Merry Christmas and a Happy New Year

Wishing all the readers Merry Christmas and a great New Year in 2013.

It has been a difficult year which saw a period where deals just dried up in Asia Pacific and several deals go bust. However a flurry of deals were just announced before the year end and we hope that most of you have made money this year!

We are happy to announce that Merger Arbitrage Manager has now achieved close to 100 downloads. We hope that sales will continue into this festive season and more people would find the app helpful in understanding Merger Arbitrage risk-returns.

Once again have a Merry Christmas wherever you are.

Signing off for the year,
The Ex-Hedge Fund

Billabong_revisited 2

I got out of my earlier position. Must admit have read the situation wrongly. But given the muddy waters in this deal, I am out. Although it seems the Mr Naude is potentially more optimistic about the turnaround of the company given the US division has been the one bringing in revenue and profit, I must admit, after such  long time, I am getting very sceptical what is the value of the company, and all the non-binding clauses, which enables the acquirer to re-value their bid

HK Deal : 0053.HK privatisation by group led by Quek Leng Chan

Summary of Deal :

$88 offer price per share
Unconditional
Acquirer already has 74.47%
Mandatory acquisition once reach 90%

Currently trading above offer price. Not entering

TCC extends F&N bid yet again

SINGAPORE - TCC Assets, the family company of Thai whiskey magnate Charoen Sirivadhanabhakdi, yesterday extended for the fourth time a deadline for its S$8.8 billion bid for full control of the Singapore property, publishing and food and beverage conglomerate Fraser & Neave.

The closing date for the S$8.88 a share bid now falls on Jan 2, a day before a higher bid of S$9.08 per share by Overseas Union Enterprise (OUE) - controlled by Indonesia's Riady family - is due to expire.

Under Singapore's Code on Takeovers and Mergers, an offer normally has to be finalised within 60 days of the initial offer, which in TCC's case was Sept 13. 

But the Securities Industry Council has the authority to grant an extension in special circumstances, such as when a competing bid is made, and it has been about one and a half months since OUE made its rival bid.

What surprised many market observers was that there was no attempt by the Thais to better OUE's offer, thereby making it unlikely that any other F&N shareholder will sell his stake to TCC.

TCC, together with its listed vehicle Thai Beverage, is F&N's largest shareholder with a 35.68-per-cent stake, inclusive of 2.02 per cent in acceptances that becomes ownership only after the 50-per-cent mark is achieved.

"What's the point of extending the deadline without upping the OUE offer? And how will OUE respond to the extension?" asked an exasperated shareholder, who said both offers were inadequate.

Many think the bid for F&N has to be at least S$9.50 a share before new acceptances come in. 

The independent advisers to F&N's board have found TCC's offer "not compelling, though fair". 

Nomura Securities analyst Lim Jit Soon, who has a target price of S$10.48 on F&N, thinks that OUE could bid as high as S$9.88 a share.

Japanese beer maker Kirin Holdings, which has a 14.8-per-cent stake in F&N, has agreed to tender its shares to OUE, which is largely focused on office and hotel ownership and development. Kirin has also offered to buy over F&N's food and beverage business for S$2.7 billion should the Riadys succeed.


Article above taken from TODAYonline. Article by Conrad Raj

Australia Deal : GPT offers to take up commercial and industrial properties off Australand

Still much to be revealed..stay tune.

Sundance Resources Update

A reader has commented on this deal. I must apologize as I missed the comment made.

From my perspective, the deal will go through. Given the commitment on Hanlong Mining Investment and the in principle agreements from the government, it should not be a problem.

When we enter these deals, ie Chinese buyer and African country assets, you would expect regulatory risk and should have been priced into your buy levels, ie only buy in when the risk premium suits you.

Also you could see Hanlong providing (albeit a small ) convertible note facility for A$15m as working capital for Sundance as the deal moves forward. Hanlong also holds the biggest stake in Sundance as well. Price of Sundance now is reasonably close to what it was before the deal announcement (however caution here as it seems like Sundance may have a liquidity problem).

Given the reasons above, I would believe the deal would be successful in the end, but the question remains when it will close and will there be another drop in offer price.

Pricing using Merger Arbitrage Manager as below :

Has a 40% premium and a 13.33% implied success. Given this, I would caution against a big position.

Potential Merger : Alacer Gold

Attention gold miners with a spare 1.86 billion Australian dollars (US$1.95 billion) handy. Macquarie analyst Mitch Ryan reckons you could spend it on a takeover ofAlacer Gold Corp. ASR.T +3.67%.

“We believe that Alacer is becoming an increasingly interesting target for a potential takeover, our rationale being an acquirer can pay a reasonable premium to recent share prices, assume zero value for Australian assets and still be in the black for the prize Turkish assets,” he said in a note to clients.

Under such a scenario, the broker believes an acquirer could pay between A$6.50 and A$7.00 to gain control, which would value Alacer between A$1.86 billion and A$2 billion.

Mr. Ryan, who described Alacer’s portfolio of assets as Jekyll and Hyde, notes that the company’s Australian operations could face a 50% write down, hamstrung by a high-cost environment.

He thinks Alacer’s review of its Australian business unit could result in the divestment of some or all of its assets – currently carried at US$1.2 billion. But he notes any write down would be unlikely to cause balance sheet pressure or restrict Alacer’s ability to pay dividends.

Macquarie believes that any potential suitors won’t rush a deal out, choosing instead to wait until the first quarter of 2013 or for the outcome of the Australian business review and the bankable feasibility study for its 80%-owned Copler Sulfides project in Turkey.

Macquarie has an Outperform recommendation and a price target of A$6.20 a share on Alacer which last traded at A$4.55 a share. The stock has fallen 54.7% in the year to date, making it the worst-performing gold stock in the S&P/ASX200.

excerpt above taken from WSJ.

Singapore Deal : SC Global bid by owner to go Private

Offer Highlights

• The Offer Price is $1.80 per Share in cash and is unconditional in all respects.

• The Offer represents an opportunity for Shareholders to exit and realise their

• Mr Simon Cheong already owns or controls a 55.06%  stake in SC Global

Developments Ltd ("SC Global" or the "Company") and is seeking to de-list

and privatise SC Global for the following reasons:

• Shareholders who accept the Offer before the Offer closes will be paid the

Offer Price for their Offer Shares within 10 days after the receipt by the

Offeror of valid and complete acceptances of the Offer.

Deal offered at $1.80. Last close price at $1.21. Roughly 48.76% premium to close. However as this deal is unconditional, expect it to trade at $1.80 upon open. Should not have any money left on the table. If there are any money to be made inclusive of your brokerage cost, go for it. 

I do not think there will be another higher bid coming in given Mr Simon Cheong already owns 55.06% (control of the company) and this exercise is to defray the cost of listing,reporting and regulatory redtapes, So there is not an inherent call option in this deal.

Merger Arbitrage Manager Lite Version

After receiving some feedbacks from users, we have released a lite version of Merger Arbitrage Manager so that potential users can have a look at what is in the app.

We shall be updating this app in the near future as well.

Visit in iTunes Store,  Merger Arbitrage Manager

Lite version, Merger Arbitrage Manager Lite






Let me know if there are anymore feedbacks/suggestions. Thank you for your support

F&N Takeover update

So an OEU (Overseas Union Enterprise) led consortium ( OEU and Farallon Funds), coupled with a collaboration with Kirin, is making a bid for F&N.

Quick notes,

14.7% F&N shares held by Kirin will be tendered into acceptance. (irrevocable undertaking)

Thresehold : 50% + 1 share acceptance by shareholders.

36.41% owned by TCC (Mr Charoen) already.

Price $9.08

Kirin will takeover the food and beverage units whilst OEU will takeover the property portfolio after the offer period.

I believe in either case, this will take a long time to solve as 36.41% is already held by Mr Charoen. He needs another 14.6%.

OEU will need another 35.4%. Time for the minorities to be the decider. So just hold on to your shares and sit tight.

My personal ramblings :

I am trying to think from Mr Charoen's shoes. Will he try to squeeze out more, ie make a counter bid and wait for the newly established partnership to outbid him 1 more?

I believe Mr Charoen should be very happy with his returns thus far. He would have made a handsome profit of roughly $170 million from accepting the Heneiken offer for APB.

If he accepts this bid for F&N , He will roughly make another $65-80 million.

I do wonder if there are any penalty on him repaying back his huge loan facility taken to buy the shares initially ( $2.8 billion )

In going through all the trouble, I tend to think Mr Chareon would not want this prized asset to slip quite so easily. He will most probably put in another counter bid.

Kirin has showed their resolved that they will only sell their stake to OEU, and buying back the F&B divisions from OEU.

I wonder if all this fails, will they build up a 20% stake to be a nuisance and demand to be paid at a higher multiple if Mr Chareon wants to get rid of them.

The OEU bid is funded with debt from Credit Suisse and Farallon Funds. Wonder how much more they are willing to pay up for this asset.

These 2 parties must have put in alot of work already for them to just walk away. I think even if Mr Charoen bids 1 up, they will still go in and fight for it.

I think there are more to come from both parties. Time to get my hands dirty, Entering trade.

Graincorp Rejects Takeover by Archer Daniels Midland Company

Proposal from Archer Daniels Midland (ADM) deemed to materially undervalue GrainCorp.

Hostile bid for Discovery Metals

(Reuters) - A private equity firm founded by Chinese billionaire Yu Yong has gone hostile with its A$824 million ($850 million) takeover bid for Australia's Discovery Metals Ltd (DML.AX) after the copper miner's board rebuffed a similar offer earlier this month.

Discovery's shares jumped more than 6 percent to slightly more than the offer price, indicating investors may hold out for a higher offer from CF Investments, which is 75 percent owned by Yu's Cathay Fortune Corp and 25 percent by China-Africa Development Fund.

The decision to go hostile after Discovery's surprise rejection of an initial bid has bolstered expectations that resource-hungry Chinese firms will seek more acquisitions in the sector, especially among companies that have promising projects in emerging markets.

"What the major institutional shareholders will or should do is go back to these guys and say: 'Give us an extra 10 percent and you can have it,' and that's what I think the current market price is reflecting," said Pieter Bruinstroop, an analyst at broker Octa Phillip.

CF Investments offered A$1.70 a share, 3 percent above Discovery's last closing price but 17 percent above its last trade before the initial offer was made public on October 4, adding to a string of small to mid-sized mining deals in Asia after a slide in metals prices made valuations more attractive.

Cathay Fortune, which already owns 13.7 percent of Discovery, is targeting the firm for its Boseto project in Botswana, near a central and southern African region that has attracted more than $10 billion in copper takeovers in the past two years.

The company has set a minimum acceptance condition of 51 percent, which means it only needs just over 37 percent support to go ahead with the deal.

China, which accounts for nearly 40 percent of global copper consumption, has been on the prowl for mining investments in Africa, South America and central Asia as it looks to feed ever expanding domestic demand for key commodities.

Discovery's shares touched a six-month high of A$1.76 after the news but later trimmed some of their gains to trade up 5 percent at A$1.732.

AFRICAN ASSETS

The hostile bid for Discovery stoked gains in other copper miners and explorers on hopes of more takeover activity, with Oz Minerals (OZL.AX) rising nearly 3 percent, and PanAust (PNA.AX) and Tiger Resources (TGS.AX) both rising about 1.3 percent.

Discovery rejected the offer earlier this month, saying it failed to reflect the value of its operations, expansion plans and exploration potential. On Tuesday, it told shareholders to take no action until they receive an official offer document.

"I think there is more value in it for the Chinese. It is a fantastic asset for them," said Octa Phillip's Bruinstroop, pointing to 200 million tonnes in copper and silver resources at Boseto and a large volume in mineralisation that has yet to be classified as resources.

Bruinstroop has a base case valuation of A$1.27 a share, but sees the company worth more than A$2 a share if its resources can be fully developed.

The company's rejection of the previous offer came as a surprise, as it was well above some analysts' valuations on the stock.

"The decision of the Discovery board to refuse access to due diligence and further engagement without any reasonable basis has prompted CFC's decision to bypass the Discovery board," said Yong Yu, whose net worth is estimated at $1.4 billion by Forbes.

For investors who bought into a recent capital raising at A$1.20 a share, the offer of A$1.70 would generate a 42 percent profit.

Cathay Fortune also owns 35.5 percent of Hong Kong-listed China Molybdenum Co Ltd (3993.HK), the largest molybdenum producer in China and the fourth-largest in the world.

It said the offer, which has already gained Chinese regulatory approval, will be funded by agreed term loans from China Development Bank Corp CHDB.UL and existing liquidity.

Chinese firms have been actively pursuing assets in Africa this year.

China-Africa Development Fund and China Guangdong Nuclear Power Corp agreed to buy Kalahari Minerals and Extract Resources for about $2.3 billion, gaining control of the Husab uranium project in Namibia.

State-owned China National Gold is considering a bid for the African unit of Barrick Gold Corp (ABX.TO), the world's No. 1 gold producer.

The interest in Africa coincides with a switch away from Australia and Canada, where asset prices have become more expensive.

Long project approval processes have also put off some Chinese investors, spurring the search for assets in emerging markets.

Citigroup (C.N) is advising Cathay Fortune and China-Africa Development Fund on the deal, and UBS (UBSN.VX) is advising Discovery Metals.

($1 = 0.9689 Australian dollars)

Sundance suitor wins China bank support for S$1.7 bln bid

MELBOURNE (REUTERS) - China's Hanlong Group took a big step towards sealing a long-delayed US$1.4 billion (S$1.7 billion) takeover of Sundance Resources by securing a loan commitment from China Development Bank, with the news sending the Australian firm's shares up 9 per cent on Monday.

Sundance said the bank has agreed to provide Hanlong a debt facility of up to US$1.022 billion, subject to credit approval processes, and added Hanlong had also received a commitment from Bank of Deyang Co Ltd to finance loans for the remainder.

Sundance was targeted last year by Hanlong for its Mbalam iron ore project on the border of Cameroon and the Republic of Congo, a new source of iron ore that could help trim China's dependence on the big three iron ore producers, Vale, Rio Tinto and BHP Billiton.

The takeover, now expected to close on Jan 8, had been delayed due to China Development Bank's reluctance to sign off on a loan for the deal and earlier delays in securing mining agreements with the governments of Cameroon and Congo.

**taken from REUTERS**

Graincorp takeover by Archer Daniels Midland

Indicative, Non-binding proposal. Offer price is $11.75. Owns 14.9% already through derivatives contracts.

Subject to due diligence, exclusivity and approval by ADM board.

Currently trading at $12.41.

5.61% above the terms.

No touching this one yet.

Billabong takeover...revisited

So the saga continues..Billabong was forced to announced that the potential acquirer, TPG, had "concerns" about its A$694 million bid. These "concerns" were not elaborated by Billabong.

 Lets have a short recap here to keep the facts fresh in mind. Earlier this year in February, Billabong rejected an offer of A$3.00 a share from TPG. Billabong then proceeded to negotiate the sale of its Nixon brand to Trilantic Capital Partners. Not put off, TPG came back with the same offer of A$3.00 which was later raised to $3.30. The company still fought off the takeover with founder and major shareholder, Gordon Merchant stating they would not consider a bid less than $4.

Share prices continue to drop and hit below A$2.00 in June. The company then decided to increased its issued capital by 86%, issuing shares at a heavy discount to raise A$225 million to pay debt. The placement was done at A$1.02 and the take up was only 79%.

 In July, TPG again made a bid for Billabong at the share price of A$1.45. There was another unconfirmed party that showed their interest in bidding for Billabong as well, rumoured to be Bain Capital. They have walked away from the deal last month. Share price for Billabong is now, A$1.06 If we calculate the returns using MA Manager,

We would get fantastic returns with very low risk, however we must keep in mind that the performance for Billabong has been deteriorating with the most recent a reported loss of A$246 million. This is the first loss since its listing in 2000. So it would be prudent to assume that Billabong's share price would take another huge dip if TPG walks away.

I would think that TPG would not want to walk away given the time and effort they have put into this. Someone must love this brand from within TPG, else it would not have made sense to me. However, I believe TPG will try to negotiate a lower price for the takeover circa -20-25%% of current takeover prices.

I will be taking a position in this.

F&N shareholders : Latest statement by Mr Charoen

Mr Charoen declared that him and his entities, will vote against the capital reduction scheme proposed.

This will leave shareholders in the company at the whim of Mr Charoen, if he successfully get his 50%.

His actions will likely aggravate Kirin and other shareholders and potentially open up the board members to other proposal ie from Coca cola. However, as time passes, the chances of a suitor/bidder emerging seems to diminish. Unless of course the board actively looks out for a white knight.

Again I must say, the board have been punched left right and centre. Its high time they become more proactive and help safekeep the interest of the minority shareholders.

Charoen bids for Fraser and Neave F&N

So Mr Charoen finally shows his hands. For weeks now he has held his cards close to his chest and the final outcome was a bid for F&N at $8.88, pulling in Heineken to not make a counter offer for F&N.

The question now will be, will there be any other surprise bidder for F&N minus APB?

To me it seems like, Heineken has gotten what it wanted and is happy with it. Mr Charoen seems to be getting the game to go his way. But I wonder how will the board of Directors at F&N feel. They must feel like a silly bunch going round and round and not knowing what is happening. If Mr Charoen does get his hands on F&N, it will be a very good deal. If you strip out the crown jewel APB, the rest of the assets are at a discount of roughly 30%. To me, Kirin would seem a natural buyer if they can expand their balance sheet.

Right now, Mr Charoen through his affiliated entities are holding slightly more than 30% of F&N's shares. The only other shareholder with a large enough stake is Kirin with 14.7%.  Mr Charoen has made his mandatory takeover offer just conditional upon 50% of acceptance including the stake they already have. So this translates to roughly just another 20% acceptance. Not much risk there.

At this stage given the time constrain, it would be highly likely that Mr Charoen gets what he wants. Now the one yet to show their hand are Kirin.

Finally, another point worth mentioning is that if APB is sold to Heineken, Mr Charoen would be definitely pushing for the cash to remain in F&N instead of a distribution back to shareholders. This would give him more cash to play with as he eyes potential takeovers and expansion plans.

Sakari Resources conditional cash offer by PTT Mining

Deal price is $1.90. Current price (suspended) $1.49.

Currently the offerer and concerted party owns 45.43%. Deal conditional upon them reaching 50%. This is a no brainer deal. Should open pretty tight. However not regulatory approval conditions are attached to the announcement, which is weird. I would have thought it require approval from the Indonesian regulators as PTT Mining is owned by the Thai Ministry of Finance. This deal is not conditional upon any financing.

New deals

SAR SP - Sakari Resources takeover by PTT Mining
AIX AU - Australia Infrastructure Fund by Future Fund

Washington Soul takes over Exco Resources Limited

The offer at $0.19 which implies a premium of 5.56%. Downside risk of 16.67% if the deal breaks and it fall through to $0.15

Heineken's final $53 offer.

Well it seems that Heineken has shown their hands now. There is also a minuscule break fee of US47 million. (Not that it matters in this case)  The final act depends on Thai Bev.

Lets do a rewind and start from the beginning.

ThaiBev bought a 22.2% of F&N for $8.88 and 8.6% of APB for $45.

This translates to an investment of roughly S$2.8 billion for the F&N Stake. Thai Beverage has continued to buy in the open markets another 4% of the stock and it cost them roughly another S$500 million. Total investment is S$3.3 billion.

For the APB stake, it was bought by the son in-law of Mr Charoen, for the 8.6% it cost them roughly S$1 billion. If they flip it to Heineken now, they will net a profit of roughly a cool S$170 million. That is like a 17% return.

However in the grand scheme of things, they have invested up to S$4.3 billion till now. Will they cash out now on APB for a 17% return for 4 months ( have to hold it till deal completion by end of the year)? Why did they increase their stakes in F&N these pass few weeks?

The Charoen's initially took out S$1 billion to buy the stakes ( + S$2.8 billion loan facility). They have since invested another $500 million into F&N shares. So their total investment is $1.5 billion cash + $2.8 billion loan. By agreeing to Heineken's latest deal, F&N will get about S$5.5 billion. That equates to roughly $3.80 per share and S$1.4 billion for Thai Beverage's stake of 26.2% if a special dividend is paid out. Mr Charoen's son in law will also get back S$1.17 billion.

In this case they will both get back roughly S$2.57 billion. This means they will have an additional cash of S$1 billion (the loan facility of S$2.8 billion remains without change). Seems like a good deal. If the Charoens have the money to take over APB, it would have put in an offer for all APB shares. Instead they have proven that they are just there to be a "major" nuisance in building up a minority presence.

I would believe Heineken's offer would be accepted unless of course Mr Charoen continues in bulding up his stake in F&N.

Thai Bev owns 26.2% of Fraser and Neave

Seems like Thai Bev is not giving Heineken much time or space to think. They have increased their holding in F&N to 26.2% now.

Thai Bev bids $55 for 7.3% of Asia Pacific Breweries

Thai Bev has made an unsolicited bid for 7.3% of APB's shares. It will be interesting to see what follows. As presumed, Thai Bev would make it harder for Heineken to buy APB, but the question is will Thai Bev be able to take over APB fully or are they just looking to build a blocking stake looking for a better bid.

To me it seems like the latter is possibly. Or possibly they want to protect their interest as they have just spend a fortune buying over the F&N stake from OCBC and company. But will Heineken bite?

It definitely looks more interesting now as Thai Bev have shown their hands. I would want to think Heineken wouldnt walk away so fast, thus there should be 1 bid left by Heineken. Lets see where this opens tomorrow.

Standard Chartered, money laundering for Iran

Stock is down 7.4% as I am typing.. I believe it would continue to head downwards, as this would be lengthy and involve a huge cost to SCB, and potentially exit from US (very, very small chance).

**Currently it is trading in London close to 24% down from previous close.

For a company with a market cap of roughly 35billion and being down 25% is a whopping 8.75 billion, I do not think there is much more downside, given their exposure to US is probably like 20% of their business. Probably they get fine a couple billion dollars. Do not see it going down much further today. Probably rebound when more information comes to light. However as in any fraud cases, you'll never know the stupidity of some people.

Staying away from this one for now. Speculative bet would be to buy.

Knight Capital Group..a lifeline US$400m.. an opportunity?

A bit of divergence from Merger Arb to event trades. Caught my eye although it is not in Asia.

Well it seems that the firm has secured sales of $400 million dollars worth of convertible/preference shares which can be converted to common stocks at $1.50. The major investors are Getco, Blackstone, Jefferies, TD Ameritrade, Stephens and Stifel.

If we just calculate a theoretical price based on number of shares and current price,

	millions	Current Price
Total convertible issued	267	1.5
Current Outstanding Shares	98.21	3.04
Theoritical price	1.91
Potential Upside on Short	37.04%

We get to this figure of $1.91 as the expected share price of Knight Capital. However for Getco and Blackstone to continue having a member on the board, they have to keep at least 25% of the preference shares subscribed. Same goes to Jefferies if they want to have a say on the third additional board member. So theo price should be higher, calculated by my system to be $2.19.

Another way of looking at this is using projection of earnings and divide by the number of new outstanding shares to get the EPS. Use a P/E to project where the price would be.

Did a very simple example

Based on P/E	P/E 10	P/E 15
EPS	0.199	0.199
P/E	12	15
Price	2.39	2.98
Potential Upside on Short	21.32%	1.65%

Well, I would think that it would be highly unlikely that the P/E would be at 15, but there is a small chance of it going back there.

More like it will take some time to recover to those levels. I am looking to short Knight.

APB, Thai Beverage, Heineken, F&N, Coca- Cola and Kirin

Seems like this is a complicated one. The dateline is on 3rd Aug for F&N to reply to Heineken's offer for the 40% stake in APB.

First of all, it started when OCBC, Great Eastern and Lee Rubber decided to sell its stakes in F&N (22%) amd APB(8.6%) to Thai billionaire Charoen Sirivadhanabhakdi. Obviously this does not rest well with Heineken.

Heineken has no obvious interest in the other parts of F&N save the brewery side and has made an offer of $50 for F&N's stake in APB. The offer is not conditional upon any due diligence or financing. Just subjected to the Boards recommendation to shareholders, shareholder approval and regulatory approval (if any). The offer will be extended to the APB minority shareholders as well. Currently F&N owns 40% of APB and Heineken owns 42%.

To complicate matters, Kirin Holdings (2503.T) owns 14.7% of F&N. and Mr Charoen is currently amassing shares in F&N raising his stake to 24.1% (as of 31st July 2012).  This translates to roughly 40% of  voting shares in F&N. I have not seen any Japanese firms giving up on overseas assets especially as growth is slowing down in Japan and where Kirin is involved, they are more likely to acquire than divest. Mr Charoen has made his decision obvious by trying to amass more shares in F&N to make sure they do not divest their stakes in APB.

Rumours are also flying that maybe Coca-cola will make a bid for the soft drink assets of F&N.

However as I look at this, I am not confident Heineken will get their hands on APB so easily. I am abit sceptical when there are cornerstone investors like Kirin, whom will not likely want to change status quo, and Mr Charoen, who just got his hands on F&N and APB shares. Unless a deal is done where these players can roll their interest into the new company, very likely nothing will happen.

I was actually tempted to short APB but have kept myself out of this. Lets see the verdict tomorrow.

Asia Pacific Breweries takeover

Bidding war? Will update more soon.

The Saga of Whitehaven

 After putting itself up for bids and no potential suitors with an attractive enough offer came up, Whitehaven proposed a takeover with Aston Resources to grow itself. It comes with strings attached, ie in order to buy Aston, Whitehaven has to make a bid for Broadwalk Resources as well, an exploration stage company. To facilitate the deal, Whitehaven agreed on a $515 million figure on Broadwalk and more payments when certain mimlestones are met. This is well above  an independent expert's valuation.

Seemed like Mr Nathan Tinkler, the founder of Aston and controlling shareholder of Broadwalk, got a good deal.

Now Mr Tinkler is back for more. Putting in a non-binding bid for Whitehaven itself. Due to the uncertainties in the markets recently due to the crisis in Europe, Mr Tinkler is taking advantage of a 30% price fall in Whitehaven to make his bid. Certainly an opportunistic bid which is most likely to be rejected by the board at Whitehaven.

However, lets put a worst case scenario for Greece. The re-election happens and the left-wing wins. This will be followed up by at least a couple of week if not a month of downside volatility.

Maybe Mr Tinkler would make his move maneuvering around the board and going straight to the shareholders in an on-market or off-market bid.

Another to add to the watchlist.

Hot Deal? Genting and Packer targeting Echo

Trading halted for pending proposed capital raising.

Snippets from articles read :

"Last month, Echo said it would book a writedown of A$29.9 million ($29.5 million) for its international VIP business, after a junket partner called SilkStar collapsed leaving bad debts and the high-roller business came in below target.

Analysts have said the Sydney casino's refurbishment costing some A$870 million has not led to a substantial pick-up in revenue."

This plus the ambition of James Packer to own Echo + Genting who has a SGD$3.9 billion war chest do + Genting said it has taken an unspecified stake in Echo. Under Australian listing rules, any stake of more than 5.0 percent must be declared.


Rumors are flying of Packer doing deals with Genting to enable it to get Echo while allowing Genting exposure to Macau.

Current M&A outlook

Seems like the uncertainties in Europe has cause deals to dry up in Asia.

The most recent ones that was announced was the upgraded deal on Spotless Group in Australia and also another new bidder entering the fray for Hastings Diversified Funds.

The outlook continues to look bleak with Greece going into re-election and the question on whether Greece comply with previous agreements on austerity plans to enable it to acquire the funds from the bailouts agreed.

In recent week, stock indices have typically been going south. Do not expect it to recover anytime soon. However with the events in Greece, we might soon see an end to this financial-crisis-saga.

I would take a cautious view of M&A deals now. Particularly looking at stronger-balance sheet acquirers and checking diligently over any "exit clauses" + prescribed occurrences for MAC clauses

Coalworks takeover by Whitehaven

Whitehaven is making an off-market takeover bid of $1.00 for Coalwork shares.

No minimum required % of shares to b accepted. They already have 17.3%

Conditional upon the "strategic advisory" arrangement between Coalworks and Noble can be terminateed without any termination fees.

Coalworks did a a placement at $0.78 in April 2012 to Noble. (Noble now has 9%)

Is there a potential bidding war here? I am not sure but definitely worth a buy as I think there is limited downside.

(The post above was written on 7th May 2012 - Coalworks was trading at $0.99 then)

Castlemaine Goldfields takeover by LionGold Corp of Singapore

LionGold Corp has offered to takeover Castlemaine Goldfields via an all scrip (share) takeover.

It is offering 2 LionGold Corp shares for every 9 Castlemaine shares.

Besides that, LionGold Corp has entered into a Subscription Agreement to subscribe for 11.4% of the enlarged number of shares after the subscription.

Usually I feel that once a party enters into a Subscription Agreement which is not subjected to any precedent conditions, it is more likely that the takeover will happen, as the acquirer has some skin in the game, thus more committed to the cause.

If we price up the deal using Merger Arbitrage Manager,

(there are some limitations as this is a cross border takeover and MA Manager has yet to implement the capability of including FX rates in the deals.. this shall be taken into account for the development of a new version of MA Manager)

It is assumed in this case the FX rates for SGD:AUD is 0.772. The deal should take roughly 3 months to pay out date.

There is a 11% spread to be earned. Usually in a cross-border deal, there is more premium in it unless it is a very big deal where Merger Arb traders around the world would jump on it.

Very possibly though it might be hard to get borrow in the LionGold Corp stock in Singapore, which might explain the massive premium.

The deal is conditional upon 50.1% acceptance, which is a reasonable and not high level. This is not a scheme of implementation thus does not require shareholders to vote.

Adding to portfolio.

Argentina expropriates YPF from Repsol

In an unrelated matter, it is amazing that Argentina has taken the course of expropriating YPF from Repsol. Given that it could have done a takeover via the equity market at fair market value (or excercise certain rights given the government still holds the "golden shares"). Expropriating assets leaves such a negative sentiment that I believe would turn investors away from Argentina. Probably this will benefit Brazil, Mexico and other Latin America countries.

I guess there must be a correlation between rising commodity prices and risk of expropriation. Argentina has been a net importer of oil and has been a huge strain on their fiscal numbers and YPF has been showing declining numbers in production despite political pressures to increase investments to increase production.

One must wonder if Argentina is going to default if it does not appropriate assets. I do not have the numbers at hand but to take such drastic measures, one can either be trying to assert/show their "leftist/reformist" ways or seriously cash-strapped.

SouthGobi an opportunity or exit?

SouthGobi has been hit by 2 news.


Firstly, its auditors Deloitte & Touche LLP has resigned as auditors on its "own initiative". The statement itself does raise a huge question mark on if anything fishy is going on in SouthGobi.


Secondly, the more worrying part, the Mongolian government is seeking a temporary halt of exploration and mining licenses for the company’s flagship Ovoot Tolgoi coal mine, SouthGobi said, following Aluminum Corp. of China’s bid for control of SouthGobi. 


In my view, China has a great need for coal. Mongolia has coal. Despite China having loads of coal, the bottleneck of their railway infrastructure will not be solved instantaneously, other factors as well of course but I'll spare the details. China will exert its political will on Mongolia. Mongolia still depends on China and if I am not wrong, according to the statistics in 2011, Mongolia has overtaken Australia as the number 1 Coal exporter to China.


Mongolia still has to build on their infrastructure to access, if I am not wrong, Vladivostok for port access to export their coal. So for now, they have to rely on China. Although it seems like Russia is increasingly interested in mining assets in Mongolia. 


From an article I read online,


"A ton of coking coal from Australia costs about USD 185, while a ton from Mongolia costs USD 62. China imports coking coal from Mongolia through the Sehee border point."


China will continue to secure coal from Mongolia.


I believe this is a buy opportunity.

Vanilla cash deals... 444.HK and NCI.AX

444.HK offer price is 2.12. Last traded 2.10 . NCI.AX offer price is 1.84. Current price is 1.80 Will update this post with the screenshots from Merger Arbitrage Manager.

444.HK using Merger Arbitrage Manager.

NCI.AX using Merger Arbitrage Manager

Bank Danamon takeover by DBS Update

According to the the Indonesian capital market supervisory agency, DBS needs to sell down their stake to 80% after buying up Bank Danamon. They will have a period of up to 2 years to do this and another 2-year extension if their investment is at a loss greater than 10%.

This is similar to the case of Maybank buying PT Bank International back in 2008. The deal then went through hiccups as the Indonesia regulators canned the deal close to the end of the tender offer before allowing it to go through in the end.

I would expect there would be discussions between the 2 countries, Indonesia and Singapore, before and after this deal was announced. Given the proximity and relationship between the two countries and how Temasek is invested in assets in Indonesia, I would expect this deal to go through.

Again this is not the largest bank in Indonesia, it is the sixth largest bank.

Great Wolf Resorts ..a US Deal

Been reading snippets of this deal over the weekend. Seems like a takeover battle between KSL Capital Partners and Apollo  Global Managemnet. It is currently trading above the $7.00 offer. Last price was $7.43.

I am always cautious about entering a deal trading above its levels. Deutsche has the company target price at $7.98. If you look at it, will Apollo Global Management come in and pay the full price?

But at least you know the downside is $7.00 dollars. Roughly 6% upside and 6% downside.

Merger Arbitrage Manager iPhone App

An interesting app has surfaced related to merger arbitrages. In the past month, I have been working with a company to develop an app for iPhone to evaluate merger arbitrage deals and to calculate te risks involved.

I believe this shall be an interesting tool to have as it allows us to value the deals on the go without any cumbersome spreadsheets.

Just a simple app that allows you to calculate, save and review deals at a later time.

Visit in iTunes Store,  Merger Arbitrage Manager

Let me know if there are any feedbacks/suggestions

Lithium One takeover by Galaxy Resources

Galaxy has put in a merger request with Lithium One and has been accepted and recommended by the board. According to the Lithium One's financial advisor, BMO Capital Markets, they are in an opinion that the deal is fair.

Problem with this deal is Galaxy is suspended as they are going to raise capital, A50million to strengthen the merged entity's balanced sheet. If in the event the deal fall through, they will use the money for acquiring new assets.

There seems to be a window of opportunity here. The offer is CAD $ 1.55 . This CAD $1.55 is the determinant of how much galaxy shares one can get. Currently it is pegged at 1.8 but if in the capital raising for Galaxy is priced below A$0.829, the multiplier will be adjusted accordingly.

For example if they raised capital at A$0.80, then at the exchange rate of 1.04, you will receive 1.86 shares of Galaxy for each Lithium One shares you own.

 Lithium one traded at CAD 1.28 at yesterdays close. This is like a 21% discount to the terms. I guess investors are hesitant right now as you cant trade Galaxy. But in my opinion, one can go long Lithium One and short either another lithium producer or short a market index option (ASX or TSX) if they want less company specific risk. This is called texas hedge. Probably when Galaxy shares are trading again, they will reflect somewhere close to CAD $1.55 and the investor can get out of the trade if they want or try to get borrow in Galaxy and do the proper hedge.

I wonder how long will this opportunity exist.

Roche takeover of Illumina (US Deal)

Currently Illumina is trading above the offer price of $51. It is trading at $52.61

Worth a shot at shorting the deal?

Any readers out there that care to share their thoughts on this deal?

Bank Danamon Indonesia takeover by DBS Bank

Offer price of 7,000 rupiah. The last closing price is 4,600 rupiah.

DBS is buying the stake held by Temasek, the Sovereign Wealth Fund of the Singapore Government.

DBS will buy 67% from Temasek and issue 439 million shares at SGD $14.07. The price is 2.62 times the book value of Bank Danamon Indonesia.

Waiting to see where Bank Danamon Indonesia opens at.

Aluminium Corp of China, CHALCO to buy 60% of SouthGobi - 1878 HK

SouthGobi, 1878 HK or SGQ CN (listed on TSX), has received noticed from CHALCO or Aluminium Corp of China (2600 HK) of a proportional takeover bid for up to 60% of Southgobi's outstanding and issued common shares. 


SouthGobi has also been informed by its 57.6% major shareholder, Ivanhoe Mines Ltd. (“Ivanhoe”), that Ivanhoe has signed a lock-up agreement with CHALCO, committing to tender all of its shares held or thereafter acquired by it during the Offer Period of CHALCO into the Proportional Offer. 

The Proportional Offer will be made by way of a takeover bid circular under British Columbia law and will be made to all SouthGobi shareholders. If shareholders tender more than 60% of the outstanding common shares of SouthGobi to the take-over bid, a proportional amount of shares will be taken up from each shareholder. SouthGobi has not received any formal documentation relating to the Proportional Offer. CHALCO has advised SouthGobi that it expects to mail the takeover bid circular in connection with the Proportional Offer on or about July 5, 2012. (Quite far away)

The offer price is CAD $ 8.48 or roughly translated to be HKD$ 65.97. Given that Ivanhoe Mines has signed a lock-up agreement I would think the deal should not have any acceptance risk.

The pre-announcement share price for 1878 HK is HKD $51.25 and the current price is HKD $ 59.90. At current levels there seems to be zero premium (or slightly negative premium) in the deal if you take into account that you can only tender in 60% and assuming that the 40% you can sell at pre-announcement price. 

The deal gets attractive around HKD$56, as I would deem you need a bit more premium to assume the risk of the remaining 40% that you can't  tender in.

Usually in these deals where the target is listed in 2 markets, there are always opportunities to arbitrage the target stocks just like doing ADR arbitrages. 

The good thing about the deal is that besides the proportional takeover, the company has entered into a Cooperation Agreement as well with Chalco. I have attached the excerpt from the release on HKSE

"Key benefits under the Cooperation Agreement between SouthGobi and CHALCO include:

•    Coal off-take by CHALCO

– SouthGobi will have the right to offer up to 100% of its salable coal to CHALCO and CHALCO will have the obligation to purchase the coal at market prices for a period of 24 months.

•    Infrastructure support

– CHALCO will assist SouthGobi to procure electricity for its Mongolian business operations either through a direct connection to grid power, or through development of a conveniently located power plant. CHALCO will also provide support to SouthGobi’s coal-haul highway project. "

So at least in my opinion, there will be a support level for the share price of SouthGobi. (when you think of the 40% that you can't tender in)

Customers Limited takeover offer by DirectCash Payments

The takeover offer is recommended by the board. The offer price is $1.27. Currently it is trading 1.23/24

The last price of CUS AU is $0.92 before the announcement of the deal. At the current offered price for CUS AU ($1.24), there is 2.42% premium in the deal which translates to 8.49% IRR if you take a completion date of 15 July 2012.

The offer is done via a scheme of implementation meaning shareholders have to approve the deal by voting. Required 75% votes from 50% of shareholders to approve the deal.

The deal is still conditional upon Customers shareholder approval, regulatory approval (not much risk here), independent expert report, and lastly but not least FINANCING. DirectCash has 25 days to get a committed term sheet to fund this deal.

It seems to be trading at a tight spread given financing is yet to be secured for this deal.

The concern for me is that this deal is roughly worth around US $130 million and DirectCash is just CAD$400 million. Wonder if financing will be an issue here. (Do a check on the debt ratio and current ratio)

With that said , downside risk is roughly 26%. I would probably get some if the price goes to a more attractive level to price in the financing risk.

Possibly entry price $1.22 or $1.23

China Gas takeover Update

The China Gas Long Stop Date has been extended to May 15, 2012 to accomodate the release of rulings by the regulators. It can still be extended further if needed.

Austar Takeover by Foxtel Update

The minority shareholders have overwhelmingly approve the takeover of Austar by Foxtel.

The deal is schedule to pay out by 26th April 2012 if everything goes smoothly. The only impediment currently is the ACCC ruling. It might be granted in time, not in time or ACCC might still flatly reject the deal going through.

Based on current valuations of $1.45 for Austar and the offer price of $1.52, its a 4.83% premium and an estimated IRR of at least 60%. Quite a large spread to be earned which of course reflects the risk inherent in this deal.

In my opinion, ACCC seems to be leaning towards approving this deal. Given where the markets have been heading, even if the deal falls through it would seem the downside is roughly 20%.

Anyone feeling speculative should invest a small sum. Otherwise, continue staying away from this deal.

China Gas takeover offer

China Gas has been trading over the offer price. Sinopec and ENN is offering HK$3.50 but the stock has been trading above that since Dec 20 2011. For those who bought in earlier below or at HK$3.50 I would advise to take money and run.

Personally, I dont get involve in a deal once it trades above its offer price (other than in some cases where I Short them instead).

If we look at the bidders, ENN and Sinopec, ENN probably would not be in a financial situation to raise the bid unless the concede more control to Sinopec. Sinopec ( a government controlled entity) would have no problem financing this deal. Thus they might have to rework on how their structure would be.

Since 7th March, the bidders have submitted their applications to get approval from all the necessary regulators including MOFCOM, the Anti Monopoly Law of PRC. The deal might lapse if it could not get approval by the regulators by 31st March 2012, but usually the bidders would extend the Long Stop Date to accomodate more time to obtain regulatory approval.

In the course of the takeover, employees of the firm has written to 2 letters , one to the board and one addressed to both the board and shareholders. It was signed by more than 4,000 employees stating their concern for the potential detrimental effects on the operation of the company and also the competition in and development of the gas industry in PRC. (First time I have witnessed this. Wonder how much influence it has as these are workers and also minority shareholders of the company)

Interestingly there has been 2 entities that have increased their shareholdings since the deal was announced. South Korea's SK Holdings and London Listed Fortune Oil Plc, controlled by former managing director of China Gas, Liu Ming. He was removed from the company's board after being detained by Shenzen police force last year. Would there be any possible bids coming in? Chances are low I believe. More likely the shareholders are entrenching their positions to get a higher offer price.

Substantial time has passed now, which means they are still negotiating on the price. How keen are the buyers? How keen are the sellers? Deals that are on the borderline of success or failure due to pricing is always a major turnoff for me.
.
With that said, I would take profits and run (if invested at attractive price). New investors looking at this deal should possibly refrain from getting into it.

KFC MK and QSR MK

Currently the offer for KFC MK is $4.00 and the offer for QSR Brands is $6.80. Based on the last price of $3.76 and $6.45 it is a premium of 6.38% and 5.42%.

Assuming the deal completes by the end of the year, it equates to IRR of roughly 8% and 6.8% unlevered.

 Johor Corp and CVC Capital  announced the bid through a special purpose vehicle, Massive Equity Sdn Bhd. Johor Corp will own 51% of equities and the remaining 49% with CVC Capital.

QSR owns 51% of KFC. QSR itself is roughly 54% owned by Kulim (M) Bhd. Johor Corp owns 55.9% of Kulim (M) Bhd.

I have not found any definitive agreement signed between the two parties other than the acceptance to consider the bid by the board.

Keeping on watchlist.

Ludowici Takeover Update 3

The share price closed at  A$11.42.  The highest offer is $11 by FLSmidth.

Weir Group has yet to announce their intention. I will continue to hold.



Update : Weir has pulled their offer. Share price is down to below $11.00. Will hold till deal completion.

Glencore bids $5.49 billion for Viterra..another Potash Corp?

Glencore seems to be very aggressive since it listed. Announcing a deal for Xstrata and now Viterra. Wondering if this deal will be another Saskatchewan failure like Potash Corp.

For readers who did not follow the Potash Corp deal, in year 2010, BHP Billinton made a $40 billion dollar hostile bid for Potash Corp, the world's largest fertilizer company. However the federal government blocked the deal stating that it does not bring "net" benefit to the country. The local Saskatchewan policy makers are against it as well.

I guess Glencore will find themselves in a similar situation as BHP soon. Its no longer easy for them to find big targets to takeover. Policy makers will be on alert whenever they are associated with a takeover and attract more scrutiny unless the targets are small and innocuous.

Austar Takeover by Foxtel

Seems like the ACCC is set to give the green lights to Foxtel to takeover its regional counterpart Austar Limited on the condition that content is made available to IPTV operators that are competing with both of them.

On an interview with ABC News, the chairman of ACCC, Rod Sims, has made it clear that the worry is what the takeover means to Telstra's market power. Telstar is a 50% owner of Austar. The other shareholders in Foxtel are James Packer's Consolidated Media Holdings and Rupert Murdoch's News Limited, publisher of The Australian.

A very good article to read would be 

http://www.theaustralian.com.au/business/mergers-acquisitions/foxtel-austar-fall-into-line-as-accc-warns-on-net-sports-rights/story-fn91vdzj-1226292610886

However, I wonder what would the market participants come up with in the next fortnight to scuttle the deal. The ACCC chairmans seems to have partly confirmed the deal will go through with the undertakings that Foxtel and Austars agreed to, but I am pretty sure the other ISPs are not too keen on this merger happening.

One of the points are Fox Sports (Sports content)  is still exclusive to Foxtel. This is one major area of monetisation for IPTV, thus a few issues might be raised here. With Austar under the wings of Foxtel, who else can negotiate to get sports contents in Australia and the rest of the world? The smaller IPTV operators will never gain enough clout/money/reputation to get the rights to sports. However, the ACCC chairman, says they will look into this in future if there is monopoly (brushing this matter aside, which is absurd). I believe they should undertake to make sports a non-exclusive content if they are really looking at opening up the market and do away with the monopoly.

However, Australia is a pretty strange country where monopoly or duopoly exists and the ACCC has been very accommodative at times. The financial sector,wealth management sector and more prominently the retail/supermarket sector has witnessed this.

I am not too keen to get involved, although markets seems to be pointing towards the deal happening.