From the Securities Lending Trading Desk

WPP Plc., the world’s largest advertising company, is still reeling from Founder and CEO Martin Sorrell’s abrupt resignation last month amid allegations of personal misconduct and misuse of company assets. A prominent activist hedge fund has gained more allies in its opposition to a restructuring plan at South Korea’s second largest conglomerate Hyundai. UK shares of bookmakers fall after new legislation to reduce the size of bets allowed on roulette and poker machines.

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

WPP Plc. (WPP), the world’s largest advertising company based in the UK, is still reeling from Founder and CEO Martin Sorrell’s abrupt resignation last month amid allegations of personal misconduct and misuse of company assets. Compounding the turmoil has been the company’s refusal to release details of its investigation into the allegations, as well as the lack of succession plan in place for the CEO position. Furthermore, one of the top WPP shareholders, Harris Associates, is now at odds with proxy advisory firm Glass Lewis in its recommendation to vote against the re-election of current Chairman Roberto Quarta. Harris Associates has just recently publicly supported Quarta and an orderly succession process. Amidst the growing uncertainty, lending fees and utilization on the WPP ADR have grown steadily.

Rent-A-Center (RCII), one of North America’s largest rent-to-own operators, has recently seen an increase in lending fees as pressure from investors mounts on company executives to sell or accept takeover offers. RCII has been a long-term target of bears as the company has lost 75% of its value over the past 5 years. On its latest Q1 earnings report, RCII missed analyst targets of gaining $0.08 EPS by losing $0.08 EPS. In response, Marcato Capital Management, owner of a 2.3% stake in the company, just recently sold its entire position. RCII said that it expects to reach a decision on its future with regards to sale bids, some time in Q2.

Asia Pacific

A prominent activist hedge fund has gained more allies in its opposition to a restructuring plan at South Korea’s second largest conglomerate. US hedge fund Elliot Management announced last week that it would vote against the Hyundai group’s plan to spin off the manufacturing and after-sales parts business of Hyundai Mobis and then merge this spun-off business into Hyundai Glovis, its logistics unit. Two influential proxy advisory firms Glass Lewis & Co and Institutional Shareholder Services Inc. also see the restructuring, along with the proposal from the founding family to sell its stake in Hyundai Glovis to buy more shares of Hyundai Mobis, as unfair to shareholders and have urged investors to vote against the proposal at the AGM on 29th May. We have seen strong securities lending demand for Hyundai Mobis in the past weeks, which has seen its share price decline by 10% since early April.

New Zealand cow milk manufacturer A2 Milk Company Ltd shares slumped after the company signalled full year 2018 revenue will fall short of analyst estimates. Shares fell by as much as 22% following the announcement and a subsequent analyst downgrade. The A2 Milk Company Ltd share price recovered some of its losses later in the week as investors speculated the market over-reacted to the negative news. A2 Milk Company Ltd has seen phenomenal success in recent years as demand from China surged and revenue tripled. We saw strong securities lending demand for A2 Milk Company Ltd last week.

Europe

UK shares of bookmakers fall after new legislation. The UK drastically reduced the size of bets allowed on roulette and poker machines, crimping a profitable business for the gambling industry that’s been blamed for addiction and contributing to economic hardship. The maximum bet on fixed-odds betting terminals now will be 2 pounds ($2.71), down from 100 pounds. Analysts see William Hill Plc. with the most exposure and could lower annual profits by as much as £100million. We have already witnessed Paddy Power Betfair looking to expand into U.S sports betting to find alternative revenue streams. This announcement also means that GVC will not make any contingent payment for the acquisition of Ladbrokes Coral. The deal included a possible additional payment of up to 42.8p/share.

Astaldi SpA, the engineering and construction company has announced a capital increase. Astaldi Spa has reached an agreement to raise 300 million euros ($353 million) of new capital, conditional on its sale of a key asset. Japan’s IHI will inject EUR112.5million to bring its stake to 18% and JPMorgan Chase plans to underwrite the remaining shares. The deal is conditional on Astaldi selling 33% of the Turkish bridge Bosphorus strait which is to be estimated to be worth EUR350million. Astalidi’s shares fell 4.5% upon announcement.