Bell Microproducts zooms to near par; International Game higher; Concur offering on tap

By Rebecca Melvin

New York, March 29 - Bell Microproducts Inc.'s convertibles jumped Monday along with a surge in their underlying shares on news that the high-tech distributor had agreed to be acquired by electronics components distributor Avnet Inc.

Although Monday brought the Bell merger news, there wasn't much else to write home about in terms of secondary market trading, sources said. It was quiet going in to the Passover holiday, one sellsider pointed out.

Overall equities were up and convertible names mentioned in trade generally saw gains in tandem with their underlying shares.

International Game Technology Inc. convertibles moved up again, in line with their underlying shares, as the gaming industry's dominant player continues to draw investor interest.

The convertibles of Hutchinson Technology Inc., a supplier of suspension assemblies for disk drives, were better Monday, up to 85.5, according to a New York-based sellsider. Shares of the Hutchinson, Minn.-based company added 19 cents, or 3%, to $6.58.

Cemex SAB de CV, the Mexican cement company that priced $650 million of convertibles last week, saw that paper trade up from Friday's lower level back to its debut pricing.

In the primary market, Concur Technologies Inc., a maker of expense reimbursement software, launched an offering of $250 million of five-year convertible senior notes after the market close, with the paper expected to see final terms on Tuesday.

Bell Products up on takeout news

Bell Microproducts' 3.75% convertibles due 2024 moved up about 3 points to 99.625 bid, 99.75 offered, while shares of the San Jose, Calif.-based distributor of high-tech products surged $1.53, or 28%, to $6.91.

Bell Microproducts, which rarely trades in the convertibles market, moved up from the mid-90s in recent weeks and up from only about 10 a year ago, a New York-based sellsider said.

Bell announced ahead of the market open that the company has agreed to be acquired by Avnet in an all-cash merger for $7.00 per share, or about $594 million.

The acquisition has been approved by the boards of both companies and is subject to shareholder approvals. Shares of both companies rose on the news.

Avnet - for which Fitch Ratings affirmed its issuer default rating, bank credit facility and unsecured notes facility - wants to build scale and scope in storage and computing solutions and its presence in Latin America with the acquisition.

Bell's data center products and embedded systems compliment Avnet's current strategies and creates opportunities for cross selling Bell's position as one of the leaders in hard disk drive distribution in North America, according to a company release.

Raymond James acted as a financial adviser and Jones Day acted as legal counsel to Bell in connection with this transaction.

Also according to the release, Bell expects to generate first-quarter 2010 sales of $795 million to $815 million, an increase of 11% to 14% from the first quarter of 2009, and on the high-end of previous sales guidance of $780 million to $815 million.

In addition, management is anticipating a first-quarter shift in product mix, the release said. Distribution sales are expected to be relatively strong and approximately flat with fourth-quarter sales levels, representing an estimated increase of 17% to 20% from the first quarter of 2009.

ProSys, the company's reseller division, is expected to generate lower-than-previously anticipated sales volumes, primarily due to seasonally lower purchases by a few large customers. Due to this product mix shift from higher margin single-tier sales and in part due to seasonality, Bell anticipates generating first-quarter gross margins of between 8.5% and 9%, a decline from 9.4% in the fourth quarter of 2009.

International Game moves up

International Game's 3.25% convertibles due 2014 traded at 119.5 versus a share price of $18.20 on Monday, compared to trades at 116.5 versus a share price of $17.00 a week ago.

Shares of the Reno, Nev.-based company gained 68 cents, or 4%, on the day to $18.44. And for the week, since March 22, the equity is up 3%.

The company's equity is predicted to move up to $32.00 per share based on discounted cash flow analysis, and other analysis, according to a SumZero investment report.

International Game is an attractive name, according to the report, because of its consistent returns, high margins, dominant market position, low leverage, the high barriers to entry in its market, and the fact that gaming is unlikely to fade, and International Game is smart about allocating capital and making acquisitions.

The company generates about $500 million free cash flow. Its manufacturing plant in Reno is running at about 50% capacity, so it is ready to capture more market if, as some predict, there is an expansion of gaming and gaming equipment in the near to medium term.

Since the gaming industry is highly regulated it is unlikely for a new entrant in the industry without having a relationship with existing operators. International Game commands a market share of more than 60%, and it is well positioned to take advantage of expansion in server-based gaming, according to the report.

This technological upgrade is the next biggest opportunity for the company, the report states. Since 2004, International Game ramped up its R&D spending from 5% of revenue to 8% to ready for this new gaming system. A majority of the R&D spending went to developing new game themes, applications, and network infrastructure. In addition, its partnership with MGM makes it best positioned to sell networks and devices.

Finally, according to the report, International Game's gaming operations segment should benefit from a rising interest rate environment due to lower jackpot liabilities cost. There is an inverse relationship between interest rates and the cost to fund jackpot liabilities since the present value of the payouts are being discounted using the interest rates.

Cemex regains with shares

Cemex's 4.875% convertibles, which priced last week, traded at 103.25 versus a share price of $10.25 on Monday, compared to 102.25 versus a share price of $10.05 on Friday.

On their debut Thursday, the new convertibles jumped to as high as 105 and then settled back to 103 bid, 103.5 offered, where they stayed until the shares pulled lower.

Shares of the Monterrey, Mexico-based company gained 28 cents, or 3%, on the day to $10.33.

Concur to price

Concur's $250 million of five-year convertibles were talked to yield 2.25% to 2.75% with an initial conversion premium of 22.5% to 27.5%.

Goldman Sachs & Co. and Deutsche Bank Securities are selling the Rule 144A deal for the Redmond, Wash., provider of on-demand Employee Spend Management services.

Proceeds are earmarked for general corporate purposes, including potential acquisitions and strategic transactions, and to fund the cost of convertible note hedge transactions.

Mentioned in this article:

Bell Microproducts Inc. Nasdaq: BELM

Cemex SAB de CV NYSE: CX

Concur Technologies Inc. NYSE: CNQR

Hutchinson Technology Inc. Nasdaq: HTCH

International Game Technology NYSE: IGT

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.