From the Securities Lending Trading Desk

We are seeing increased demand in the US for Kate Spade & Company as Coach looks to acquire the handbag maker for $18.50 per share. Macau casino stocks fell in Hong Kong trading last week after the world’s biggest gaming hub reported June revenue that missed analyst estimates. Further rights issues announced in Southern Europe.

Below please find the July 11 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.

There has been strong demand for shares of Blue Apron Holdings, Inc. (APRN) following their initial public offering. APRN is a meal-kit delivery company which made its trading debut on 6/29 closing at $10, the same as their $10 initial public offering price. However the share price has been unable to sustain this level as the $10 IPO price had already been cut by more than a third to help stoke demand for the shares. There is speculation that APRN has not fared as well in the first week of trading due to news breaking of Inc.’s agreement to buy Whole Foods Market Inc. for $13.7 billion only a few days earlier.

We are seeing some increased demand for Kate Spade & Company as Coach looks to acquire the handbag maker for $18.50 per share. The merger is believed by many to be a good fit as Coach has been looking to bolster their exposure to millennials by tapping the popularity of Kate Spade’s quirky satchels and totes. Roughly 60% of Kate Spade’s customers are millennials. Meanwhile, Kate Spade & Co. had been pushed to sell from activist investor Caerus Investors. Coach has extended their tender expiration to 7/10 from the previous expiration on 6/23. This is an all cash offer which typically only results in directional demand as there is no spread between election options.

Asia Pacific
The founding family of one of Japan’s largest oil refiners has voiced its opposition to a potential merger with one of its nearest rivals and has indicated it may also file for an injunction to halt a planned share sale that is linked to the deal. Idemitsu Kosan Co announced plans last week to raise as much as 139 billion yen ($1.2 billion) from a public share sale with some of the proceeds to be used to repay short term loans that will be used to purchase shares in Showa Shell Sekiyu. Idemitsu’s founding family has objected to the deal by publicly citing Showa Shell’s close links with Saudi Arabia and corporate culture differences between the two firms. Additionally the family has contended that the share sale is only intended to dilute their stake in the firm so as to enable the merger to proceed, a charge that the company has refuted. We witnessed strong securities lending demand for Idemitsu Kosan upon announcement of the deal, with its shares declining by almost 11% in one trading day.

Macau casino stocks fell in Hong Kong trading last week after the world’s biggest gaming hub reported June revenue that missed analyst estimates. Gross gaming revenue rose 25.9% in June to USD 2.5 billion which missed median analyst estimates of a 30% increase following a 24% jump in May. Analysts attribute some of the drop to Chinese President Xi Jinping’s visit to Hong Kong which likely curtailed Macau visits at the end of June. Macau gaming shares are expected to be further negatively impacted by new ATM regulations that require UnionPay cardholders to obtain cash from ATMs with facial-recognition software. We have seen moderate long term lending demand for Macau casino stocks such as Macau Legend Development and Wynn Macau Limited.

Further rights issues announced in Southern Europe. Italian lender Banca Carige reported last Tuesday that their board had approved a 500 million EUR rights issue as well as the disposal of 1.2 billion EUR non-performing loans. The news was part of a new strategy outlined by the newly appointed CEO Paolo Fiorentino that will look to address the bank’s capital issues. The announcement re-ignited strong demand. Details of Santander’s 7.1 billion EUR rights issue were announced this week, the bank plans to issue a 1 per 10 rights ratio with the trading period from the 6th to the 20th July. The capital raise is being done to cover the takeover and clean-up of the troubled lender Banco Popular Espanol SA after the ECB determined in early June that the bank was failing or likely to fail. There seems to be enough liquidity to satisfy demand but we will continue to monitor the spread between the rights line and the ordinary line.

Vivendi increases its stake in Havas SA. The French multimedia provider said last Monday that it has acquired a 60% stake in advertising group Havas SA for EUR 2.36 billion with the view of buying the rest of the company before year end. In accordance with French market regulation the firm will launch a simplified tender offer for the remaining Havas shares with the offer aiming not to delist existing Havas shares. The desk continues to monitor the tender offer and any potential uplift.