Happy Wednesday, Barkada —

The PSE lost 40 points to 6883 ▼0.6%

Shout-out to Jing for the appreciation, to Toots for spotting my math error ("You forgot 1 zero!") in the proportional ownership though experiment in the REIT Q&A, to wilson for agreeing with the political implications of the ERC fine to NGCP, to Rat Race Running for recognizing the political risk of SGP before this most recent development, to Ipe Diman for asking the reason behind the SPNEC 11% pump, to Volts Sanchez for asking if REIT treasury shares would still cause dilution in a swap (yes, because they're not counted as outstanding while being treasury shares), to Maharlika Investment Fun for posting the Scrooge McDuck money vault GIF, to bob trillo and King Emmanuel Cantillo for picking up what I was putting down about the Maharlika Investment Fund, to /u/rzb_6280 for a VERY relevant Office quote, to Talpak for hoping the MIF will improve dealing with the PH government, to to Sadok Bey for hoping that other REITs follow the lead of AREIT's management, and to arkitrader for the blast-from-the-past Pulp Fiction meme.

▌In today's MB:

• Citystate hits ceiling for 2nd day in a row
  • What's going on
  • What is CSB worth?
  • The CMIC inquiry
  • But what about the first day?
  • Other bank deals
• SFA Semicon officially announces tender offer
  • Two-thirds minority approval needed to delist
  • Vote will occur on October 11
  • TO Report to come after successful vote

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▌Main stories covered:

• [UPDATE] Citystate Savings hit the ceiling for 2nd day in a row… Citystate Savings Bank [CSB 13.40 ▲50.0%; 1082% avgVol] [link] made news on September 2 (Monday) when it revealed an Hong Kong-listed company called CSC Holdings (CSCH) had signed an agreement to acquire 26.8% of CSB’s outstanding shares from a collection of CSB’s existing shareholders in a secondary share sale [MB link]. CSB’s stock price closed that day up 50%, which was the dynamic threshold limit for that day’s session. Yesterday (Tuesday), the first trades to cross were at ₱13.40/share, which was again up 50% on the day and at the dynamic threshold limit. The PSE’s watchdog, the Capital Markets Integrity Corporation (CMIC), inquired about the unusual price movement of CSB’s stock at 9:30 AM on September 3 (Tuesday), and CSB replied that it was not aware of any material non-public information “that could have triggered the observed trading price movement in CSB shares at 09:30:00 AM today, specifically on the increase in trading price from Ph₱8.94 to Php13.40 per share."

  What is happening? Investors are responding to news of the potential agreement between CSCH and the group of CSB shareholders. The agreement calls for the transaction to go forward at a price of ₱16.97/share, subject to any adjustments in the bank’s net asset value prior to closing.

  Is that what CSB is worth? Not necessarily. It’s worth that much to CSCH, but it makes sense that they might need to pay a premium to acquire a large batch of shares in a single transaction. CSB’s public float is only 10.74%, so it wouldn’t have been possible for CSCH to acquire a stake of this size through the open market. The price paid by CSCH is just one signal in a chorus of signals that hint toward CSB’s ever-changing market value.

  But doesn’t CSB know why the price moved? Sure, but this inquiry and response is a very special legal dance. The question being asked by CMIC is not just “Do you have any guesses as to why this is happening?”; the CMIC is asking specifically if CSB has any knowledge of non-public information that has not been disclosed to the public that could be responsible for the price surge. Even more specifically, the CMIC is asking that question concerning the price action at 9:30 AM on Tuesday. Since CSB had already disclosed the transaction to the public the day before (making the non-public information public), they were able to respond that, as of 9:30 AM on Tuesday, they didn’t know of any material non-public information that could be responsible for the price movement.

  But what about the day before? That is a question that is by far the most interesting. It’s purely hypothetical since we don’t have any information to say that CMIC made any inquiry on Monday, but what if the CMIC had sent the same inquiry letter to CSB on Monday, asking about CSB’s knowledge of non-public information that could be behind the unusual price movement at 9:30 AM on Monday? That’s tricky. CSB didn’t disclose the deal until 11:48 AM on Monday. Did CSB have knowledge of the deal at 9:30 AM when the price had already jumped up 40%? We don’t know for certain. However the acquiring company, CSCH, had already disclosed the deal to its own exchange’s disclosure server by 7:04 AM [link] on Monday, and at least one of the selling shareholders is in the orbit of the ownership group of CSB.

  What’s the disclosure rule, though? I don’t know. The CMIC’s interest in the second day’s price movement is like a fire truck showing up the day after the fire has been put out. The message boards that were lighting up with “What’s going on with CSB??” in the early hours of Monday’s trading session were the fire that CMIC seems to have missed. It’s totally possible that some traders saw that 7:04 AM CSCH disclosure and made CSB trades on Monday morning with material information that other CSB traders did not have. But it’s also possible that no traders were acting with that knowledge, and it was just a matter of CSB’s price returning to approximately the same level that it had been on Friday. We just don’t know.

  • MB: The point of this isn’t to suggest that CSB did anything wrong. I’m just trying to show why CMIC might have sent the inquiry, why CSB was able to respond that it had no knowledge, and how the back and forth between CMIC and CSB relates to the disclosure rules that the PSE requires of its listed companies. As for all the questions about the true value of CSB’s shares, that price discovery is a process that the market is going through in real-time each day. There isn’t One True Price that we can assign to CSB’s shares. The market is price is what a third party buyer is willing to pay on the open market, and that price could be different for each of the millions of potential buyers for CSB shares. We know that CSCH is willing to pay at least ₱16.97/share, but that’s for a significant minority stake as a strategic investor. You might recall Sumitomo Mitsui Banking Corporation (SMBC) buying a 15% stake in Rizal Commercial Banking Corporation [RCB] in 2022; SMBC paid a 218% premium per share (~₱44/share) for that stake over RCB’s market price at the time of the announcement. RCB’s stock price of course moved on the news, but it never got higher than ₱25/share, and today it’s trading at ₱21.35/share. It was worth ₱44/share to SMBC to buy that stake in RCB, but it wasn’t worth ₱44/share to anybody else. Of course everything about the two deals is different, but the point here is that these larger private deals are not always direct evidence of a stock’s value on the open market. It’s fun to see CSB flying high, but in my opinion, where the stock goes in the coming years will have a lot more to do with what the management team does with CSCH as a strategic investor than it does with what CSCH will pay for its stake."

• [UPDATE] SFA Semicon officially announces parent’s tender offer plan… SFA Semicon [SSP 2.14 ▲1.4%; 5% avgVol] [link] officially notified the SEC of the intention of its parent company, SFA Semicon Co. Ltd. (SSK), to conduct a tender offer to acquire 204,875,000 of SFA’s common shares “in connection with the proposal for SSP to file a petition for voluntary delisting.” SSK plans to offer ₱2.22/share for the tender offer shares, and SSK will conduct the tender offer once SSP shareholders approve the voluntary delisting at SSP’s upcoming stockholders’ meeting on October 11. SSK will produce a Tender Offer Report after that vote.

  • MB: Nothing too unusual here. I know there are significant rumblings that this tender offer price is too low, so the rule that requires the approval of at least two-thirds of the minority shares has a chance to play a role in this process by making noise at the stockholders’ meeting in October. The best part of the disclosure, though, were the “errata” related to the tender offer notice that was published in the Philippine Daily Inquirer. SSP noted that the tender offer price was just listed as “2.22” (it was missing the Peso sign, which is important because SSK is a foreign company), and that (for some reason) the name and contact info of one of SSP’s back office employees was published beside the logo at the top of the notice. Whoopsie!

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