This is the final post of my live-tweeting and highlighting of professor Larry Cunningham’s book, Berkshire Beyond Buffett. I’ve practically run out of superlatives…. ValueWalk (dot-com) reported Berkshire Beyond Buffett was among the top-10 books purchased in 2014 by its readers. I suspect the momentum will continue this year. If you’ve missed any of the tweets or posts, see them in order here: I, II, III, and IV (and follow on Twitter: @ActiveInvesting).
Reuters (article in Japanese) reports that Goldman Sachs issued a report earlier this week that argues M&A will be the major theme for Japanese equities in 2010. Having a ‘macro’ investment theme for the start of each new year is a ritual for brokerages in Japan, although it seems no one ever has the resolve to action or follow through; and the M&A theme itself is not a new one. So Goldman repeats known information that Japan (equities) was overly victimized in the financial crisis and remains largely defenseless to external shocks. With ROE so low, domestic demand remaining sluggish, and overseas competition ever-intensifying, the best bet for Japanese companies is to merge and restructure. M&A/restructuring should boost top-line growth, says Goldman, which also should help margins, and therefore drive stock prices higher.
However, the longstanding problem with inward M&A is that reorganization is easier said than done (as heads, and tails in the form of non-core subsidiaries, tend not to roll in Japan), the volume of M&A has often disappointed, and the size of deals has been on the small side. Nevertheless, all of that means there is still great opportunity in Japan. The best opportunities appear to continue to be in smaller-sized deals, where there are plenty of gems, and in listed subsidiaries. Goldman is said to favor retail, machinery, services, land transport, non-bank financials, warehousing, and real estate — the underlying idea is that these industries are the most fragmented.
Bottoms-up then, as 2009 is winding down and 2010 is poised to be the year of M&A (at least thematically or in a macro sense).
The author’s intent is not to be misleading, but rather to be as frank as possible, regarding the longstanding debate of whether or not Japanese stocks are truly undervalued. In short, the answer is no. I no longer believe Japanese stocks are undervalued, not to the extent that I once did, and not to the lengths that some pundits and money managers try to make a case for. In fact, I would argue that Japanese stocks may best be described as being closer to fair value instead of being deeply undervalued. I mean Japanese stocks, for the foreseeable future, may be destined to be “undervalued” by traditional metrics, but fairly valued by the market and in relation to the economy.Continue reading
I don’t agree with the BoJ’s decision to cut from 0.3% –> 0.1%. The cost of borrowing is not the problem here. In fact, the impetus to cut was at least partially pressure from the MoF, in what amounts to a silly attempt to ease yen-strength. The reaction has been muted, and for now, the USD/JPY isn’t likely to even recover a 90-handle.Continue reading
Nomura Said to Lose 100 Lehman Equity Employees to Competitors
Oct. 8 (Bloomberg) — Nomura Holdings Inc., Japan’s largest
investment bank, will lose roughly 60 percent of the Japanese
equity employees acquired when it purchased the Asia-Pacific
business of bankrupt Lehman Brothers Holdings Inc., three people
familiar with the matter said.
About 100 of the 170 workers in Lehman’s Japan equity
research, sales and electronic-trading unit plan to leave the
Tokyo-based company, the people said. The departures include two
Lehman managing directors, Kazutoshi Ohkubo and Koichiro Chiwata,
who are joining London-based Barclays Plc.
It goes without saying that I am extremely skeptical of the Paulson bailout scheme under the funny money regime. Good for Nomura [[NMR]] and Mitsubishi UFJ [[MTU]] for being able to get in on the scavenging, the former, which is said to be buying Lehman’s Asia franchise and the latter which is reported to be taking up to a 20% stake in Morgan Stanley [[MS]]. (See clips below from MarketWatch). That said, if the so-called relief rally and bogus bail-out rally come to an abrupt end today in the USA — how can you eliminate short-selling and get excited about a short-lived rally — then expect some profit-taking in Tokyo (from Wednesday, when the TSE reopens after the Autumnal equinox holiday). Beware bottom-fishing with iShares MSCI Japan Index ETF [[EWJ]].
Global financials Nomura buys Lehman’s Asia franchise
Japanese giant snaps up equities and investment-banking operations across Asia, but deal doesn’t include any of Lehman’s balance sheet, according to report.
Below are some additional thoughts on the latest MUFG-UB offer (these comments were originally posted in response to an article published by Reuters; edited for style/formatting).
UB’s [[UB]] Special Committee is very opportunistic and knows what it is doing. It has effectively taken its minority stake hostage vis a vis its board representation and a long-standing one at that for the Chief of the Committee. At the end of the day, there is absolutely no “reputation risk” as MUFG [[MTU]] fears. Why? Nobody on Wall Street cares!
So, is MUFG overpaying? Of course it is. Is it a good deal — yes, great for UBOC in this market. Will MUFG pay up even further as some Tokyo analysts suggest? Probably not. If so, it is even more concerning why there is such urgency on the part of MUFG. Meantime MUFG shareholders suffer and shareholder value is sacrificed over the desire to expand overseas (note it’s great to seek overseas expansion, but it has to be done at the right cost).
Bottom line, this is a so-called “safe” deal for a Japanese mega-bank. Union Bank’s SC knows this and is milking it. The offer in no way signals a bottom for banks’ woes. It also does not necessarily signal a forthcoming buying spree by foreign banks of their overseas subsidiaries. However, it would make sense for opportunistic HFs and other traders to buy shares and hold-out for more! See: MUFG Now Really Overpaying for Union Bank, Oh Well (Shikataganai).
$58 a share — no! $63 a share — no! $73 a share — oh, sure, might as well, especially in this market. Hats off to Mr. Farman and company for helping the little guys at Union Bank [[UB]] get paid. Still scratching your head about what Mitsubishi UFJ [[MTU]] is thinking? Keep scratching. For more background see both the FT clip below and last week’s “Mitsubishi UFJ Overpaying for UnionBanCal.” As stated then, this is a “safe” acquisition, but one that is even more dubious in terms of shareholder value. Shikataganai (MUFG shareholders just sigh and shrug their shoulders … accept the fact that this is the cost of doing (more) business in the U.S. even in today’s market climate).
FD: No position in any companies mentioned. Gladly with regards to MTU and unfortunately in the case of UB.
The deal, which values UNBC at 2.3 times book value, is considered relatively expensive by analysts.
However, MUFG has a track record managing UNBC and knows the San Francisco bank well, making the acquisition a relatively safe bet, according to one analyst.
“The Special Committee of independent directors is very pleased to have negotiated a transaction with BTMU that we believe is highly attractive and in the best interests of the minority shareholders,” Richard Farman, chairman of the special committee, said.
This is not a bad deal, at all, for existing (non-MUFG) UnionBanCal [[UB]] shareholders: a decent premium pushing the stock to a new 52wk high, amidst ongoing market woes, and not to mention UB’s last quote of $65+, which is above the $63 bid by Mitsubishi UFJ Financial Group [[MTU]]. Now, as for MUFG shareholders, you have to scratch your head and wonder if the remaining stake really could not have been acquired at a cheaper price — UB traded as low as $35 a month ago! Furthermore, MUFG seems to have implied it is willing to pay even higher to complete the deal, thus the >$63 trading.
If anything, this is a safe acquisition for MUFG, but not necessarily one to add much shareholder value, if any, at least over the next few years. What it does allow for, however, is further acquisitions. What’s next? How about neighbor Santa Clara-based SVB Financial Group [[SIVB]]? With a $1.9B market cap, it is not insignificant, and it has equally as attractive margins. Unfortunately again for MUFG shareholders, SIVB is not far off 52wk and all-time levels and there would certainly have to be some premium beyond that considering the heavy institutional ownership.
*See the FT clip below. FD: No stakes in any companies mentioned.Continue reading
Shares of Credit Saison (8253) jumped 11%, while Orix [[IX]] (8591) rose a muted 3%, on the report of merger talks. (See Reuters clip below). HOWEVER, shares of both have fallen sharply over the past year (there’s even more red over the past two years) compelling one to wonder why an alliance wasn’t formed earlier. Ultimately, Orix shareholders will be rewarded (no details yet if cash/stock merger), but a portion of existing owners of Saison will take a hit (which begs the question of whether Mizuho [[MFG]] (8411) will sell its stake). Orix is a great company, but there’s seemingly no rush to get in given broader market pressures.
TOKYO (Reuters) – Orix Corp, Japan’s largest leasing company, and credit card firm Credit Saison are in merger talks, financial sources said on Tuesday, in a further sign of consolidation in the country’s hard-pressed consumer lending sector.
Combining the two would create a finance group with $106 billion in assets as Japan’s financial sector battles tighter regulations in consumer lending and the global credit crunch, even as a slowing economy has hurt Orix’s core lease business.