A positive development today for one of the Japanese companies in my portfolio. Aeon Delight has made a takeover offer for shares of Hakuseisha Co (JP:9736) of ¥800 per share. This is a 139% premium to the October 27 closing price of ¥335. Aeon Delight (JP:9787) is a public company itself and has a market cap of ¥190bn, about 50x greater than Hakuseisha’s.
This offer by Aeon Delight is a tender offer and the tender offer period is from October 28 to December 10. I’m not sure I will even be able to tender shares of a Japanese company through Interactive Brokers though. The market price has moved up to ¥415 in response to the offer, but that is still an enormous difference with the offer price of ¥800. I don’t know why this gap is so large.
Aeon Delight is looking to delist the shares if enough shares are tendered. I’m not sure if there is a risk of the company delisting without doing a squeeze-out procedure to take out the remaining minority shareholders. Reading the quote below it seems like there will probably be some kind of squeeze out procedure if more than 4.9 million shares are tendered:
No limit has been set for the number of shares to be acquired through the Tender Offer, so Hakuseisha’s common stock may be delisted depending on the outcome of the Tender Offer.
In addition, even if conditions for delisting are not met after the completion of the Tender Offer, AEON DELIGHT intends to make Hakuseisha a wholly owned subsidiary, provided that the Tender Offer is successful and the total number of shares tendered (the “tendered shares”) exceeds 4,933,000. This would also result in the delisting of Hakuseisha’s common stock.
AEON DELIGHT intends to maintain the listing for Hakuseisha’s common stock if the total number of tendered shares is less than 4,933,000.
If one of you has experienced a squeeze out procedure in Japan and can clarify, I’d like to hear from you.
More info about the offer can be found here:
- Aeon Delight website: Tender Offer for Hakuseisha CO., LTD. Aims to Consolidate and Reorganize the Industry (PDF, English)
- Hakuseisha website: Notice of opinion on the Tender Offer for the Company’s shares by the ion Delight Co., Ltd. (PDF, Japanese)
- J.Front Retailing website (major Hakuseisha shareholder, about 2 million shares): Notice Regarding Response to Tender Offer for Hakuseisha Co., Ltd. Shares and Related Change in Equity Method Associate Status (PDF, English)
At ¥800 the company is valued at ¥6.46 billion which is a slight discount to Sept. 30 book value of ¥6.58bn. That still looks like a pretty good deal for the buyer to me. Hakuseisha’s has around ¥4bn of cash and investments on its balance sheet and no debt. It also generated around ¥200-300 million of free cash flow per year in the last few years.
Owning these illiquid micro caps in Japan is about as exciting as watching paint dry, but occasionally things do happen and value is suddenly realized, even in Japan.
Disclosure: long Hakuseisha (JP:9736)
Congratulations!
I have done well so far in 2 odd years with J net nets. One was acquired by parent, one was Management buy out. In the former, it stopped trading and eventually i received cash for my shares. I don’t remember if there was a tender offer for it..
I think the spread should close as people become aware of it? What % do the insiders / large investors own and that would determine if there is any issue
Thanks for sharing your experiences with acquisitions in Japan.
It could well be that this news hasn’t been fully absorbed yet. It’s a bit strange that 2k shares were sold at ¥415 though, perhaps an investor missed the news.
The largest shareholder is J.Front Retailing (through a sub called Daimaru Matsuzakaya Department Stores) which owns 2 million shares (25.4% of the outstanding shares) and they have signed an agreement to tender their shares. There are a few ~5% holders, no idea about management holdings.
Apparently there are daily price limits in place. For Hakuseisha they will probably be broadened: http://www.jpx.co.jp/english/news/1030/20151029-02.html
So that explains why the price is slow to readjust. Still surprising to me to see some volume at these levels when there’s an ¥800 offer on the table.