Affymetrix, Mylan rich and up; Freeport-McMoRan, Newmont up with metals; AMR mixed

By Evan Weinberger

New York, Nov. 14 - Freeport-McMoRan Copper & Gold Inc. convertibles rose Wednesday as already rising copper prices spiked on an earthquake striking northern Chile. Newmont Mining Corp. convertibles were also up on the day.

Merger talk roiled airlines Wednesday, and AMR Corp. and Continental Airlines Inc. convertibles ended the day mixed.

Ford Motor Co. convertibles were lifted Wednesday by the United Auto Workers ratifying their new labor agreement with the struggling carmaker. And E*Trade Financial Corp. continued its comeback.

Two new deals hit the tape Wednesday, and both came in with initial conversion premiums at the rich end. Affymetrix Inc. priced an upsized $275 million in 3.5% unsecured senior convertible notes due Jan. 15, 2038 with an initial conversion premium of 39% Tuesday after the market close. The convertibles were originally announced at $250 million. The coupon came in at the cheap end of talk, which had been 3% to 3.5%, and beyond the rich end of initial conversion premium talk, which had been 30% to 35%.

The registered transaction has a $41.25 million greenshoe, upsized from an originally announced $37.5 million.

Affymetrix is a Santa Clara, Calif.-based genetic testing equipment manufacturer. The company plans to use the proceeds for general corporate purposes, including the potential repurchase of some or all of its outstanding 0.75% senior convertible notes due 2033.

Mylan Inc. priced an upsized $1.86 billion in mandatory convertible preferred stock due Nov. 15, 2010 with a 6.5% dividend and a 22% initial conversion premium Tuesday before the market open. The deal was originally announced at a $1.4 billion principal amount and came in at the rich end of talk, which had been a dividend of 6.5% to 7% and an initial conversion premium of 18% to 22%.

The registered transaction has a $279 million greenshoe. The greenshoe was originally announced at $210 million. The liquidation preference is $1,000, the same as the offer price. Settlement is expected to be Nov. 19.

Mylan's mandatories are being issued at the same time as an offering of an upsized 53.5 million shares of common stock at $14 per share. The initial announcement was 40 million shares of common stock. There is an upsized 8.025 million share over-allotment option on the common stock offering. The common stock greenshoe was originally 6 million shares.

Mylan is a Canonsburg, Pa.-based pharmaceutical company. The company plans to use the proceeds of the mandatory and common stock offerings to finance its acquisition of Merck KGaA's generics business, which was announced Oct. 2.

And one company announced the launch of a new deal set to price Wednesday night. Avery Dennison Corp. plans $400 million in mandatory convertible equity units in the HiMEDS structure due Nov. 15, 2020 talked at a dividend of 7.375% to 7.875% and an initial conversion premium of 26% to 31% Wednesday before the market open.

The registered transaction has a $40 million greenshoe.

The mandatories are being issued at $50 per unit, and Avery Dennison will be issuing 8 million units. Each HiMEDS unit will initially consist of a contract to purchase Avery Dennison common stock and a 1/20 undivided beneficial ownership interest in a $1,000 principal amount senior note due Nov. 15, 2020. Holders of the mandatories are required to buy Avery Dennison common stock no later than Nov. 15, 2010 under the purchase contract. Avery Dennison will make quarterly cash payments to holders in connection with interest on the senior notes and contract adjustment payments on the purchase contracts.

The mandatories have call protection for life and no puts.

Avery Dennison is a Pasadena, Calif.-based label and office products producer. The company plans to use the proceeds to repay commercial paper obligations incurred in connection with its acquisition of Paxar Corp. in June.

An analyst said that the Avery Dennison offering models out at fair value and that it was good to see another high-quality name enter the convertibles space.

"I would be hesitant on this name on an outright basis as it is a cyclical stock, and if we enter a recession this one should [definitely] feel the pain," he added.

Stock markets were unable to hold their significant gains from Tuesday, as oil prices rose again and some credit concerns began to creep back into the consciousness. Trading moved haphazardly throughout the day.

The Dow Jones Industrial Average fell 76.08 points, or 0.57%, to 13,223.93.

The Nasdaq gave back 29.33 points, or 1.10%, for a close of 2,644.32.

And the Standard & Poor's 500 closed at 1,470.58, a drop of 10.47 points, or 0.71%, on the day.

Two new deals open rich, and up

Both Affymetrix and Mylan brought their deals in at the rich end of talk Tuesday after stock markets surged. "You couldn't have found a better day to price a deal, in terms of market giddiness," an analyst said.

Both deals opened strong.

Affymetrix's 3.5% convertible senior notes due Jan. 15, 2038 closed Wednesday at 104.25 versus a closing stock price of $21.36.

Affymetrix stock (Nasdaq: AFFX) dropped 31 cents, or 1.43%, on the day.

Mylan's 6.5% mandatory convertible preferred stock due Nov. 15, 2010 closed its first day of trading Wednesday at 102 versus a closing stock price of $14.12.

Stock in Mylan (NYSE: MYL) fell 23 cents, or 1.60%, on Wednesday.

The question, however, was what the richness of the deal means. The soaring stock markets of Tuesday helped Mylan and Affymetrix, and market watchers don't necessarily see a flood of rich deals coming through.

"The VIX is up considerably, there's been a decent spike in vol," a trader said. "If people think the credit is going to hold up and there's potential for vol, they'll be willing to pay up."

The trader added that Mylan has a credit investors are comfortable with, and Affymetrix is a notoriously volatile stock.

Plus, there was a thirst for new issues, which have slowed in recent days. "We're just happy to see some," the analyst said. "The market, in its collective wisdom, wants new issues."

A second analyst said that in the future, the quality of company will determine issue cheapness. "I don't think that it will be a trend though," he said. "I think it will definitely be an issue by issue case."

Copper prices lift Freeport-McMoRan

An earthquake measuring magnitude 7.7 rattled the Atacama Desert in northern Chile Wednesday. The quake could be felt as far away as Peru and Bolivia and is believed to have left two dead and injured more than 100 people, according to wire service reports Wednesday evening.

The Atacama Desert is the center of Chile's rich copper mines. Chile is the world's largest copper producer. Several mines temporarily halted operations, including one owned by Phoenix-based Freeport-McMoRan.

Copper prices had been rising in recent days, and the earthquake only sent prices up further. And that helped Freeport-McMoRan's stocks and convertibles.

Freeport-McMoRan's 6.75% mandatory convertible preferreds due May 1, 2010 closed Wednesday at 154.63 versus a closing stock price of $104. They closed Tuesday at 148.92 versus a stock price of $101.38.

Freeport-McMoRan stock (NYSE: FCX) moved up $2.62, or 2.58%, on the day.

Gold's up, too

Rising precious metal prices have been lifting gold miners as well.

Newmont Mining's 1.25% convertible senior notes due July 15, 2014 closed Wednesday at 129.271 versus a closing stock price of $51.20. They finished trading Tuesday at 128.058 versus a stock price of $50.92.

Newmont's 1.625% convertible senior notes due July 15, 2017 closed Wednesday at 129.374 versus a stock price of $51.20 after finishing Tuesday at 128.063 versus a stock price of $50.92.

Denver-based Newmont stock (NYSE: NEM) gained 28 cents, or 0.55%, on the day.

Merger talk, higher oil leave airlines mixed

Afternoon reports that UAL Corp., the parent company of United Air Lines Inc., and Delta Air Lines Inc., the second- and third-largest airlines in the United States, were discussing a merger lifted airline stocks Wednesday.

In separate statements, United denied the discussions and Delta said that a special committee of its board of directors was reviewing its strategic opportunities.

Delta originally came under pressure as a hedge fund, Pardus Capital Management LP, urged Delta's top executives in a letter Tuesday to enter into a merger with another airline in order to cut the risks of operating alone.

One of those risks is rising oil prices, and after a brief respite Tuesday, those prices rose again Wednesday.

The merger talk left stock and convertibles in the sector mixed.

Fort Worth, Texas-based AMR, the parent company of American Airlines, saw its 4.5% convertible senior notes due Feb. 15, 2024 close at 124.863 versus a closing stock price of $23.09. They closed Tuesday at 125.046 versus a stock price of $23.20.

AMR's 4.25% convertible senior notes due Sept. 23, 2023 closed Wednesday at 145.6 versus a stock price of $23.09 after closing Tuesday at 144.384 versus a stock price of $23.20.

AMR stock (NYSE: AMR) slipped 11 cents, or 0.47%, on the day.

Continental Airlines saw its 5% convertible senior notes due June 15, 2023 close Wednesday at 170.679 versus a closing stock price of $31.25 after finishing Tuesday at 169.156 versus a stock price of $30.88.

Continental stock (NYSE: CAL) gained 37 cents, or 1.20%, on the day.

Ford moves up on labor deal

Ford saw its convertibles have a strong day Wednesday as the UAW ratified the new labor contract with the Dearborn, Mich.-based carmaker.

Ford's 4.25% convertible senior notes due Dec. 15, 2036 closed Wednesday at 112.2 versus a closing stock price of $7.98. They closed Tuesday at 110.5 versus a stock price of $8.00.

Ford stock (NYSE: F) slipped 2 cents, or 0.25%, on the day.

E*Trade continues rise

New York-based online broker E*Trade continued its rise from the depths of Monday, when its stock and preferreds lost nearly 60% of their value.

E*Trade's 6.125% common equity units due Nov. 18, 2008 (Nasdaq: ETFCP) closed Wednesday at $8.93, a rise of 81 cents, or 10.02%.

E*Trade stock (Nasdaq: ETCF) gained 54 cents, or 10.80%, for a close of $5.54 on Wednesday.

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