Amgen holds firm; Ford gains on deal; Gold Reserve up on debut; NPS, Shuffle Master see takeout hopes

By Kenneth Lim

Boston, May 15 - Amgen Inc. fell outright Tuesday but held steady on a hedged basis after Medicare proposed limits on payments for the company's anemia drugs.

Ford Motor Co. gained outright with the stock after the company's finance arm launched a $1.5 billion offering of notes that shored up confidence in the auto maker's ability to secure liquidity.

Meanwhile, Gold Reserve Inc. was quiet but shot up on its first day of trading after the deal was upsized and priced at the cheap end of talk.

NPS Pharmaceuticals Inc. and Shuffle Master Inc. also rose as investors sought out names that could potentially benefit from a takeover, a convertible trader said.

"I don't know if it's true, but it looks like some people might be thinking that there's still a lot of private equity out there and small names like these they all trade below par and in a takeover situation they could potentially be quite profitable," the trader said. "There's what I think. There's no news on the tape to explain it otherwise."

NPS's 3% convertible due 2008 improved about a point on Tuesday at 95.25 bid, 96.25 offered versus a stock price of $3.90. NPS stock (Nasdaq: NPSP) rose 6.34% or 23 cents to close at $3.86. NPS is a Parsippany, N.J.-based biopharmaceutical company.

Shuffle Master's 1.25% convertible due 2024 added about ¼ point to 94.5 bid,95.5 offered against a $17.32 stock price. Shuffle Master stock (Nasdaq: SHFL) closed at $17.40, up by 6.95% or $1.13. Shuffle Master is a Las Vegas-based maker of gaming equipment and systems.

Amgen steady as drug struggles

Amgen convertibles continued to slip outright on Tuesday after the stock took a beating on news that the U.S. Medicare insurance program planned to limit reimbursements for the class of anemia drugs that includes Amgen's Aranesp and Epogen treatments.

Amgen's 0.125% convertible due 2011 declined by 1 point outright to close around 90 against a stock price of $52.625. Its 0.375% convertible due 2013 also changed hands a point lower at 88.5 versus a stock price of $53.375. Amgen stock (Nasdaq: AMGN) fell 3.67% or $2.06 to close at $54.01.

"A lot of Amgens traded today," a sellsider said. "The stock's really taken a hit this week. It's been day after day of bad news for them."

The Centers for Medicare & Medicaid Services said late Monday that it will cover treatments using drugs such as Aranesp only for patients with certain types of cancer and cancer-related conditions. The decision came just days after a Food and Drug Administration advisory panel recommended tighter restrictions and additional tests on the use of the drugs because of safety concerns. Aranesp and Epogen contributed almost half of Amgen's sales in 2006. Amgen is a Thousand Oaks, Calif.-based drug maker.

"It's obviously negative for Amgen," the sellsider said. "But it's really not a surprise after the FDA recommendations came out. There were a number of equity guys who downgraded the stock after this came out, but I thought if they wanted to downgrade they should have downgraded it last week."

The sellsider said it will take Amgen "some time" to recover from the impact of the tighter restrictions because its pipeline of new treatments is unlikely to take up the slack quickly enough. The company's credit spread may have widened slightly, but the bonds are holding up better than the stock, the sellsider said.

"There's no question that Amgen's credit is still very solid," the sellsider said. "The bonds are still holding very well, although at this point they're not as attractive anymore. But it would have been pretty good for you if you had them before all these happened."

Equity analyst Christopher Raymond of Robert W. Baird noted that it was not just the tighter Medicare policies that concerned investors, but also the extent of the cuts. Raymond, who downgraded Amgen's stock to neutral from outperform, called the Medicare decision "stunning."

"In short, it appears the agency has decided to make an example out of Amgen and Johnson & Johnson, with a policy proposal that we believe has broad negative public health implications," Raymond wrote.

Ford gains on notes sale

Ford's 4.25% convertible due 2036 improved further on Tuesday after the company's finance arm sold $1.5 billion of unsecured notes, buoying confidence in the company's liquidity.

The Ford convertible traded at 120 against a stock price of $8.80 on Tuesday, higher by a point outright. Ford stock (NYSE: F) closed at $8.91, up by 2.3% or 20 cents.

"Ford continues to be active, although I think it's kind of died down a little from yesterday," a sellside convertible trader said.

Ford Motor Credit Co. LLC on Tuesday priced $1.5 billion of five-year unsecured notes in two tranches. The $1 billion series bears a coupon of 7.8% and was priced at 99.833, while the $500 million series has a floating coupon of three-month Libor plus 275 basis points and was priced at par. Ford is a Dearborn, Mich.-based auto maker.

Citigroup, JP Morgan, Lehman Brothers, Bear Stearns and Dresdner Kleinwort Securities were the underwriters for the notes offering.

"These were issued by Ford Motor Credit," a convertible analyst said. "So the impact on Ford Motor Co.'s credit is not as significant. I think the reason you see the stock going up is that the deal actually provides liquidity for Ford Motor, and the fact that they managed to issue $1.5 billion of unsecured debt suggests that there's at least a bit of market confidence in the company."

The analyst said investors could also still be reacting to Chrysler's sale a day earlier. DaimlerChrysler said Monday it will sell a majority stake in Chrysler, the auto maker's U.S. division, for $7.4 billion to private equity firm Cerberus Capital Management LP.

"The Chrysler deal is generally positive for GM [General Motors Corp.] and Ford," the analyst said. "Hopefully it will help the U.S. auto companies become more competitive faster, which is what's weighing down on the stocks and the credit."

Gold Reserve quiet but higher

Gold Reserve's new 5.5% convertible senior subordinated note due 2022 jumped about 4 points outright Monday after the deal priced at the cheap end of talk, although volume was light with initial interest appearing to come mostly from outright investors.

The convertible, which was sold at par, was closed around 104.5 bid to 105.5 offered against the closing stock price of $5.82. Gold Reserve stock (Amex: GRZ) fell 3% or 18 cents on Tuesday.

"They primarily traded outright, I don't know that there aren't any hedge guys involved, but what people are doing is they're probably waiting for the borrow to free up and trade them accordingly. They sold some shares so the borrow should probably get better, but it will take some time for it to move down the pipeline."

Gold Reserve priced the upsized $90 million deal on Monday after the market closed at an initial conversion premium of 30%. The deal was talked at a coupon of 5% to 5.5% and an initial conversion premium of 30% to 35%.

The size of the deal was originally $75 million with an over-allotment option for a further $11.2 million. The greenshoe is now an additional $13.5 million.

JP Morgan and RBC Capital Markets were the bookrunners of the registered offering.

There was a downsized $74.24 million concurrent offering of 12.8 million shares of Gold Reserve common stock at $5.80 apiece with an over-allotment option for an additional 1.92 million shares. The stock offering was originally for 16 million shares with an over-allotment option for a further 2.4 million shares.

Gold Reserve, a Spokane, Wash.-based gold and copper mining company, said it will use the proceeds of the deals to fund construction activities, equipment purchases and the development of its Venezuela-based Brisas project.

The Gold Reserve deal was seen hampered by the great amount of risk associated with holding mining properties in Venezuela and by a lack of stock to borrow. A convertible desk analyst said trading in the name will likely be limited to a handful of investors.

"That's one I have a feeling we're never going to see," the analyst said.

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