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The Morning Brief: Rent-A-Center’s Shareholders Elect Activist’s Nominees

Shareholders elected the three nominees that activist hedge fund Engaged Capital proposed for Rent-A-Center’s board.

Another activist hedge fund won a proxy fight. Shareholders of Rent-A-Center elected the three nominees proposed by Engaged Capital to the company’s board of directors: Jeffrey Brown, Mitchell Fadel and Christopher Hetrick. “The entire Rent-A-Center board looks forward to working collaboratively with our new directors to restore long-term growth, drive improved profitability and enhance value for all stockholders,” said Steven Pepper, a lead director who was named to succeed Mark Speese as chairman. Engaged is the largest shareholder of the company, which rents furniture, computers, electronics. In April, we reported that activist Marcato Capital Management sent a letter to Rent-A-Center’s board, calling on the company to review strategic alternatives, including a sale of the entire company, which Engaged Capital proposed in February.

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Saba Capital Management disclosed it owns 9.89 percent of Invesco High Income Trust II, a closed-end mutual fund. In a regulatory filing, Saba, headed by Boaz Weinstein, said the shares are undervalued and represent an attractive investment opportunity. It also uses standard boiler-plate language threatening to take some sort of action in the future. The Invesco fund is currently trading at a 9.9 percent discount to its net asset value, or NAV, slightly smaller than its three-year average of 11.15 percent, according to Morningstar. As we have previously reported, Saba has successfully allocated a sizable chunk of its assets to invest in closed-end funds trading at discounts to NAV, in some cases taking an active role in convincing the fund’s management to deploy strategies to close this gap. This is Saba’s first initial 13D filing on a closed-end fund in four months.

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Investors sure like it whenever Valeant Pharmaceuticals International sells businesses and uses the money to pay off its extensive debt. Shares of the embattled drug company surged Thursday about 9 percent to close at $13.24, after it agreed to sell its iNova Pharmaceuticals business to Pacific Equity Partners and Carlyle Group for $930 million in cash. Valeant said it plans to use proceeds from the sale to repay its term loan.

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Shares of hedge fund favorite Alibaba Group Holding surged more than 13 percent to $142.34 after the Chinese e-commerce giant announced that revenue could rise as much as 49 percent. At the end of the first quarter, at least 96 hedge funds held a position in the stock, according to Goldman Sachs Group.

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Credit Suisse raised its price target on hedge fund favorite PayPal Holdings from $49 to $56, citing its “long-term positioning.” It cites the online payments company’s continued product development, monetization of new products, the potential for share repurchases or large acquisitions. Credit Suisse also said PayPal had the “most direct exposure to strong tailwinds in ecommerce.”

Even so, the investment bank, which maintained its “outperform” rating on the stock, warns clients “despite our positive long-term outlook, we see the potential for the stock to trend flattish in the near term as it has made a strong move and currently trades at peak valuations.” Shares of PayPal jumped 1 percent to $54.39. At the end of the first quarter, at least 84 hedge funds held a position in the stock, according to Goldman Sachs. It was the largest long of Conatus Capital Management.

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