chinese hands - there was no security approval required when Yuk acquired a controlling stake. And now his stake is moving to another Chinese company, listed in Hong Kong. And not an SOE.
• A long-stop date of Dec 31 2020, just four months out, is stipulated in the announcement. Vested parties are confident this gets wrapped up quickly. Trading at a gross/annualised spread of 2.5%/9.2%, assuming early December completion. Get involved.

Softbank Corp (9434 JP) (Mkt Cap: $64bn; Liquidity: $98mn)

Softbank Group Japan said it will offer 927mn shares in the mobile unit Softbank Corp (9434 JP), to domestic and international investors. Based on Softbank Corp.'s closing price the previous Friday, this backs out proceeds of ¥1.32tn ($12.4 billion). Should the over-allotment option be exercised, Softbank's stake in the mobile unit would decline to 40.4% from 62.1%. Softbank said it would continue to count Softbank Corp as a consolidated subsidiary.

• Travis looks at the dynamic of the Offering itself, with subsequent (and possibly quite far off) index adjustment flows, and possible "replacement trades."
• What is going to happen to the cash though? A Softbank that was willing to continue selling assets and pay that cash to investors should be worth significantly more than it currently trades at, and the 45%ish holdco discount could narrow very quickly. However, if this is just raising cash for a public equities fund that gets a lot more complicated.
• Mio suggests the question is, as an investor, do you want to own Softbank Group and take on the potential transparency and leverage risks at a time when market conditions are extremely bubbly, or are you better off just front-running Softbank Group by being in the megacap tech stocks that they will probably be buying anyway and which generally offer better liquidity than Softbank Group in case the market turns?

links to Mio's and Travis' insights:
Travis: Softbank Corp (9434) BIGGER Block Offering
Mio: Softbank – PM Masa Raising Cash From the Dusty Telco
Mio: Softbank – Is Son’s Next Robinhood Trade Going to Be Arm for Nvidia Shares?

OOTOYA Holdings (2705 JP) (Mkt Cap: $0.2bn; Liquidity: $2mn)

As the Tender Offer for Ootoya was drawing to a close (and as it had already gone ex-), Colowide Co Ltd (7616 JP) announced amendments to terms which both extended the Tender Offer from its initial close to 8 September, and more importantly, lowered the minimum number of shares required for success to 1.51mm shares from 1.872mm shares prior. The change in the minimum a reduction of 19% of that number and sets their minimum target shareholding to exactly 40.00% rather than 45.00%.

• That Colowide reduced the minimum so that it might own as little as 40% (i.e. buying 20.84%, just over a quarter of the shares it does not own) tells you that getting a third of the float was too big an ask. That means there is a significant likelihood it doesn't complete.
• Shares popped on the extension and threshold-lowering news. That means another chance to sell in the market. Shareholders should avail themselves of this opportunity.
• Travis would not want to own the shares at this price outright. He thinks it is questionable that the Tender Offer goes through - there is a non-negligible likelihood it fails. If playing the Tender Offer, ask yourself... If you buy it here, and it fails to get to the minimum, do you want to own it here? If you are long, he recommends selling.

links to Travis' insight: Ootoya Tender Offer - Still Tough, Still a Sell
link to Mio's insight: Ootoya – Colowide Extends Drama and TOB Deadline With an Eye on Low Shareholder Turnout

Bank Permata (BNLI IJ) (Mkt Cap: $2.5bn; Liquidity: $2mn)

links to Travis' insight:
Permata Bank Mandatory Takeover Launched. Finally
Permata Bank: What Is Delaying the MTO?

Metlifecare Ltd (MET NZ) (Mkt Cap: $0.8bn; Liquidity: $6mn)

MET announced 2020 full-year results (to 30 June). The reported net loss after tax was NZ$33.7mn; but underlying profit before tax was NZ$93.8mnn (down 0.4% yoy), and net assets per share were NZ$7.18 (down 3% yoy). Would the MAC have been triggered? Probably not. The downward movement in the NTA was less than the 10% MAC trigger. And underlying profit (including non-recurring items) did not decline by 10% of more. As set out on page 49 of the management presentation dated 4 December 2019, Metlifecare’s forecast FY20 underlying net profit was $88.5mn (page 17) vs. NZ$93.8mn announced. Presumably, both sides previously argued over the treatment of the fair value movement in IP. MET points out in Appendix F of the FY20 presentation that it is in the right.

• On balance, EQT has done extremely very well out of this. It is paying NZ$213mn less than its original Offer, and net of legal fees, and should be pretty happy clinching the deal some six months after what should have been the close under the initial Offer. Personally, I thought EQT had no basis to pull out of the original SIA, and are now look set to take MET private at a discount, instead of a lengthy and expensive, and probably un-winnable, court fight.
• Possible pushback. Dividends are deemed a prescribed occurrence under the SIA, so there is no FY20 dividend. MET paid NZ$0.0725/share in FY19. Some shareholders may feel short-changed. Additionally, some investors may feel MET's board should have held out for the full initial price from EQT, seeing as though the MACs wouldn't have been triggered. This also rings true given MET has returned a credible set of results during Covid-19.
• Trading at a gross/annualised return of 1.4%/6.9% assuming this gets wrapped up early November- shareholders are expected to vote on the Scheme on the 2 October. That's tight, considering a vote is involved. But this reflects what is a done, clean deal.

(link to my insight: Metlifecare's Full-Year Results: MACs (Probably) Not Triggered)

The Naspers/Prosus spread is wide at ~34%, keeping in mind ~100% of its NAV is in one listed entity. The Prosus NAV discount is holding at ~31%. After its nadir on 18 March of 41%, it recovered to ~21%, above where it was before Prosus launched a bid for Just Eat PLC (JE/ LN) on 21 Oct 2019, a bid which contributed to the discount widening into December, before Prosus lost out to Takeaway.com NV (TKWY NA), leading to a brief narrowing in the discount before COVID-19 took hold. Should Prosus spin-off assets to shareholders, expect the Prosus/Tencent spread to narrow. Without the benefit of a spin-off, expect Prosus discount to NAV to stay wide-ish.

• Tencent lock-up. There are just six months to go (March 2021) before Prosus can sell down its stake in Tencent. It is doubtful whether Prosus will self-impose another 3-year moratorium on selling shares.

• Naspers is free to sell more shares in Prosus, and in turn recycle the proceeds via buybacks in Naspers (there was a 90-day lock-up period with respect to its remaining interest in the Prosus N ordinary shares after the January sale). It now has ~39mm shares it can sell in Prosus before nudging a 70% shareholding. After that, unless the SARB and SA Govt give Naspers dispensation to lower the threshold for ownership without triggering the tax impact to "above 50%", there are no more catalysts on Naspers vs Prosus near-term. Also, there is no urgency currently to sell Prosus at a 31% discount to NAV.
• The Trade. At the current level, I would be buying Naspers vs Prosus (more so than Naspers vs Tencent). This is a range trade idea, as opposed to a hard catalyst. Naspers appears cheap here versus Prosus.

UIC is a S$3bn leading real estate company, with an investment portfolio spanning commercial & residential development properties, hotels and IT services in Singapore. At 0.4x P/B, UIC is cheap. But float is negligible (~13%), as is liquidity. But it is (or perhaps, was), the two warring major shareholders into UIC (Wee Cho Yaw and John Gokongwei) that generated the most interest around UIC, and whether the perceived differences between the two could be reconciled with a view towards privatising UIC. I think the disagreements were/are more apparent than real. Gokongwei passed away last November, renewing speculation of a restructuring into UIC. Nine months have now elapsed, and UIC is trading at a multi-year low P/B; and Haw Par, a Wee-controlled vehicle, which has a stake in UOL, UIC's largest shareholders, is at a trough NAV discount level.