Analyst support helps Nektar, SanDisk; Massey up with rumors; Micron, NII firm; Vedanta upsizes

By Kenneth Lim

Boston, March 3 - The convertibles market had a mostly positive day as underlying stocks appreciated, but volumes remained lackluster.

Nektar Therapeutics rose after analysts reaffirmed their optimism about the company, while Massey Energy Co. continued to be active after speculation about the company pursuing a takeover.

In the tech sector, SanDisk Corp. continued to draw strong, positive interest after favorable views from analysts.

Micron Technology, Inc. and NII Holdings, Inc. also gained on the day.

In Europe, Vedanta Resources plc upsized an offering of seven-year convertibles to $805 million, although the deal came nearer to the cheap end of price talk.

The market in general saw scattered trading in the absence of a strong theme to guide investors, a sellside trader said.

"It's a wild and woolly day," the trader said. "It's all over the place. It's really quiet, as it has been lately, but in general I think things are better to buy."

Nektar up on reports

Nektar's 3.25% convertibles due 2012 gained about 2 points to trade at 97.625 against a stock price of $14.15 on Wednesday. The common stock jumped 14.29% to close at $14.32.

"Nektar was pretty active," the trader said. "They traded up both in dollar price and relative to the stock."

Nektar's common stock gained on Wednesday after analysts expressed optimism about the company's outlook. Stock analysts at BMO Capital Markets and Cowen and Co. maintained "outperform" ratings on the company, while Brean, Murray Carret & Co. kept a "buy" recommendation.

The analysts said they were upbeat about the San Carlos, Calif.-based drug development company's product pipeline.

Nektar on Tuesday said it lost $7.7 million, or 8 cents per share, in its fourth quarter, down from a $76.8 million, or 83 cents per share, profit in the year-ago period.

Massey rumors still active

Massey's 3.25% convertible due 2015 tracked its underlying stock slightly higher on Wednesday to change hands at 92.875, up by about 1.5 points. The common stock closed at $46.80, up by 0.95% or $0.44.

"There's been takeover news this week," a trader remarked.

A market rumor emerged on Tuesday that Massey was seeking to buy Patriot Coal Corp., speculation that neither Massey nor Patriot has commented on. Massey is a Richmond, Va.-based coal mining company.

A sellside analyst said there did not seem to be anything that could support the rumor, and the market may have just been looking for an excuse to bid up the coal sector. But if there were a takeover, it may not necessarily be positive for the convertibles, the analyst said.

"I guess it would depend on how they pay for an acquisition, if any," the analyst said. "If you're looking at a lot of debt, it's probably going to hurt the credit. But this is all very speculative and while it's fun to do thought exercises, there's really nothing to base any of this on."

SanDisk keeps going strong

SanDisk's 1% convertible due 2013 continued to see strong volume on Wednesday as investors remained upbeat about the Milpitas, Calif.-based flash memory maker.

The notes traded at about 84.625, up from about 83 a couple of days ago. SanDisk common stock slipped 2.09% or $0.68 to close at $31.80 on Wednesday.

"The '13s were active and pretty strong the past two days," a trader said. "They had an analyst day last week and the bonds have been strong since the analyst day."

UBS on Tuesday upgraded its recommendation on the stock to "neutral" from "sell."

Micron, NII bid up

Micron's 1.875% convertible due 2014 gained about 1.5 points outright on Wednesday to trade at 92.875, seeing strength while the stock eased by 1.25% to close at $9.45.

Micron is a Boise, Idaho-based flash and DRAM memory maker.

NII, a Reston, Va.-based wireless communications provider, also saw its 3.125% convertibles due 2012 add about ½ point to trade at 93.875 while its stock closed at $39.23.

"Those traded up pretty well today on some pretty good volume," a trader said.

The trader said SanDisk, Micron and NII benefited from investors looking for better yields with nowhere else to put their money.

"I would say the NIHD, SanDisk and Masseys, it's probably 'yieldy' names that continue to be better to buy," the trader said. "There's also a lack of issuance."

Vedanta upsizes offering

Vedanta Resources priced an upsized $805 million of seven-year convertible bonds near the cheap end of talk with a coupon of 4% with an initial conversion premium of 37.5%.

Price talk was at a coupon of 3.5% to 4% and an initial conversion premium of 35% to 40%. Vedanta common stock closed at 2,610p on Wednesday in London.

The notes were issued at par through subsidiary Vedanta Resources Jersey II Ltd., but are guaranteed by the parent company.

The size of the deal was originally $775 million with an over-allotment option of an additional $75 million. The greenshoe is now $78 million.

Proceeds will be used to refinance existing debt and for general corporate purposes.

Vedanta is a London-based mining company with operations in India, Zambia and Australia.

Mentioned in this article:

Massey Energy Co. NYSE: MEE

Micron Technology, Inc. Nasdaq: MU

Nektar Therapeutics Nasdaq: NKTR

NII Holdings, Inc. Nasdaq: NIHD

SanDisk Corp. Nasdaq: SNDK

Vedanta Resources plc London: VED

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