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

Last Week in Event SPACE: Takeda, Graincorp, Alps, Hopewell, Renesas, Toshiba, Red Hat, Renault

Smartkarma’s Week That Was in JP/​​​​​KR: Softbank, Nissan, & A Star Is Born in 2018 Rewind to 1937

Last Week in Event SPACE: ANTA, Japan Display, Pioneer, Naspers, Huatai, Red Hat

Alpine Merger Situation Gets Interestinger

Alpine/Alps - ISS Says Take the Money and Run (From the Merger)

Alpine Earnings Up - Investors Want CLARIONITY

Quiddity Advisors

Event-Driven

Today, <a href="https://www.smartkarma.com/entities/2704" target="_blank" data-smartkarma-citation="entities:2704:1">Alpine Electronics (6816 JP)</a> shareholders approved the merger with <a href="https://www.smartkarma.com/entities/12001" target="_blank" data-smartkarma-citation="entities:12001:1">Alps Electric (6770 JP)</a>. In my opinion, that is a crime of stewardship for everyone involved EXCEPT for Alps, which owned a bit over 41% of the vote itself. One cannot help but now be positive Alps. Alps got a very good deal.Also, one cannot help but despair at the state of corporate governance at both Alps and Alpine.<ul>
<li>This deal was wrong at the outset.</li>
<li>There has been bad arithmetic, bad corporate finance understanding, a lack of understanding of the fairness of pricing in future contribution of benefits, and Alpine directors in particular have shown zero understanding of the value of their assets.</li>
<li>After Alpine reported much higher profits (which were much more in line with the Medium Term Plan), </li>
</ul>It was also questionable stewardship. Investors who saw their investment manager or trust agent vote FOR this deal should question why. <ul>
<li>If the investment manager thought Alpine was overly expensive and Alps was cheap, they could have sold their Alpine at almost any time after the merger was announced and gotten both a better price and a better relative deal against Alps.</li>
<li>If the investment manager though Alps was cheap, they could (should) have owned Alps - it is more liquid, and management generally more forthcoming in speaking to analysts. </li>
<li>If they thought the capital inside Alpine was locked up, they should have obliged Alps to unlock it at a better price. </li>
</ul>Anyone who approved this Alpine deal has just (according to Alpine's own numbers):<ul>
<li>sold cash and securities on the books at 100 cents on the dollar, AND</li>
<li>sold the inventory at 90 cents on the dollar, AND</li>
<li>sold net receivables (i.e. receivables less payables) at 80 cents on the dollar, AND</li>
<li>
paid out all other net current and long-term liabilities at 105 cents on the dollar, AND</li>
<li>sold the fixed assets and business to Alps at less than 1x EV/EBITDA, AND</li>
<li>sold future synergies that Alpine brings to Alps for nothing, AND</li>
<li>sold the R&amp;D and IP on future HMI/CASE developments for nothing, AND</li>
<li>sold calls on the dollar value of any award above the current share price for Alpine (or Alps) shareholders seeking appraisal rights.</li>
</ul>Oh... and they bought Alps at roughly current market price.This after Alpine effectively proposed to shareholders a week-plus ago that the fair price of their shares was 50% higher than the highest close in the last month - at ¥2,895/share or 4.4x EV/EBITDA.<div class="content-highlight">
If that is the valuation methodology investors are happy to accept for their investments in companies, one wonders why they would buy stocks. Or even show up to work...
Using cheap Alpine shares as currency to gain access to Alps was not the only way to buy Alps shares.
Investors could always have used.... money?
</div>Those who voted for this deal and complain about the weakness of Japanese corporate governance should keep the wise words of Pogo in mind.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/072/253/original/pogo-met-the-enemy.0.jpg?1543981320" class="editor-image img-responsive" data-smartkarma-image-id="72253"></figure><div style="text-align: left;" class="content-caption">© 1971 Walt Kelly from a cartoon about people ruining their own natural environment (all rights I assume belong to Walt Kelly or someone related).</div>Looking forward, there are new possibilities with a new context. Those are not uninteresting.

Today, Alpine Electronics (6816 JP) shareholders approved the merger with Alps Electric (6770 JP). In my opinion, that is a crime of stewardship for everyone involved EXCEPT for Alps, which owned a bit over 41% of the vote itself. One cannot help but now be positive Alps. Alps got a very good deal.Also, one cannot help but despair at the state of corporate governance at both Alps and Alpine.
This deal was wrong at the outset.
There has been bad arithmetic, bad corporate finance understanding, a lack of understanding of the fairness of pricing in future contribution of benefits, and Alpine directors in particular have shown zero understanding of the value of their assets.
After Alpine reported much higher profits (which were much more in line with the Medium Term Plan), 
It was also questionable stewardship. Investors who saw their investment manager or trust agent vote FOR this deal should question why. 
If the investment manager thought Alpine was overly expensive and Alps was cheap, they could have sold their Alpine at almost any time after the merger was announced and gotten both a better price and a better relative deal against Alps.
If the investment manager though Alps was cheap, they could (should) have owned Alps - it is more liquid, and management generally more forthcoming in speaking to analysts. 
If they thought the capital inside Alpine was locked up, they should have obliged Alps to unlock it at a better price. 
Anyone who approved this Alpine deal has just (according to Alpine's own numbers):
sold cash and securities on the books at 100 cents on the dollar, AND
sold the inventory at 90 cents on the dollar, AND
sold net receivables (i.e. receivables less payables) at 80 cents on the dollar, AND

paid out all other net current and long-term liabilities at 105 cents on the dollar, AND
sold the fixed assets and business to Alps at less than 1x EV/EBITDA, AND
sold future synergies that Alpine brings to Alps for nothing, AND
sold the R&amp;D and IP on future HMI/CASE developments for nothing, AND
sold calls on the dollar value of any award above the current share price for Alpine (or Alps) shareholders seeking appraisal rights.
Oh... and they bought Alps at roughly current market price.This after Alpine effectively proposed to shareholders a week-plus ago that the fair price of their shares was 50% higher than the highest close in the last month - at ¥2,895/share or 4.4x EV/EBITDA.
If that is the valuation methodology investors are happy to accept for their investments in companies, one wonders why they would buy stocks. Or even show up to work...
Using cheap Alpine shares as currency to gain access to Alps was not the only way to buy Alps shares.
Investors could always have used.... money?
Those who voted for this deal and complain about the weakness of Japanese corporate governance should keep the wise words of Pogo in mind.© 1971 Walt Kelly from a cartoon about people ruining their own natural environment (all rights I assume belong to Walt Kelly or someone related).Looking forward, there are new possibilities with a new context. Those are not uninteresting.

Alps Alpine

알프스/알파인: 그리고... 끝