From the Securities Lending Trading Desk

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We saw increased interest last week for Mobileye N.V. (MBLY) amid news that Intel (INTC) plans to acquire the Jerusalem-based automotive technology company. There also has been an uptick in demand for Sirius XM Holdings Inc. (SIRI) thanks to increased bearish sentiment and utilization. In Asia, problems continue to mount at Hong Kong’s de facto national airline after it reported its first annual loss since 2008 and said it would skip paying a second-half dividend. 

Below please find the March 21 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.

Americas

We saw increased interest last week for Mobileye N.V. (MBLY) amid news that Intel (INTC) plans to acquire the Jerusalem-based automotive technology company. According to reports, the all-cash deal is the third most expensive acquisition in the technology industry this century, based on transactions over $5 billion. Bloomberg suggests that “[i]n the highly competitive market for autonomous cars, Intel’s purchase is a shot at rival Qualcomm. The mobile phone chipmaker is in the process of making itself the world’s biggest producer of chips used by the automotive industry through its $47 billion acquisition of NXP Semiconductors NV.” MBLY’s share price quickly shot up 34% from the previous day’s close, up to $60.62, closing the gap between INTC’s bid of $63.54 per share. MBLY had previously been a strong focus of demand as the company was closely correlated to Tesla Inc. (TSLA) and the share price was directly affected by news about the electric automobile maker.

There has been an uptick in demand for Sirius XM Holdings Inc. (SIRI) amid increased bearish sentiment and utilization. Despite nearly going bankrupt back in 2009, and closing as low as $0.05 per share during the same period, the firm has been consistently profitable since 2010, leading many investors to believe that SIRI has left its issues in the past. Most recently, even Warren Buffett has supported the company, with Berkshire Hathaway Inc. showing as the number two holder on Bloomberg. However, short interest has been growing with nearly 277 million shares sold short and utilization of 96%. Some analysts suggest that the bearish sentiment is due to fears of competition from Apple Inc.’s CarPlay and streaming services such as Pandora and iHeartRadio. Also a concern for bears is declining subscriber revenue at a time when new vehicle sales were growing. There has been speculation that SIRI is again looking to acquire Pandora Media Inc. (P), despite their offer of $15 per share having been rejected last summer. With the annual shareholder meeting approaching and proxy record date at the end of this month, we anticipate continued demand.

Asia Pacific

Problems continue to mount at Hong Kong’s de facto national airline after it reported its first annual loss since 2008 and said it would skip paying a second-half dividend. Cathay Pacific reported a net loss of HK$575 million ($74 million USD) in 2016, while sales dropped 9.4 percent to HK$92.8 billion, as intensifying competition from mainland Chinese airlines drove down passenger yields. A more worrisome trend for the airline is the fact that Hong Kong is gradually losing out on its status as the gateway to China and the rest of Asia. With several new hubs rising in major cities on the mainland, fewer tourists are visiting the city. We have seen a pickup in securities lending interest for Cathay Pacific in recent weeks, as the airline undergoes a major revamp of its business in an attempt to strengthen its premium-service airline brand.

Embattled Japanese airbag manufacturer Takata Corp faced more negative publicity after several car manufacturers launched a lawsuit accusing the company of fraud. Nissan Motor Co, BMW of North America, and Ford Motor Co launched the fraud suit in an attempt to force Takata to cover losses incurred due to faulty inflators. The car makers are claiming that Takata withheld data about the faulty airbags which have been linked to at least 17 deaths globally. We have seen strong long term lending demand for Takata due to the airbag malfunctions.

Europe

French asset manager Amundi SA and Belgium real estate company Aedifica both announced rights issues this week. Amundi announced a capital raising of $1.5 billion in order to finance the purchase of Pioneer Investments. The asset manager will offer investors one share for every five held at a subscription price of EUR 42.50. The takeover, which is expected to be completed by the end of Q2, will mean the asset manager will hold $1.3 trillion in assets. Real estate company Aedifica is looking to reduce its debt ratio. The firm will offer existing shareholders one new share for every four held at a subscription price of EUR 61.0 and the trading period will run from March 16th to the 23rd. We have also been monitoring the rights trading period of EDF and Amundi where the spreads have been fairly suppressed to this point.

Wood Group has agreed to a takeover of rival Amec Foster Wheeler while Bovis Homes has seen takeover bids from Galliford Try and Redrow. Wood Group and Amec Foster Wheeler, two of the UK’s largest energy service companies agreed last week to a £2.2 billion takeover. The deal will create a company with a combined value of about £5 billion. Amec, which had been due to raise £500 million in a rights issue next week in order to reduce its debt pile, has since suspended the capital raise. The deal comes amid continued stress and volatility on oil prices. Bovis Homes rejected bids from Galliford Try and Redrow as it is believed they undervalued the business. The two takeover approaches for Bovis Homes come amid a host of struggles at the house builder including a profit warning, criticism over the quality of its new builds, and the departure of chief executive David Ritchie.