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.
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. ... more
Engagement and activism may rebound
We looked at the Factset SharkWatch database, which tracks global activism campaigns for the last ten years. The dataset initially covered only US campaigns but in recent years has improved its non-US coverage to the extent that we believe it now provides meaningful statistics for Asia-Pacific.
The primary observation is that, while global activism has already started to rebound from the depths of the pandemic – rising 5.2% since 2020 – this growth has all been driven by campaigns outside Asia-Pacific. Figure 1 shows how Asia-Pacific activism (which accounts for around 17% of the total) is still down by 37% compared to 2020, even as the rest of the world has risen 13.7% (note that we considered only campaigns announced in January to May of each year, to make the results comparable across years). ... more
A resurgence of catalysts
The Ukraine conflict could have interesting implications for relative value (RV) strategies.
Historically, the worst period for RV strategy performance has been the low-yield, low-growth environment of the years between 2008 and 2020 (the shaded region in the figure below). By contrast, prior to 2008, when yields were higher, RV did well in both high-growth (1960s and 1980s) and low-growth (1970s) eras. It suggests that RV performance is more sensitive to yields than economic growth. ... more
Metrica calls for a strategic review at SK Chemicals
- Metrica welcomes the recent value-improving initiatives announced by SK Chemicals.
- However, these measures have had only a very limited impact on the share price discount, which still exceeds 80%.
- Metrica calls for SK Chemicals to launch a formal strategic review within the next two months to consider further measures to address the discount, up to and including a sale or spin-off of SK Bioscience.
Metrica Partners urges SK Chemicals to sell SK Bioscience shares upon the lockup expiry
- The board of SK Chemicals seems unconcerned with its shares trading at an 83% discount to net asset value. In Metrica’s view, the board has a fiduciary duty to care about its share price.
- The company should address the discount by selling a stake in its subsidiary SK Bioscience upon the IPO lock-up expiry of 18 September and distributing the proceeds to shareholders.
- SK Chemicals can pay a special dividend of 1.3x its share price while still retaining 50% ownership in SK Bioscience as well as 100% ownership of its profitable chemical and pharmaceutical businesses.
It’s not too late
In November we identified a possible turning point in the under-performance of value, based on a sharp spike in the volatility of the Asia-Pacific Value/ Growth ratio, which resembled a similar event in the year 2000. The previous occasion marked the start of a long period of value out-performance.
This is important because a repeat outcome this time should be very positive for RV strategies, which naturally have a long value factor bias. ... more