Cubist gains outright, falls on swap on Merck takeout; T-Mobile, Envestnet deals on tap

By Rebecca Melvin

New York, Dec. 8 – Cubist Pharmaceuticals Inc.’s three convertible bonds jumped on an outright basis on Monday in active trade, but were mixed on a hedged basis, with the two balanced convertibles contracting and the in-the-money issue expanding after news that Merck & Co. agreed to buy the Lexington, Mass.-based biopharmaceutical company for $102.00 per share, or $9.5 billion, including debt.

The proposed purchase price represented a 35% premium to Friday’s Cubist stock close.

“This was really good for outrights, and not too damaging for arbs,” a trader who is focused on health care names said.

The in-the-money Cubist 2.5% convertibles jumped to about 347 on Monday from 262 ish, and arb players made about 3 points on the takeout, assuming a heavy 98% delta.

“I knew guys that were lighter,” in which case they would have made more, the trader said.

Cubist was essentially the name of the day, especially in the health care sector. But Illumina Inc.’s 0% convertibles due 2019 were also seen in trade at 111, which was down 0.3%, according to Trace.

Separately, Cobalt International Energy Inc.’s 2.625% convertibles extended losses, trading down to 59 with sharply lower shares, from 64.75 to 65 on Friday.

After the market close, the primary sprang into action. T-Mobile US Inc. launched an offering of $870 million of mandatory convertible preferred shares, and Envestnet Inc. plans to price $125 million of five-year convertible senior notes.

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