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IGT: CONFLICTING HEADLINES ON ISS

Conflicting headlines on ISS’s recommendation regarding their Proxy recommendation made us scratch our heads.  

 

 

IGT’s press release headline reads: “PROXY ADVISORY FIRM ISS RECOMMENDS THAT IGT SHAREHOLDERS REJECT TWO OUT OF THREE OF THE ADER / MATHEWSON GROUP'S NOMINEES, INCLUDING CHARLES MATHEWSON” and states "Institutional Shareholder Services (ISS) recommends that IGT shareholders  vote to elect seven of IGT's eight director nominees.” 

 

Ader Group’s press release headline reads:  “Group announces that ISS recommends International Game Technology holders vote gold proxy card.”

 

We got our hands on the report and IGT’s press release is definitely misleading, if not entirely inaccurate.  The ISS reports recommends that shareholders “DO NOT VOTE” on the management ballot which seeks to re-elect all 8 nominees.  The report recommends that shareholders “VOTE” for Dan Silvers and 5 of the existing IGT Board members, including Janice Chaffin, Greg Creed, Patti S. Hart, Robert J. Miller and Philip Satre.  ISS explicitly withheld its vote for Raymond J. Brooks and Charles N. Mathewson.  

 

The report also outlines the dissident case for discontent and their plan if elected to the Board along with IGT’s response.  The report then goes on to analyze the merit of the dissident case, asking the question if the ADER has made a compelling case for change and concludes that YES they have.

 

In the company’s continuing difficulties in redressing the weakness of its core business segments, the uncertainty about the potential of the online diversification efforts, and the sustained shareholder doubt reflected in IGT’s persistent stock underperformance, the dissidents have demonstrated a compelling case for a greater shareholder perspective on the board.”

  • Stock performance:  IGT has underperformed their peer benchmarks over a 1, 3, and 5 year period ended January 7, 2013 (the date where the dissidents filed their intentions to get on IGT’s Board).  ISS also found it troubling that IGT had not shared in the peer group's recovery over the past year where the comp set increased 18% vs. the S&P’s 17% while IGT declined 12% over the same period.   IGT has underperformed all of its peers with the exception of SHFL in 2012.
  • Core operations:  Expressed concerns surrounding the decline in IGT’s gaming operations business
  • Interactive opportunity:  Double Down’s results have been promising so far, but it's too early to tell whether IGT’s efforts to diversify through the interactive channel will “pan-out”.  ISS also states that wisdom of IGT’s online strategy will hinge on their ability to maintain healthy margins in this business while the online industry evolves.
  • Governance:  ISS concludes that IGT implemented a lot of improvements surrounding pay for performance in 2012 after dealing with widespread investor discontent, but wonders why it took them so long in the first place.

The ISS report then goes on to opine which Board nominees are likely to effect change.

  • Support for Dan Silvers:  ISS supports Dan Silvers given his representation of the dissident shareholder group, his experience as an analyst and investor in the gaming industry and his financial background.
  • Withholding support for Brooks:  Brook’s background is primarily in restructuring and IGT doesn’t need radical change so his background isn’t the best fit
  • Witholding support for Mathewson:  IGT opposes Mathewson since he is viewed as the most controversial candidate from IGT’s standpoint

REPLAY: "A Counterpoint To Herbalife as a Pyramid Scheme"

CLICK HERE to access the replay of our 2/14 call: “A Counterpoint To Herbalife as a Pyramid Scheme", featuring Professor Anne Coughlan.

 

KEY TOPICS

  • Historical context and understanding of multi-level marketing (MLM) and how direct selling looks different than traditional retail
  • Areas in which Ackman and others misrepresent or misunderstand the MLM model
  • Assessment of HLF moving forward

 

ABOUT PROFESSOR ANNE COUGHLAN

 

Professor Coughlan is the John L. & Helen Kellogg Professor at the Kellogg School of Management. She joined the faculty in 1985. Coughlan's areas of expertise are distribution channels, direct marketing, international marketing, sales force management and compensation, and pricing. She is the lead author of Marketing Channels (a textbook originally published in 1996 and now in its seventh edition from Prentice Hall). She teaches classes on distribution channel strategies at the MBA level, and quantitative models in marketing at the doctoral level.  

 

Coughlan was invited by Herbalife to explain multilevel marketing plans at the company's January 10, 2013 Analysts Day. In July 2012 she published a paper titled "Assessing an MLM Business: Herbalife as a Legitimate MLM".

 

Coughlan was the recipient of the school's Executive Master's Program Teacher of the Year Award for the best elective course in 1996 and again in 2003, as well as receiving the Sidney J. Levy Teaching Award in 2000-01.  She received her Ph.D. in Economics at Stanford University. Prior to her appointment at Kellogg, she was a professor at the business school of the University of Rochester.

 

 

 

Robert  Campagnino

Managing Director

HEDGEYE RISK MANAGEMENT, LLC

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Matt Hedrick

Senior Analyst



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MATERIALS FOR TODAY’S EXPERT CALL

We are hosting a call today at 1pm ET, titled, “An Insider’s Look Into Pricing And The Restaurant Industry”.  Please find the materials, and the dialing instructions, for the call below.

 

Please CLICK HERE to access the slides for today’s call.

 

Participant Dialing Instructions:

  • Toll Free Number:
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Howard Penney

Managing Director

 

Rory Green

Senior Analyst


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – February 20, 2013


As we look at today's setup for the S&P 500, the range is 15 points or 0.85% downside to 1518 and 0.13% upside to 1533.           

                                                                                                                    

SECTOR AND GLOBAL PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.76 from 1.76
  • VIX  closed at 12.31 1 day percent change of -1.20%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Feb 15. (prior -6.4%)
  • 7:45am: ICSC weekly sales
  • 8:30am: Housing Starts, Jan., est. 920k (prior 954k)
  • 8:30am: Housing Starts M/m, Jan, est. -3.6% (prior 12.1%)
  • 8:30am: Building Permits, Jan., est. 920k (prior 909k)
  • 8:30am: Building Permits M/m, Jan. est. 1.2% (prior 1%)
  • 8:30am: PPI, M/m, Jan., est. 0.4% (prior -0.2%)
  • 8:30am: PPI Ex Food/Energy M/m, est. 0.2% (prior 0.1%)
  • 8:55am: Johnson/Redbook weekly sales
  • 11am: Fed to purchase $2.75b-$3.5b notes in 2020-2023 sector
  • 11:30am: U.S. Treasury to sell 4W bills
  • 2pm: Fed releases minutes from Jan. 29-30 FOMC
  • 4:30pm: API weekly inventories

GOVERNMENT:

    • 9:30am: Commerce Dept, Intl Trade Admin. hold meeting of Renewable Energy and Energy Efficiency Advisory Cmte
    • 10:30am: FCC holds open meeting on reqs for signal boosters, boosting amt of unlicensed spectrum available for Wi-Fi
    • 11am: Sec. of State John Kerry’s first foreign policy address
    • 1:30pm: American College of Physicians webinar on state of health care

WHAT TO WATCH

  • Home construction in U.S. probably cooled from 4yr high
  • BofA increases Moynihan’s compensation 71% to $12m in 2012
  • N.J. casino owner Revel to file for prepackaged bankruptcy
  • Japan trade deficit hits record as yen inflates imports
  • Bank of Korea’s Kim signals no rate cut needed now
  • Boeing averts immediate engineers’ strike as labor peace elusive
  • Malware attack on Apple said to come from eastern European gang
  • Dell sales exceed estimates on business demand ahead of buyout
  • Monsanto gets support from high court justices on seed patents
  • Heinz deal trading anomalies subject of FBI’s criminal probe
  • Apple victory in Google case to be reviewed by U.S trade agency
  • Wal-Mart sales slump may signal U.S. consumer spending to cool
  • Sony expected to unveil new PS4 at New York media event, 6pm

EARNINGS:

    • Dish Network (DISH) 6am, $0.51
    • EchoStar (SATS) 6am, $0.02
    • Six Flags Entertainment (SIX) 6am, $(0.58)
    • Cinemark Holdings (CNK) 6:36am, $0.39
    • Government Properties Income (GOV) 7am, $0.53
    • Lumber Liquidators Holdings (LL) 7am, $0.42
    • Dentsply International (XRAY) 7am, $0.55
    • DTE Energy (DTE) 7am, $0.86
    • MGM Resorts International (MGM) 7am, $(0.22)
    • Vantiv (VNTV) 7am, $0.34
    • Garmin (GRMN) 7am, $0.73
    • Lithia Motors (LAD) 7:30am, $0.66
    • Sonic Automotive (SAH) 7:30am, $0.51
    • Clean Harbors (CLH) 7:30am, $0.40
    • Devon Energy (DVN) 7:30am, $0.75
    • Owens Corning (OC) 7:30am, $0.16
    • Medicines Co (MDCO) 8am, $0.27
    • Iconix (ICON) 8am, $0.38
    • Ameren (AEE) 8am, $0.16
    • PVR Partners (PVR) 8:30am, $0.14
    • Eaton Vance (EV) 8:39am, $0.52
    • Acadia Healthcare (ACHC) 4pm, $0.19
    • Equity One (EQY) 4pm, $0.21
    • HomeAway (AWAY) 4pm, $0.13
    • Boston Beer (SAM) 4pm, $1.25
    • Walter Energy (WLT) 4pm, $(0.92)
    • Crocs (CROX) 4pm, $0.00
    • InterDigital (IDCC) 4:01pm, $0.06
    • Polypore International (PPO) 4:01pm, $0.52
    • Trinity Industries (TRN) 4:01pm, $0.84
    • Jack in the Box (JACK) 4:01pm, $0.39
    • Sunoco Logistics Partners (SXL) 4:01pm, $0.91
    • Williams Cos (WMB) 4:01pm, $0.25
    • Williams Partners (WPZ) 4:01pm, $0.48
    • MedAssets (MDAS) 4:04pm, $0.28
    • LaSalle Hotel Properties (LHO) 4:04pm, $0.45
    • Waste Connections (WCN) 4:04pm, $0.38
    • Clearwater Paper (CLW) 4:05pm, $0.75
    • Franklin Electric (FELE) 4:05pm, $0.54
    • acquarie Infrastructure (MIC) 4:05pm, $0.21
    • RealPage (RP) 4:05pm, $0.14
    • EXCO Resources (XCO) 4:05pm, $0.16
    • Fluor (FLR) 4:05pm, $0.97
    • Questar (STR) 4:05pm, $0.35
    • Synopsys (SNPS) 4:05pm, $0.55
    • Tesla Motors (TSLA) 4:06pm, $(0.57)
    • KBR (KBR) 4:09pm, $0.02
    • KAR Auction Services (KAR) 4:15pm, $0.19
    • STAG Industrial (STAG) 4:15pm, $0.30
    • Cheesecake Factory (CAKE) 4:15pm, $0.52
    • Concho Resources (CXO) 4:15pm, $1.00
    • Heico (HEI) 4:26pm, $0.40
    • Sauer-Danfoss (SHS) 4:30pm, NA
    • Yamana Gold (YRI CN) 4:30pm, C$0.26
    • Regency Energy Partners (RGP) 4:45pm, $0.07
    • Energy Transfer Equity (ETE) 4:45pm, $0.60
    • Energy Transfer Partners (ETP) 4:45pm, $0.40
    • Mullen Group Ltd (MTL CN) 5pm, C$0.38
    • Orient-Express Hotels (OEH) 5pm, $(0.03)
    • Healthcare Realty Trust (HR) 5:01pm, $0.32
    • SM Energy Co (SM) 5:30pm, $0.23
    • Helix Energy Solutions Group (HLX) 6pm, $0.36
    • Avista (AVA) 7:05pm, $0.45
    • Centerra Gold (CG CN) Post-Mkt, C$0.42
    • Curtiss-Wright (CW) Post-Mkt, $0.93
    • First Industrial Realty Trust (FR) Post-Mkt, $0.23
    • Healthcare Trust of America (HTA) Post-Mkt, $0.14
    • Hersha Hospitality Trust (HT) Post-Mkt, $0.10
    • Pan American Silver (PAA CN) Post-Mkt, $0.36
    • HudBay Minerals (HBM CN) Post-Mkt, C$0.03
    • Iamgold (IMG CN) Post-Mkt, C$0.25
    • Tronox Ltd (TROX) Post-Mkt, $(0.13)

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • World’s Biggest Wheat Buyer Steps Down From Egyptian Authority
  • No Women on Glencore’s Board Marks Mining Imbalance: Commodities
  • Copper Swings Between Gains and Declines as Inventories Expand
  • Gold Declines to Six-Month Low on Signs of Economic Improvement
  • WTI Crude Slips, Discount to Brent Narrows on Seaway Pipe Flows
  • Soybeans Reach One-Week High on Increasing Demand From China
  • Robusta Coffee Rebounds Amid Lack of Vietnam Sales; Sugar Falls
  • Egypt’s Wheat Tender Said to Get Offers From Only U.S. Supplies
  • BHP Names Mackenzie to Succeed Kloppers as Profit Declines
  • Harvesting Sewage Signaling Boon for Utilities to Skiers: Energy
  • U.S. to Ask China to Delay New Rules on Pork Imports, Group Says
  • Rebar Declines Amid Concern China May Curb Property Prices
  • Oil Inventories Climb for Fifth Week in Survey: Energy Markets
  • Copper Volatility Falls to 10-Year Low Amid ‘Super Cycle’ Debate

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 


THE M3: CNY REVENUES; MPEL PHILIPPINES; CHANGI; HAINAN

The Macau Metro Monitor, February 20, 2013

 

 

GAMING REVENUE DOWN 3.9% IN CNY: REPORT Macau Business

Macau casinos recorded a 3.9% drop in gross gaming revenue during the Lunar New Year holidays in comparison with the same festive period one year before, Lusa news agency reports.  Quoting unidentified sources in the gaming industry, Lusa reports that during the first seven days of the Year of the Snake (February 10 to February 16), Macau casinos recorded gross gaming revenue of MOP7.2 billion (US$900 million), down from the MOP7.5 billion recorded in the first seven days of the Year of the Dragon.

 

Gross gaming revenue dropped despite the city having recorded 937,000 visitor arrivals from February 9 to February 15 (including non-resident workers and students), marking a growth of 15.4% compared with last year’s holiday period, according to the Macau Government Tourist Office.  Among those, close to 630,000 visitors came from the mainland, marking an increase of 25.5%.

 

MELCO CROWN'S PHILIPPINE UNIT PREPARES SHARE SALE Macau Business

Manila-listed Manchester International Holdings Unlimited Corp is raising its capital stock to P5.9 billion (US$1.16 billion) from P900 million, with a unit of MPEL subscribing to 2.85 billion shares or 56.9% out of the total increase.  This is part of the move for Melco Crown to take control of the firm, as a vehicle for a backdoor listing in Manila and also as a vehicle for its planned investment in Belle Grande Manila Bay.


Manchester International Holdings has also announced it plans to further sell up to 1.2 billion shares.  The company will also be renamed Melco Crown (Philippines) Resorts Corp.  

 

MONTHLY BREAKDOWN OF PASSENGER MOVEMENTS Changi Airport Group

Singapore's Changi airport passengers rose 1.9% YoY in January to 4,325,530.  The slower growth reflects the difficult comparisons from last year's Chinese New Year which occurred in January.

 

HAINAN CASINO BAR SHUT DOWN: REPORT Macau Business

“We have shut the entertainment bar. We are investigating it and, so far, it looks like they have violated their operating regulations,” Chen Guangfa, the deputy director of the Sanya Culture and Sports Bureau, told Reuters.  “When we approved it, the regulations and the certificate said its operations would be entertainment in nature, but inside the bar there are some games, and they’ve gone beyond the scope of the regulations, so we closed it down,” the official said, without disclosing further details.  The local police are now conducting an investigation.

 

The casino bar had 50 gaming tables with minimum bets from RMB20 (MOP26) to RMB100,000.  The punters at the casino bar played with cash but could not win it back; they could only get points that could be used to pay for accommodation and luxury goods on sale at the resort.


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