Thread by @bauhiniacapital

A month later and there is more news coming out.

https://twitter.com/bauhiniacapital/status/1445737664037093390

Earlier in the thread I noted Oasis PR of 4 October, after Japan Catalyst PR on 24 Sep and Silchester on 27 Sep; Orbis followed on 7 Oct

Japan Catalyst: japancatalyst.com/pdf/JCI_NIPPO_…

Silchester: apparently on BBG but I can't find elsewhere now

Orbis: businesswire.com/news/home/2021…

Yesterday one activist set up a website, basically acting as a proxy for the Special Committee of NIPPO, saying that NIPPO would welcome alternative over-bidders to the ENEOS/GS deal.

That's fun.

That's the first time I have seen that.

ft.com/content/94b503…

It actually goes without saying. The deal doc originally said there was no Active Market Check because the Tender Offer Period allowed for alternate bidders to make themselves known as competitors.

That is complete hogwash and everyone knows it.

But this deal is worse.

It is, indeed, odd.

GS' merchant bank in Tokyo does VERY few deals with public companies, and from what I gather very few deals overall. They have a high IRR requirement. Much higher than ENEOS.

So why does the deal structure give 65-75% of the economics to GS? That's odd.

And if they are getting that, it means minorities are getting a bad deal.

And as every one of the objectors pointed out 4-6wks ago (as I did 8wks ago 🥸), ENEOS is conflicted, and the minority of the minority gets to decide. And there was no market check. Bad process.

But what is not being reported on, because it is tough to get confirmation from private parties and it would be complete hearsay now, is that at the same time as ENEOS is effectively selling their sub to GS' merchant bank, GS' merchant bank is selling another asset.

To ENEOS.

And reports of the OTHER sale (the sale of the GS/GIC investment in Japan Renewable Energy) suggest ENEOS was not the high bidder.

There's obviously no proof of quid pro quo, but it's easy to understand why minorities want to take a closer look and ensure a fair process.

The question is whether enough people have complained to NIPPO to get them to take a closer look.

If I had to guess, I would say no.

It is VERY rare that a target co subsidiary of a parent taking it out has the guts to stand up to the parent co in the name of good governance.

But it IS interesting. And one could make the argument that the experience here proves that the process NIPPO undertook to "ensure" fairness to minorities was not fair.

To be clear, it WAS unfair. Blatantly so. But the courts seem uninterested in fairness of process.

Precedent judgment now says lawyers and auditors determining a "process not detrimental to minority shareholders" ensures the price is fair when in fact, the only real input to "price" is what the bidder wants to pay, a DCF based on what the buyer's subsidiary "forecasts", and

multiples out of thin air, and zero questions or fact-checking. The IFA takes what the target gives them, looks at the balance sheet as provided by the target company (w/ notes provided by the target company - all the while we note TargetCo is actually the buyer's subsidiary)...

which sometimes means that cash is cash, and sometimes it means cash is NOT cash. And sometimes it means that govt bond holdings (designed to get cash from Current Assets to LT Assets) turn in to assets which are discounted at 10% rather than assets deducted on Day1. Do TargetCos

sometimes push cash into receivables? Yes.

Do they buy real estate to "hide" the cash? Yes.

Do they count "real estate AFS" (when targetco is not a RE co) as a "business" which should be discounted at 10% rather than an asset with FV at cap rate X? Yes.

They did here.

But add all that up and the Swedish Chef DCF is STILL not used other than as basic support to bound the possibilities. And courts in appraisal cases, for the moment, don't really care about actual value as long as boxes are ticked (unlike Delaware or Germany appraisal processes).

So unlike other markets where activists suit up and make presentations, and call for competing bids, etc... in Japan once a Tender Offer starts, it is usually 30 days (bd).

It requires a little more urgency.

This time we saw an announcement followed by regulatory approval process PRIOR to the Tender Offer being launched, which is why investors have had the luxury of time. But they probably don't have much.

It'll be interesting to see how this plays out.