Asia Flash: Hitachi Chemical and HCM attract attention due to price and timeline of Hitachi’s precedent subsidiary divests

06 February 2019 - 02:16 pm UTC

Asia Flash: Hitachi Chemical and HCM attract attention due to price and timeline of Hitachi’s precedent subsidiary divests
 
The strong market reaction to the report, which was published after the market closed on 31 January, might reflect the deep discount to fair value at which stocks in Japan, particularly those in which parents hold substantial stakes, have historically traded.
 
It is also a reflection of the authors’ track record in scooping conglomerate divestments in Japan, as well as the timeline and premiums to undisturbed prices.
 
Mergermarket has previously scooped the launching of sale processes for Hitachi Kokusai, Hitachi Koki, and Clarion [TYO:6796]. All three of these formerly consolidated listed subsidiaries were subsequently acquired (Koki and Kokusai in 2017 and Clarion in 2018) at premiums of more than 70% to the share price at the time of the exclusive reports. The Clarion deal is ongoing.
 
A review of those exclusive reports reveals that deals were agreed around six to seven months after advisors were mandated to run two-round auction sales processes involving private equity and strategic bidders.
 
While it cannot be guaranteed that the Hitachi Chemical process will follow the price and timetable pattern of Hitachi's previous divestments, it’s noted that the company is trading at 5.34x EV/TTM EBITDA (based on the 5 February closing price), which is a discount to peers like Shin-etsu Chemical [TYO:4063], JSR[TYO:4185] and Sumitomo Bakelite [TYO:4203] who are trading at EV/EBITDA multiples of 5.68x, 6.8x and 6.7x respectively.
 
The discount, the Asia Flash speculates, may be in part due to some corporate governance red flags at Hitachi Chemical.
 
Meanwhile, Mergermarket yesterday (5 February) also reported that Hitachi Construction Machinery (HCM) [TYO:6305] is exploring ways to become independent from its 50.81% shareholder Hitachi.
 
The strategic options for HCM, however, appear less clear.
 
 
Analytics by Helen Lau