From the Securities Lending Trading Desk

Business concept

M&A has been a key demand driver this week.  In the UK, GVC Holdings received shareholder approval for the acquisition of Ladbrokes Coral with 99.97% of votes in favor of the deal. Elsewhere, the healthcare segment is in focus after Cigna agreed to buy Express Scripts Holding Co.(ESRX) in cash and stock and Singapore’s state-owned investment firm, Temasek Holding Pte, announced its plans to sell a $1 billion stake in Celltrion Inc and its affiliate Celltrion Healthcare Co.

Below please find this week’s 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

Merger news is driving interest for the healthcare segment after Cigna Corp. (CI) agreed to buy Express Scripts Holding Co.(ESRX) in cash and stock. According to a statement, the price includes $48.75 in cash and 0.2434 shares of the combined company per Express Scripts share. ESRX has come under scrutiny from the FDA and short-sellers for its role as a middleman hired by insurers and employers to negotiate discounts from drug makers. Industry consolidation has been going on for some time, sparking speculation that this merger could put pressure on competitors, such as UnitedHealth, to follow suit. Other stocks in the sector, including Humana Inc. and WellCare Health Plans Inc., are seeing their share prices slip following the merger news. We anticipate continued demand for stocks in the industry, and specifically for ESRX, as the merger goes through the approval process. The deal is slated to close by the end of the year.

Fee levels are spiking for Roku, Inc. (ROKU) as the share price has fallen as much as 25% over the past three weeks. Bearish sentiment and market utilization have also increased as the company faces a share lock-up expiry. Roku offers wireless enabled devices that stream audio and video content from the internet to home entertainment systems. The firm has faced increased securities lending interest, despite a rally in share price. ROKU’s share price has increased from $14.00 at its IPO back on 9/27 to as much as $56.58 per share on 12/19/17. The biggest test to ROKU’s rally comes as their lockup expiry – due at the end of March – approaches. Utilization has increased over recent days as bears anticipate a major dilution in value due to the lockup expiry and others simply question if the recent gains are warranted.

Asia Pacific

Australia’s Retail Food Group’s share price fell more than thirty percent following the announcement of heavy write downs and store closures. The company could shut as many as 460 stores over the next 2.5 years as it attempts to comply with restrictions imposed on it by bank creditors. Analysts downgraded the stock to a sell, and predicted that the share price is unlikely to recover quickly. We have seen strong securities lending demand for Retail Food Group.

Singapore’s state-owned investment firm, Temasek Holding Pte, announced its plans to sell a $1 billion stake in Celltrion Inc and its affiliate Celltrion Healthcare Co. Temasek subsidary Ion Investment is offering 2.24 million shares of Celltrion Inc and 2.9 million shares of Celltrion Healthcare to raise $724 and $302 million, respectively. Temasek indicated that despite the sale they will remain the largest holder of both Celltrion entities. We have seen strong lending demand for both Celltrion Inc and Celltrion Healthcare.

Europe

UK M&A deals have been key drivers for securities lending demand this week. GVC Holdings received shareholder approval for the acquisition of Ladbrokes Coral with 99.97% of votes in favor of the deal. GVC will buy the bookmaker Ladbrokes for up to $5.4bn. Tyman announced plans to acquire Ashland Hardware for $101m. The acquisition expenses will be funded through a drawdown of the group’s existing committed banking facilities, together with a placing of up to 17.8m new ordinary shares.

Swiss mobile phone retailer, Mobilezone, disclosed terms of their rights issue, driving strong securities lending demand. Mobilezone’s shareholders approved the CHF 80m ordinary capital increased proposed by the board at the Extraordinary General Meeting. The shares will be offered to existing shareholders at a subscription price of CHF 9.5 which represents a discount of approximately 25%. The subscription period will run from March 15 to March 23.