Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

HK Type 4 license through Ballingal Investment Advisors Ltd. ("BIA" or "BIAL")

BACKGROUND
I have 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money. 

4 years in fixed income macro, 8 years running internal hedge fund and 4yrs investment banking at Citi in Japan, 3 years running an Asia multi-strat portfolio at a hedge fund, 4+yrs as an independent special situations analyst.

Pan-Asia Catalysts/Events

UNIZO Governance Shows Itself, Now Investor Stewardship Matters

UNIZO Saga Done & Dusted - Now For The Squeezeout

Approved Deal for UNIZO - Lone Star Fully Funds Non-Senior Employee BuyOut

Blackstone Extends Unizo Again - What Could Go Wrong?

Quiddity Advisors

Event-Driven

<p>The UNIZO saga continues. </p><p>On June 19th 2019 after the close, it became known publicly that out of nowhere <a href="https://www.smartkarma.com/entities/h-i-s-co-ltd" target="_blank" data-smartkarma-citation="entities:19311:1" rel="noopener">H I S Co Ltd (9603 JP)</a> had become the largest shareholder of <a href="https://www.smartkarma.com/entities/unizo-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:5209:1" rel="noopener">Unizo Holdings (3258 JP)</a> as of end-March 2019, holding 4.52%. That seemed to rock exactly zero boats (the next day the stock was up less than 0.5% on half of normal volume; the day after that the stock was down 2% on three times the volume). The shares were trading below ¥1,900/share. </p><p>Not quite three weeks later on July 10th, HIS offered ¥3,100/share for an additional 40% - to take their stake to about 45% - more than negative control but less than control of the board. This upset the management at UNIZO, who almost immediately said they hadn't been warned, and it was hostile. HIS had noted in their announcement that they had tried to talk with UNIZO about some strategy of combining their hotel business, but UNIZO had refused talks, so HIS' interest was less surprising than they indicated. However, UNIZO immediately went out and solicited market interest in bidding for the whole company in an attempt to defeat HIS' bid. The shares traded below HIS' bid for a full day or two before going through. By mid-August, five weeks later, it became apparent there would be another bid and it turned out that 3-4 bidders had put in final bids which fit the bid submission requirements, with Fortress the highest at ¥4,000/share. The idea of that bid was leaked before it could be announced and the shares were trading limit up 4% above that level before the actual number could be announced.</p><p>The shares subsequently never traded below ¥4,000/share.</p><p>It seems that quite soon afterwards, behind the scenes, UNIZO was soliciting competing interest. Blackstone had come in and said they would offer more, and UNIZO was trying to get Fortress to match, but UNIZO refused to sanction the Blackstone higher bid at similar terms to the Fortress bid because they had decided on a new "Policy" to deal with potential acquirers which required that bids provide a "mechanism" to guarantee employment and incentive rewards for employees, with one set of proposals suggesting that the company use a large chunk of its own equity to help an Employee Shareholding entity buy a stake in the acquisition co from the buyer. Blackstone's bid was rejected. Support for Fortress' bid was also withdrawn. </p><p>The company negotiated with what appeared to be 8-9 counterparts for the next 12 weeks, almost every week bringing an update saying they would continue to negotiate and update the following week, and finally on December 22nd, UNIZO announced a deal with a Lone Star-sponsored entity at ¥5,100/share - a level just above the level at which people had been iterating their expectations. Blackstone said the next day they would go back and think on things but given the fact that none of their previous submissions had passed the UNIZO test on "mechanism" and control for employees, it was not clear what they could do about it. </p><div class="content-highlight">
<p>The title I gave to the last piece in the series is the hint. </p>
<table class="table table-striped"><tbody>
<tr><td colspan="2" style="width: 723.636px;"><h2>Past Insights on the UNIZO Takeover Situation</h2></td></tr>
<tr>
<td style="width: 115.455px;"><strong>Date</strong></td>
<td style="width: 587.273px;"><strong>Title</strong></td>
</tr>
<tr>
<td style="width: 115.455px;">12 Jul 2019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/his-hostile-tender-for-unizo-fun-ahead" target="_blank" data-smartkarma-citation="insights:31017" rel="noopener">HIS Hostile Tender for Unizo - Fun Ahead!</a> </td>
</tr>
<tr>
<td style="width: 115.455px;">24 Jul 2019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/unizo-board-statement-on-his-tender-no-opinion-yet" target="_blank" data-smartkarma-citation="insights:31252" rel="noopener">UNIZO Board Statement on HIS Tender - No Opinion Yet</a> </td>
</tr>
<tr>
<td style="width: 115.455px;">7 Aug 2019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/unizo-officially-opposes-the-his-tender-elliott-goes-substantial" target="_blank" data-smartkarma-citation="insights:31554" rel="noopener">UNIZO Officially Opposes The HIS Tender; Elliott Goes Substantial</a> </td>
</tr>
<tr>
<td style="width: 115.455px;">18 Aug 2019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/fortress-group-fund-bids-for-unizo-3258-an-interesting-tob" target="_blank" data-smartkarma-citation="insights:31798" rel="noopener">Fortress Group Fund Bids for UNIZO (3258):  An Interesting TOB</a> </td>
</tr>
<tr>
<td style="width: 115.455px;">21 Aug 2019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/unizo-at-4300-riskarb-odds-are-not-ever-in-your-favor" target="_blank" data-smartkarma-citation="insights:31866" rel="noopener">UNIZO: At ¥4300+, RiskArb Odds Are NOT Ever In Your Favor</a> </td>
</tr>
<tr>
<td style="width: 115.455px;">19 Sep 2019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/unizo-elliott-goes-deemed-insider-buying-6-through-terms" target="_blank" data-smartkarma-citation="insights:32542" rel="noopener">UNIZO: Elliott Goes "Deemed Insider" Buying 6% Through Terms</a> </td>
</tr>
<tr>
<td style="width: 115.455px;">29 Sep 2019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/unizo-3258-jp-goes-hostile-on-its-own-shareholders" target="_blank" data-smartkarma-citation="insights:32766" rel="noopener">Unizo (3258 JP) Goes Hostile on Its Own Shareholders?</a> </td>
</tr>
<tr>
<td style="width: 115.455px;">30 Sep 2019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/unizo-3258-jp-at-4-shy-of-a-tender-offer-which-doesn-t-exist-risk-is-to-the-downside" target="_blank" data-smartkarma-citation="insights:32803" rel="noopener">UNIZO (3258 JP):  At 4% Shy of a TOB Which Doesn't Exist, Risk To The Downside</a> </td>
</tr>
<tr>
<td style="width: 115.455px;">3 Oct 1019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/unizo-fortress-clarity-is-not-certainty" target="_blank" data-smartkarma-citation="insights:32854" rel="noopener">UNIZO: Fortress Clarity Is Not Certainty</a> </td>
</tr>
<tr>
<td style="width: 115.455px;">10 Oct 2019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/elliott-sends-a-serious-letter-to-unizo" target="_blank" data-smartkarma-citation="insights:33026" rel="noopener">Elliott Sends a 'Serious Letter' to UNIZO</a> </td>
</tr>
<tr>
<td style="width: 115.455px;">10 Oct 2019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/unizo-an-amended-proposal-a-new-proposal-and-a-response-to-elliott" target="_blank" data-smartkarma-citation="insights:33038" rel="noopener">UNIZO: An Amended Proposal, A New Proposal, and a Response to Elliott</a> </td>
</tr>
<tr>
<td style="width: 115.455px;">16 Oct 2019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/blackstone-to-bid-for-unizo-still-not-a-done-deal" target="_blank" data-smartkarma-citation="insights:33183" rel="noopener">Blackstone To Bid for UNIZO - Still Not A "Done Deal"</a> </td>
</tr>
<tr>
<td style="width: 115.455px;">30 Oct 2019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/unizo-results-all-over-the-place-assets-are-for-sale-and-tob-kerfuffle-is-extended" target="_blank" data-smartkarma-citation="insights:34029" rel="noopener">UNIZO: Results All Over the Place, Assets Are For Sale, and TOB Kerfuffle Is Extended</a> </td>
</tr>
<tr>
<td style="width: 115.455px;">7 Nov 2019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/unizo-belaboring-a-deceased-equine" target="_blank" data-smartkarma-citation="insights:34290" rel="noopener">UNIZO: Belaboring a Deceased Equine</a> </td>
</tr>
<tr>
<td style="width: 115.455px;">25 Nov 2019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/unizo-it-s-not-you-it-s-me-really" target="_blank" data-smartkarma-citation="insights:34757" rel="noopener">UNIZO: It's Not You, It's Me... Really.</a> </td>
</tr>
<tr>
<td style="width: 115.455px;">8 Dec 2019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/blackstone-extends-unizo-again-what-could-go-wrong" target="_blank" data-smartkarma-citation="insights:35103" rel="noopener">Blackstone Extends Unizo Again - What Could Go Wrong?</a> </td>
</tr>
<tr>
<td style="width: 115.455px;">23-Dec-2019</td>
<td style="width: 587.273px;">
<a href="https://www.smartkarma.com/insights/approved-deal-for-unizo-lone-star-fully-funds-non-senior-employee-buyout" target="_blank" data-smartkarma-citation="insights:35444" rel="noopener">Approved Deal for UNIZO - Lone Star Fully Funds Non-Senior Employee BuyOut</a> </td>
</tr>
</tbody></table>
<p>The important part about the situation was that the deal by Lone Star was effectively designed to be a forward buyout by employees - a golden parachute scheme whereby something like the senior one-third of HQ employees and directors would resign, the other two-thirds would be allowed to continue on, and would buy in using leverage provided in the deal, and presumably when Lone Star got out, the resulting firm would be a lot smaller, and employees would either get a payout, or might be able to roll over their then-equity into a new smaller residual (this is my speculation - it is unclear - but Lone Star could not continue to hold the assets at a 20% IRR forever given how high a price they would be paying).</p>
</div><h2>The NEW News</h2><p>Today after the close, after a month of trading well-below normal undisturbed volume levels post the first two days after the Lone Star announcement, Blackstone have come out bidding ¥5,600/share (<a href="https://www.unizo-hd.co.jp/news/file/20200128.pdf" target="_blank" rel="noopener">Japanese</a>, <a href="https://www.unizo-hd.co.jp/en/news/file/EN_20200128.pdf" target="_blank" rel="noopener">English</a>). That is a full 180% above the undisturbed price (note not 180% of the undisturbed price but an actual 180% premium to the pre-HIS price of &lt;¥2,000/share), 40% above the original Fortress bid at ¥4,000, 37% above their current bid, and 10% above the Lone Star bid. </p><p>It is a STRONG bid. And Blackstone says the content is materially similar to the content contained in their revised bid of 15 October 2019, <em>which was not approved by UNIZO for two+ months.</em></p><p>Blackstone is reasonably transparent in how they say this deal will be beneficial to shareholders and the "corporate value" of the company, going so far as to say that it will allow UNIZO to build a "platform" for the future, which seems to be the mandated design. And given how many directors and executives will resign from the company when the Lone Star bid goes through, and the level of participation by employees in the Shareholding Entity, the Blackstone deal would appear to be an easy one to approve.</p><p>But TIU - This is UNIZO.</p><p>The question now is whether third parties will help facilitate this deal through price action or more.  Continues below.</p>

The UNIZO saga continues. On June 19th 2019 after the close, it became known publicly that out of nowhere H I S Co Ltd (9603 JP) had become the largest shareholder of Unizo Holdings (3258 JP) as of end-March 2019, holding 4.52%. That seemed to rock exactly zero boats (the next day the stock was up less than 0.5% on half of normal volume; the day after that the stock was down 2% on three times the volume). The shares were trading below ¥1,900/share. Not quite three weeks later on July 10th, HIS offered ¥3,100/share for an additional 40% - to take their stake to about 45% - more than negative control but less than control of the board. This upset the management at UNIZO, who almost immediately said they hadn't been warned, and it was hostile. HIS had noted in their announcement that they had tried to talk with UNIZO about some strategy of combining their hotel business, but UNIZO had refused talks, so HIS' interest was less surprising than they indicated. However, UNIZO immediately went out and solicited market interest in bidding for the whole company in an attempt to defeat HIS' bid. The shares traded below HIS' bid for a full day or two before going through. By mid-August, five weeks later, it became apparent there would be another bid and it turned out that 3-4 bidders had put in final bids which fit the bid submission requirements, with Fortress the highest at ¥4,000/share. The idea of that bid was leaked before it could be announced and the shares were trading limit up 4% above that level before the actual number could be announced.The shares subsequently never traded below ¥4,000/share.It seems that quite soon afterwards, behind the scenes, UNIZO was soliciting competing interest. Blackstone had come in and said they would offer more, and UNIZO was trying to get Fortress to match, but UNIZO refused to sanction the Blackstone higher bid at similar terms to the Fortress bid because they had decided on a new "Policy" to deal with potential acquirers which required that bids provide a "mechanism" to guarantee employment and incentive rewards for employees, with one set of proposals suggesting that the company use a large chunk of its own equity to help an Employee Shareholding entity buy a stake in the acquisition co from the buyer. Blackstone's bid was rejected. Support for Fortress' bid was also withdrawn. The company negotiated with what appeared to be 8-9 counterparts for the next 12 weeks, almost every week bringing an update saying they would continue to negotiate and update the following week, and finally on December 22nd, UNIZO announced a deal with a Lone Star-sponsored entity at ¥5,100/share - a level just above the level at which people had been iterating their expectations. Blackstone said the next day they would go back and think on things but given the fact that none of their previous submissions had passed the UNIZO test on "mechanism" and control for employees, it was not clear what they could do about it. 
The title I gave to the last piece in the series is the hint. 

Past Insights on the UNIZO Takeover Situation

Date
Title


12 Jul 2019

HIS Hostile Tender for Unizo - Fun Ahead! 


24 Jul 2019

UNIZO Board Statement on HIS Tender - No Opinion Yet 


7 Aug 2019

UNIZO Officially Opposes The HIS Tender; Elliott Goes Substantial 


18 Aug 2019

Fortress Group Fund Bids for UNIZO (3258):  An Interesting TOB 


21 Aug 2019

UNIZO: At ¥4300+, RiskArb Odds Are NOT Ever In Your Favor 


19 Sep 2019

UNIZO: Elliott Goes "Deemed Insider" Buying 6% Through Terms 


29 Sep 2019

Unizo (3258 JP) Goes Hostile on Its Own Shareholders? 


30 Sep 2019

UNIZO (3258 JP):  At 4% Shy of a TOB Which Doesn't Exist, Risk To The Downside 


3 Oct 1019

UNIZO: Fortress Clarity Is Not Certainty 


10 Oct 2019

Elliott Sends a 'Serious Letter' to UNIZO 


10 Oct 2019

UNIZO: An Amended Proposal, A New Proposal, and a Response to Elliott 


16 Oct 2019

Blackstone To Bid for UNIZO - Still Not A "Done Deal" 


30 Oct 2019

UNIZO: Results All Over the Place, Assets Are For Sale, and TOB Kerfuffle Is Extended 


7 Nov 2019

UNIZO: Belaboring a Deceased Equine 


25 Nov 2019

UNIZO: It's Not You, It's Me... Really. 


8 Dec 2019

Blackstone Extends Unizo Again - What Could Go Wrong? 


23-Dec-2019

Approved Deal for UNIZO - Lone Star Fully Funds Non-Senior Employee BuyOut 


The important part about the situation was that the deal by Lone Star was effectively designed to be a forward buyout by employees - a golden parachute scheme whereby something like the senior one-third of HQ employees and directors would resign, the other two-thirds would be allowed to continue on, and would buy in using leverage provided in the deal, and presumably when Lone Star got out, the resulting firm would be a lot smaller, and employees would either get a payout, or might be able to roll over their then-equity into a new smaller residual (this is my speculation - it is unclear - but Lone Star could not continue to hold the assets at a 20% IRR forever given how high a price they would be paying).
The NEW NewsToday after the close, after a month of trading well-below normal undisturbed volume levels post the first two days after the Lone Star announcement, Blackstone have come out bidding ¥5,600/share (Japanese, English). That is a full 180% above the undisturbed price (note not 180% of the undisturbed price but an actual 180% premium to the pre-HIS price of &lt;¥2,000/share), 40% above the original Fortress bid at ¥4,000, 37% above their current bid, and 10% above the Lone Star bid. It is a STRONG bid. And Blackstone says the content is materially similar to the content contained in their revised bid of 15 October 2019, which was not approved by UNIZO for two+ months.Blackstone is reasonably transparent in how they say this deal will be beneficial to shareholders and the "corporate value" of the company, going so far as to say that it will allow UNIZO to build a "platform" for the future, which seems to be the mandated design. And given how many directors and executives will resign from the company when the Lone Star bid goes through, and the level of participation by employees in the Shareholding Entity, the Blackstone deal would appear to be an easy one to approve.But TIU - This is UNIZO.The question now is whether third parties will help facilitate this deal through price action or more.  Continues below.

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