Ford revs up on new advisor; Medtronic, St. Jude gain on Medicare changes; Huntsman gets results boost

By Kenneth Lim

Boston, Aug. 2 - News unrelated to quarterly results made the most impact on Wednesday in the midst of earnings season, with Ford Motor Co.'s convertible preferreds improving dollar neutral on reports that the company may be seeking new alliances and looking to sell some of its struggling brands.

Meanwhile, heart medical device makers Medtronic Inc. and St. Jude Medical Inc. ticked up in line with their stocks after regulators proposed lower than expected cuts in Medicare reimbursements for heart devices.

One set of earnings-related news that managed to make an impact came from Huntsman Corp., whose surprisingly strong second quarter sent its shares and convertibles climbing early in the day.

The convertible bond market in general had a mixed day, with volume picking up early in the session before trailing off in the afternoon amid a dearth of surprises.

"The Ford preferreds were pretty busy this morning," a buyside convertible bond trader said. "That was, for lack of a better word, the biggest thing. It was a busy morning, a slow afternoon."

Ford races up on reports

Ford's 6.5% convertible preferreds improved outright and on a dollar-neutral basis on Wednesday after reports said the company was hiring a Wall Street veteran as an adviser and considering alliances and the possible sale of troubled brands.

The preferreds climbed 4.1% or 1.17 points to close at 29.69 against the closing stock price if $6.96. Ford stock (NYSE: F) rose 5.78% or 38 cents on Wednesday.

"Ford preferreds were active on the article in the [Wall Street] Journal saying they were hiring an outsider to see what kind of changes should be made in the company," a buysider said. "The credit got better, the Ford preferreds got better on a dollar-neutral basis."

Ford confirmed on Wednesday after the market closed that it had hired Kenneth Leet, who ran merger and acquisition teams at Goldman Sachs and Bank of America, as a strategic adviser to Bill Ford, the auto maker's chairman and chief executive.

The newspaper also said Ford is considering an alliance with other auto makers, a strategy that rival General Motors Corp. is also considering. Ford is also considering whether it should sell its poorly performing brands, such as Jaguar, and how to handle the high borrowing costs faced by its financing arm, Ford Credit.

After the bell Wednesday, Ford announced a more than doubled second-quarter loss in a revision attributed to higher estimates for its pension curtailment expenses. Ford widened its second-quarter loss to $254 million, or 14 cents per share, from the $123 million, or 7 cents per share, previously reported. Ford shares fell 16 cents or 2.3% in after-hours trading.

"The Ford preferreds are...much better dollar-neutral," a sellside convertible bond trader said. "There's talk about them getting an alliance done...it's good for the stock, good for these [preferreds]."

Medtronic, St. Jude gain

Medtronic and St. Jude Medical's convertibles improved in line with their stocks on Wednesday after newly proposed Medicare cuts related to heart devices were smaller than expected.

Medtronic's 1.5% convertible due 2011 was marked at 101.5 bid against a stock price of $51 on Wedneday, up by about 0.75 points outright. Medtronic stock (NYSE: MDT) gained 0.91%, or 46 cents, to close at $50.93.

St. Jude's 2.8% convertible due 2035 improved by about 0.375 point outright to trade at 99.25 versus a stock price of $38.75. St. Jude stock (NYSE: STJ) added 1.12% or 42 cents to close at $37.82.

"The Medicare cuts were better than what people were expecting it to be for stents and that kind of stuff," a sellside analyst said.

The Centers for Medicare and Medicaid Services on Wednesday proposed to reduce Medicare reimbursements for implantable cardioverter defibrillators - the devices made by Minneapolis-based Medtronic and St. Paul, Minn.-based St. Jude - by less than 3% instead of the original plan to slash reimbursements by more than 20%.

"We think the decisions were particularly beneficial to makers of implantable of implantable cardioverter defibrillators and cardiac stents, where original proposals included cuts of up to 24% and 28%, respectively," wrote Standard and Poor's equity analyst Robert Gold in a note. Gold maintained buy recommendations on Medtronic and St. Jude.

Medtronic also issued its fiscal first-quarter outlook after the market closed on Wednesday, falling short of Street estimates. The company said it expects earnings of 53 cents to 55 cents per share for the quarter ended July 28, below analysts' expectations of about 57 cents per share. Medtronic cited a 13% slowdown in its U.S. implantable cardio-defibrillator market amid concerns over Medicare reimbursement.

Medtronic shares dropped 6.05% or $3.08 to $47.85 in after-hours trading.

Medtronic announces its results on Aug. 22.

Huntsman scores on results

Huntsman Corp.'s 5% mandatory convertible preferred climbed about 3 points outright on Wednesday after the company's stock soared following a better-than-expected set of second-quarter results.

The lightly traded preferred closed at 38.08, up about 8.55%, against the closing stock price of $17.26. Huntsman stock (NYSE: HUN) improved by 9.1% or $1.44.

"This is the first time probably that I saw it come across my Bloomberg," a buyside convertible bond trader said. "I can't even begin to tell you when was the last time I saw it."

Huntsman on Wednesday said its second-quarter profit more than doubled to $262.4 million, or $1.13 per share, from $112.7 million, or 48 cents per share, in the year-ago period due to gains from an acquisition and asset sales. Excluding one-off items, income was 53 cents per share. Street consensus was for 48 cents per share. The Salt Lake City, Utah-based chemical products maker said it continues to try to reduce its dependency on lower-margin commodity chemicals.

Deutsche Bank equity analysts David Begleiter, James Sheehan and Jason Miner wrote in a note that they expect Huntsman to sell or spin off its commodity petrochemical assets.

"We continue to believe that a sale is the more likely option with the vast majority of the commodity assets potentially disposed of by year-end," the analysts wrote. Deutsche Bank maintained its buy rating on the stock.

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