It’s been a busy week in the US, with acquisitions, stock buy-backs and reverse stock-splits driving lending activity. Borrower sentiment that certain stocks may be over-valued is generating demand in Asia. In Europe, telecommunication companies are in focus.
Below please find the June 10 edition of From the Trading Desk, which provides timely commentary about top security earners, revenue drivers and other factors influencing the securities lending market from the BBH Securities Lending Trading Team.
Drugs and diagnostics company Opko Health agreed to purchase Bio-Reference Laboratories in an effort to gain access to genetic data and sequencing technologies to aid medical discovery. Opko is offering 2.75 of its shares for each share of Bio-Reference Labs, valuing the target’s common stock at $52.58 a share, the Miami-based company said in a statement. Already trading special, fees for Opko Health spiked after news of the deal broke.
There was a flurry of initial broker interest for Wendy’s, the third-largest U.S. burger chain, after it announced plans to repurchase $1.4 billion in stock. This includes a portion of the stake owned by its largest shareholder, Nelson Peltz’s Trian Fund Management. The fast-food chain plans to make the remaining $550 million in buybacks by the end of 2016, according to a statement. Although there is no firm demand at this point, we anticipate increased demand closer to the deal’s expiration date on June 30.
Borrowers are seeking shares of Emerald Oil following the company’s 1 for 20 reverse stock split and decision not to proceed with a planned $150 million public offering. Emerald’s share price has been volatile since mid-May, as investors react to company announcements. Many expect that the company will be deleted from the Russell 2000 index as part of the index’s annual reconstitution. Availability in the lending market is tight and fee levels remain elevated as borrowers anticipate recall pressure as a result of the Russell deletion.
Shares of Goldin Group’s two publically traded divisions continued their roller coaster ride in Hong Kong trading. Goldin Financial Holdings and Goldin Properties Holdings, both owned by mainland Chinese tycoon Pan Sutong, have experienced extreme share price volatility since May 20, when the sharp decline in the share price of solar company Hanergy prompted investors to question whether other Hong Kong securities were similarly overvalued. We have seen strong lending demand in both names.
Lending demand in the Japanese consumer electronics sector has increased following media reports of projected losses at Sharp Corp. Japanese media reported that Sharp is expecting a 180 billion Yen full-year loss due to growing problems with its LCD and solar-panel businesses. We continue to see strong demand to borrow Japanese consumer electronics companies as their business models are undercut by lower-cost rivals in South Korea and China.
European telecommunication companies have been rapidly consolidating to gain scale and offer more services amid competition that is driving down prices and profit margins. Deals this year include BT’s acquisition of EE Ltd. in February, Hutchinson Whampoa’s purchase of O2 from Deutsche Telekom and reports that Liberty Global is looking at a tie up with Vodafone. The securities lending desk has seen increased utilization in this sector, however liquidity has kept fee levels dampened.
OPEC is bracing for an increase in oil supply as Iran and Iraq plan to expand production. Demand for oil service names has tapered off in the last month on strengthening oil prices from lows of $40 a barrel. Demand remains sensitive to the supply signals in the market and we remain vigilant of any further indications of weakness in oil prices. The lending desk is monitoring offshore drillers Transocean, Saipem and Seadrill, as well as seismology companies such as TGS Nopec, Petroleum Geo-services and CGG Veritas.