CV Therapeutics jumps on bid; Bank of America, Citigroup gain amid rumors; Newmont launches deal

By Kenneth Lim

Boston, Jan. 27 - CV Therapeutics, Inc. surged toward par on Tuesday as news of a takeover bid put some life in an otherwise quiet convertibles market.

Bank of America Corp. and Citigroup Inc. gained on unconfirmed reports that the U.S. government is planning to buy troubled assets from banks.

After the markets closed, Newmont Mining Corp. announced a $350 million offering of three-year convertible notes expected to price late Wednesday.

The markets in general had another slow session as the earnings that were trickling in failed to spark investor optimism, market sources said.

"Things were slightly better today, but it's still really quiet," a sellside convertible trader said.

"There's a couple of names that are active, but nothing much really going on. I think the earnings that have been coming in haven't been spectacular, there's nothing to give the market a kick. But people are making deals, which is a healthy sign."

CV Therapeutics gains on takeover

CV Therapeutics' three convertibles all jumped close to par on Tuesday after Japanese drugmaker Astellas Pharma Inc. announced a $1 billion bid for the company.

The CV Therapeutics 2.75% convertible due 2012 rose about 20 points outright to trade at 98 versus a stock price of $16.05. The company's 3.25% convertible due 2013 gained 25 points to 93.5 while the 2% convertible due 2023 jumped about 7 points to 95.125, all versus the same price.

CV Therapeutics common stock closed at $15.42, up by 35.86% or $4.07.

"Those were busy today because of the takeover," a convertible trader said. "You don't normally see these at all. They were up. I think there's still a bit of uncertainty about whether there's going to be a deal, so they're not trading at par yet...Obviously the outright guys are happy. If you're hedged, I think it depends on which one you owned."

Astellas Pharma said in a statement that it submitted an offer to the board of CV Therapeutics to buy all of CV Therapeutics' shares at $16 per share in cash, representing a 41% premium to the company's shares on Jan. 26. But Astellas said CV Therapeutics' board rejected the proposal and declined to further discuss a transaction.

"We are disappointed that the CV Therapeutics board of directors has rejected outright what we believe is a very compelling all-cash proposal that would deliver stockholders significant immediate value that we believe far exceeds what CV Therapeutics can achieve as a standalone company," Astellas president and chief executive Masafumi Nogimori said in a statement.

"CV Therapeutics' product portfolio, including its angina treatment agent Ranexa, would complement Astellas' U.S.-based hospital and cardiology business, and our established infrastructure and proven track record in drug development and commercialization provide an ideal platform to increase the value inherent in CV Therapeutics."

CV Therapeutics could not be reached for comment.

A successful takeover is not a certainty, Barclays Capital's convertibles and risk arbitrage research teams said in a note.

"We believe a hostile bidder would face significant challenges," wrote the team of Manoj Shivdasani, Venu Krishna, William Gioielli, Evren Ergin and Nathaniel Pollack. "In particular, we note that CVTX currently has in place a poison pill with a 15% threshold, prohibition of action by written consent, and the ability of the board to adopt, amend, or repeal the bylaws."

There is also ambiguity about whether shareholders will be able to remove the existing CV Therapeutics board, although taking control of the board would still take about two years, the analysts added.

The different CV Therapeutics convertibles will likely appeal to different investors depending on their view of the outcome, the analysts said.

The 2.75% convertibles, which have a low premium of about 9.4% and a high delta of about 68%, are more suitable for "investors who believe that a competing offer with a much higher premium is likely," the analyst said.

The 2.75% convertibles will be made whole in an all-cash transaction.

The 3.25% convertible, which has the highest spread of about 17.8% and make-whole protection that kicks in at a consideration of $21.60 per share, "would appeal to those who believe that the $16 offer would go through," they wrote.

"Those bonds would also help investors participate in some upside if an expected sweetened bid/counter offer price is over around $27," the analysts said.

The longest dated, 2% convertible should just be put back when possible because it will not benefit unless a higher offer is at least $47.58, the analysts wrote.

Bank of America gains on note sale

Bank of America's 7.25% series L convertible preferred gained about 2 points outright to trade at 48.5 against a common stock of $6.50, while Citigroup's 6.5% series T convertible preferred added about 1.5 points to close at 14.75 against a $3.55 common stock price.

Bank of America common stock rose 8.33% or $0.50 to close at $6.50 on Tuesday. Citigroup's common stock moved up by 6.61% or $0.22.

Charlotte, N.C.-based Bank of America and New York-based Citigroup are bank holding companies.

A sellside convertible trader said there were unconfirmed reports that the U.S. government could be planning to buy troubled assets from banks under a new plan to address the credit crisis.

"I heard something about a new plan to buy some of the bad assets from the banks, but I haven't seen any announcements," the trader said. "I don't know if that's what's moving the shares. I'd be surprised it does. All the things they've been doing so far haven't worked very well so far, so I wouldn't be too optimistic just because they have another plan in the works."

Newmont plans deal

Newmont Mining plans to price $350 million of three-year convertible senior notes Wednesday after the market closes, with price talk at a coupon of 3.25% to 3.75% and an initial conversion premium of 15% to 20%.

The notes will be offered at par.

There is an over-allotment option for an additional $52.5 million in the registered off-the-shelf offering.

Citigroup Global Markets Inc. and J.P. Morgan Securities Inc. are the bookrunners.

Newmont plans to price a concurrent common stock offering of about $800 million, or 19 million shares.

Proceeds of the convertible and stock offerings will be used to fund Newmont's acquisition of a 33.3% interest in the Boddington development project in Western Australia that it does not already own from AngloGold Ashanti Ltd.

Newmont is a Denver, Colo.-based gold producer.

One trader noted that, at first glance, the deal "seems cheap."

The conversion premium looks low, but the notes also offer "not much of a coupon," the trader said.

Mentioned in this article

Bank of America Corp. NYSE: BAC

Citigroup Inc. NYSE: C

CV Therapeutics, Inc. Nasdaq: CVTX

Newmont Mining Corp. NYSE: NEM

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