Changhong Jiahua (3991 HK): Sichuan Changhong's Pre-Con Scheme

• After Changhong Jiahua (3991 HK) (CJ) was suspended pursuant to the Takeovers Code, I expected SOE-backed Sichuan Changhong (600839 CH) (60.13%) to make an Offer. And that is what unfolded.

• Sichuan Changhong plus provincial bodies, have made a pre-conditional Offer by way of a Scheme, at HK$1.223/share, a 32.93% premium to last close. The Offer Price is final.

• Pre-Cons include the local SASAC & Reform Commission Commerce, plus SAFE. The risk to the deal will be one of timing. The Offer Price is fair.

Changhong Jiahua Holdings is super illiquid - look away now if this is not your bag.

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The Trade:

• CJ is up 64% YTD.. I anticipated a ~30%+ premium to undisturbed, or ~$1.20/share+, and that is what transpired.

• Clean deal. Just a question of timing.

• If a six month off-ramp (including four months to secure pre-cons), pay up to HK$1.14/share.