Tech names higher, partly on Lucent/Juniper agreement; LIN, Edwards pricing before Tuesday open

By Sara Rosenberg

New York, May 5 - The convertible market was "generally up" Monday as many names traded higher without an obvious driving force behind the move. But the technology sector stood out from the crowd a bit on Monday, "leading the market up", according to an analyst, with the strong performance partially attributable to news of an agreement between Lucent Technologies and Juniper Networks Inc.

"There's a continuation of credit tightening that we've seen over the past few weeks," the analyst said. "A lot of things are moving on not a lot of news. It's been an active day. A solid day."

Meanwhile, coming up after market hours on Monday in the primary market, Lin TV Corp. is scheduled to price $100 million exchangeable senior subordinated debentures due 2033. The offering is talked to yield 2.75% to 3.25% with an initial conversion premium of 70% to 75%, according to market sources.

"It looks pretty aggressive, which is par for the course lately" a market professional said. "Even at the cheap end it looks aggressive. But it's a small issue so I'm sure they'll find enough guys to take it in.

Deutsche Bank, JPMorgan and Morgan Stanley are joint bookrunners on the deal and Bear Stearns & Co. is a co-manager.

And, on Tuesday morning, before market open, Edwards Lifesciences Corp. will price $125 million of convertible senior debentures due 2033. The offering is talked to yield 3.375% to 3.875% with an initial conversion premium of 90% to 95%, according to market sources.

JPMorgan is the lead bank on the Rule 144A deal.

Based on talk, the deal is valued 5.65% rich to theoretical value, using a $28.77 stock price, a volatility assumption of 27.5% and a credit spread assumption of 375 basis points, according to Kimberlee Brody, a Wachovia Securities, Inc. analyst.

Edwards Lifesciences is an Irvine, Calif. designer, developer, manufacturer and marketer of products and services to treat late-stage cardiovascular disease.

Lucent's 7.75% convertible due 2017 closed at 77 bid, 78 offered, according to a trader, up from 73¼ bid, 74¼ offer on Friday. The stock closed at $2.04, up $0.19 or 10.27%.

Juniper's 4.75% convertible due 2007 closed at 92 bid, 93 offered, up 0.75 on the day. The stock closed at $12.1718, up $1.0218 or 9.16%.

On Monday, Juniper and Lucent announced a partnership to deliver joint solutions to help service providers move to IP networks. Products will cover core, data, broadband and metro optical networks.

"We will provide our customers with a clear blueprint for an intelligent network evolution that protects today's service revenue streams, while also laying a foundation for capturing revenue from tomorrow's next-generation broadband, optical Ethernet and IP services," said Pat Russo, chairman and chief executive officer of Lucent Technologies, in a news release. "This is a partnership that works for our customers because of the combination of our strengths."

Juniper is a Sunnyvale, Calif. provider of network infrastructure solutions. Lucent is a Murray Hill, N.J. provider of communications networks for communications service providers.

Northrop Grumman Corp. traded actively on Monday after the company reaffirmed its financial guidance for 2003 and 2004, according to Stu Novick, convertibles analyst at Salomon Smith Barney.

The 7.25% mandatory due 2004 closed at 102.5 bid, 103 offered, according to a trader, down about a point from Friday's levels. The stock closed at $88.5, down $1.33 or 1.48%.

The Los Angeles defense company's 2003 financial guidance includes earnings from continuing operations between $3.80 and $4.20 per share, segment operating margin in the mid-7% range on estimated sales of $25 billion to $26 billion, cash from operations. before the B-2 tax payment, between $1.1 billion and $1.3 billion and capital expenditures of approximately $690 million, including approximately $60 million for capitalized software.

The 2004 financial guidance includes sales ranging between $28 billion and $29 billion, with segment operating margin expected to continue in the mid-7% range, cash from operations of approximately $1.5 billion and solid double-digit earnings per share growth.

DaVita Inc. headed higher on Monday, according to Novick, following the company's release of earnings results for the quarter ended March 31, which beat the analyst estimate of $0.47 per share by $0.05.

Its 5.625% convertible due 2006 closed at 104.531 bid, 106.531 offered, up from 101.47 bid, 103.47 offered on Friday. The 7% convertible due 2009 closed at 103.847 bid, 104.847 offered, up from 101.457 bid, 102.457 offered on Friday. The stock closed at $23.20, up $2.24 or 10.69%.

The company reported net income of $36 million or $0.52 per share, compared with $36 million or $0.40 per share for the same period of 2002, operating cash flow of $81 million, free cash flow of $70 million, operating income of $79 million and EBITDA of $98 million.

For 2003, guidance was reaffirmed at $380 million to $400 million.

DaVita is a Torrance, Calif. provider of integrated dialysis services.

Foot Locker Inc.'s convertible headed slightly lower on Monday in reaction to Friday's after hours announcement that the company is currently involved in discussions with the Securities and Exchange Commission about the classification of certain results, according to an analyst.

The 5.5% convertible due 2008 closed at 104.695 bid, 105.694 offered, compared to 104.86 bid, 105.86 offered on Friday. The stock closed at $10.85, down $0.06 or 0.55%.

More specifically, the company, its independent outside auditors and the SEC are currently in technical discussions regarding the classification of its results related to the former Northern Group operation. On Jan. 23, 2001, the company announced that it was exiting its 694-store Northern Group segment and, therefore, accounted for that business as a discontinued operation. In addition, the company recorded an after-tax charge to discontinued operations in 2000 for the loss on disposal of this segment and after-tax charges were also recorded within discontinued operations during 2001 and 2002. The current discussion with the SEC relates to the classification of these previously reported results within discontinued operations as opposed to continuing operations.

"Foot Locker and its independent outside auditors do not expect the outcome of these discussions to result in any changes to the company's previously reported cumulative net income or cash balances," a news release said.

The New York, specialty athletic retailer filed with the SEC for an extension on its 2002 Form 10-K due to the ongoing discussions.

Other names that were actively traded on Monday included, Teva Pharmaceutical Industries Ltd., Duke Energy Corp., Devon Energy Corp. and Kerr-McGee Corp., Novick said.

Teva Pharmaceutical's 0.375% convertible due 2022 closed at 122.97 bid, 123.47 offered, up 1.74 on the day. The 0.75% convertible due 2021 closed at 120.41 bid, 120.78 offered, up 1.475. The stock closed at $47.032, up $1.062 or 2.31%.

Duke Energy's 1.75% convertible due 2023 traded around par on Monday and closed at 99 bid, 100 offered, down 0.438. The stock closed at $16.81, up $0.02 or 0.12%.

Devon Energy's 0% convertible due 2020 closed at 53.6 bid, 54.1 offered, down 0.040. The stock closed at $46.74, down $0.36 or 0.76%.

Kerr-McGee's 5.25% convertible due 2010 closed at 106.9 bid, 107.15 offered, up 0.08. The stock closed at $43.27, up $0.21 or 0.49%.

Lennar Corp. convertibles may be active on Tuesday, according to Novick, since there will most likely be "a small change in the conversion ratio due to the class B distribution. The change could be about 10%. There was a 10-day pricing period that ends today. [So], there may be some fine-tuning on peoples' hedges tomorrow."

As previously reported, on April 21 Lennar distributed one class B share for each class A share held. Conversion ratios will be boosted by the value of 1 share of class A stock divided by the value of that one share of class A stock minus 10% of the value of 1 share of class B stock, with the values established from the weighted average closing prices of both stocks from April 22 to May 5.

Conversion ratios will be adjusted for Lennar's 0% convertible due July 29, 2018, and Lennar's 0% convertible due April 4, 2021. The 2018 issue's original conversion ratio was 12.3768. The 2021 issue's original conversion ration was 6.3842, and that issue carries a 120% contingent conversion feature that declines to 110% after year six.

The 2018 convertible closed at 74.93 bid, 75.18 offered, up 0.51 and the 2021 convertible closed at 48.91 bid, 49.16 offered, up 0.180. The stock closed at $54.28, up $0.51 or 0.95%.

Lennar, based in Miami, Fla., is engaged in the building and selling of homes and mortgage financing services.

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