It turned into a busy week for eBay after Starboard Value urged the company to spin off its Classifieds operation to help unlock “significant shareholder value” in a Tuesday public letter. The activist said there has “not been enough progress,” in completing spin offs or refreshing its board, almost a year after an agreement struck between Starboard, Elliott Management, and eBay in March 2019. The agreement saw each activist gain board representation at the company, with Elliott’s Jesse Cohn appointed to the board along with Starboard’s independent nominee Matthew Murphy. In activist short news Luckin Coffee Inc (NASDAQ:LK) responded to a shortseller campaign.

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Q4 2019 hedge fund letters, conferences and more

On the same day, New York Stock Exchange owner Intercontinental Exchange (ICE) reportedly made a takeover offer for the online retail marketplace. The approach reportedly valued eBay at more than $30 billion, implying an offer price of over $36 per share. By Thursday, however, the talks broke down and ICE said it was no longer perusing the transaction. ICE confirmed it had "approached eBay to explore a range of potential opportunities," but "based on investor conversations following today’s ICE earnings call, ICE has decided to cease exploring strategic opportunities with eBay."

Since its agreement with the two activists to launch a strategic review of its operations in March 2019, eBay has completed a $4 billion sale of its StubHub business and sought cost-reduction opportunities.

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What We'll Be Watching For This Week

• How will Instructure shareholders vote regarding private equity firm Thoma Bravo’s proposed $47.60 per share take-private deal at the meeting on Thursday?
• Will Elliott Management be fined $22 million following French regulator Autorité des Marchés Financiers accusations that the activist mislead the market?
• Will Vivendi initiate any further litigation against Mediaset’s reorganisation plan?

Activist Shorts Update: Muddy Waters Vs. Luckin Coffee

Muddy Waters Research took a short position in China-based beverage company Luckin Coffee, based on a "credible" anonymous report submitted to the short seller that accused the company of running an "inherently flawed" business model and faking its numbers. The report said that after the company’s $645 million initial public offering, the company began fabricating financial and operating numbers in the third quarter of 2019. The results sent Luckin’s stock price up over 160% in a little over two months and the company successfully raised another $1.1 billion in January.

The China-based beverage company later denied the allegations, calling them "misleading and false." Luckin said, "The methodology of the report is flawed, the evidence is unsubstantiated, and the allegations are unsupported speculations and malicious interpretations of events."

Citron Research, which typically takes short positions, defended the company, tweeting that "all data from Biz con China and App download and calls with competitors confirm financials."

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Chart Of The Week

The number of communication services companies publicly subjected to activist demands in the 12 months ending February 07 between 2014 and 2020.

Luckin Coffee’s Stock is Up, and Study shows America’s Caffeine Addiction is at an All-Time High

The history of caffeine dates back to the 15th century, but it wasn’t until the 1900s that coffee giants like Dunkin’ Donuts and Starbucks made their debut. Since then, the popularity of caffeinated beverages has skyrocketed and become a cultural phenomenon. A recent study conducted by Amerisleep shows that 69% of caffeine drinkers consume it daily, and nearly one-third exceed the FDA’s recommendation. Unfortunately, 8 in 10 people are unaware of their daily caffeine consumption, and many companies are cashing in on this craze — from 5-Hour Energy shots and Bang Energy Drinks to McDonald’s $1 Sweet Tea.

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Q4 2019 hedge fund letters, conferences and more

Despite our love for all things caffeine, nothing will ever compare to a good ole cup of joe. Hot coffee is the preferred beverage among all generations, and Starbucks has taken advantage of that on an international level. Compared to Dunkin’ Brands, the company holds about 20,000 more stores spanning across 75 different markets. While chains like Costa Coffee and Tim Hortons have rapidly expanded in their respective countries, Starbucks remains the front runner.

Luckin Coffee history

Although, the ICR Conference (one of the largest investment conferences) this week brought about news of another coffee connoisseur who might be trying to compete. Luckin Coffee is said to be the fastest-growing coffee chain in China, a country that is typically known for their hot tea beverages. The company actually surpassed Starbucks last year with 4,500 store locations, compared to 4,300. Launching in 2017, their level of growth in just two years has proven their business model to be efficient.

More than just a coffee shop, Luckin recently announced a plan to expand their efforts and enter the unmanned retail market with "smart" vending machines. This will bring their product closer to both new and returning customers, as well as allow them to franchise on a smaller scale. Living in such a fast-paced society, many people nowadays are constantly on-the-go and are looking for convenient, simple alternatives. The easy accessibility of these machines could make them the future for coffee businesses everywhere. Peaking the interest of many investors, Luckin’s stock has jumped to new heights over the past few months, with a 6% increase as of January 14th. It looks like they’ve earned their nickname as the “Starbucks of China.”

Although the average person in China has just 5 cups of coffee per year, studies show that the average caffeine drinker in the U.S. consumes a whopping 799 servings of caffeine annually. Will Luckin Coffee give Starbucks a run for their money in years to come?