A regulatory development in Japan
Japan’s Financial Services Agency is examining a long-standing loophole in the tender offer rules. Currently, an acquirer can buy any amount of shares in a company on-market without having to tender for the whole company.
A tender offer is only required when a 33% or more stake is bought off-market. This contrasts with jurisdictions such as the UK, where an acquirer must make a full tender offer upon reaching a certain threshold, irrespective of how the shares were acquired.
The loophole has resulted in quite a few recent instances of investors coercing companies into paying large dividends or executing large share buybacks, which in many cases have disadvantaged other (particularly foreign) shareholders due to withholding taxes.
Closing the loophole will improve the transparency of the market and level the playing field for all investors.
The regulator is also looking at rules around coordinated actions by multiple shareholders. At the moment, it is not clear how much discussion can take place between shareholders before joint disclosure filings are required. In practice this leads many investors in Japanese listed companies to be cautious about talking to other shareholders.
Dialogue between minority shareholders can be a powerful check on corporate governance. Metrica looks forward to seeing how the new framework facilitates this.
One in a thousand
Unsolicited and / or hostile tender offers are rare in Asia-Pacific and particularly so in Korea – it ties with China in having the lowest proportion of such transactions (around one in a thousand according to Bloomberg); Australia by contrast has the highest with 12.8% (figure below). (more…)
Vigilance is required
The start of the year has already brought five $100 million-plus Japanese takeovers, representing a decade-plus high for the month of January. It contrasts with a 36% year-on-year slowdown in global M&A. What is behind the uptick? (more…)
Metrica Partners will not tender its funds’ shares in SK Chemicals to SK Discovery
- SK Discovery’s tender offer price is very low, representing a 74% discount to net assets.
- SK Chemicals has still not adequately compensated its shareholders for the split-off of SK Bioscience. The Korean regulator has recognised how split-offs can hurt the interests of investors.
- Only a wholesale restructuring can restore the market’s trust in SK Chemicals.
Please refer to the dedicated website for more information.
Pockets of value
We have been writing about the recovery in the performance of the Value factor since November 2020, and have since highlighted a few corners of the market which fall squarely within the Value category but which have been slow to join the trend.
Another example is the Japanese regional bank sector, which has only just started to move off its lows.
As is well known, Japanese regional banks trade at steep discounts to NAV due to 1) balance sheet volatility caused by their large portfolios of listed securities holdings, built up over the years to strengthen relationships with corporate customers, and 2) poor profitability in their core lending businesses, caused by zero / negative interest rates and sluggish loan demand.
Currently the sector trades at 0.35x book, which is only slightly up from the all-time lows of around 0.30x recorded in 2020 and 2021 (figure below). Regional banks have lagged major banks since 2020 (same chart). (more…)