GM, Ford speed ahead on labor deal; XM, Sirius up with merger talks; General Cable deal seen cheap

By Evan Weinberger

New York, Sept. 26 - The pedal was to the metal for GM Corp. convertibles Wednesday as the two-day United Auto Workers strike came to at least a temporary end. Ford Motor Co., which will have its own UAW negotiations once the GM deal is ratified, had its convertibles go along for the ride.

XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. were also up as hopes for a merger between the two satellite radio companies rose Wednesday.

Trading in the convertibles market hit another lull Wednesday, as the euphoria of last week's Federal Reserve rate cut continued to fade into the distance. The coming end of both the month and the third quarter have also slowed things down, market watchers said. "The week just has a very slow feel to it," one analyst said.

A trader at a different desk said he was unsure why trading activity had dried up over the course of the week. "Just no biz today," he said in an e-mail.

A spate of new issues often is a harbinger for increased trading activity. With USEC Inc., Standard Pacific Corp., Equinix Inc., PetroQuest Energy Inc. and Powerwave Technologies Inc. all pricing new deals within the last week, there has been a noticeable lack of action. "Most of them are small," the analyst said. "Issues like that, unless your firm's name is on the cover, you're not gonna see them, at least not initially."

One more new deal is on the calendar for this week. General Cable Corp. announced before the market close Tuesday that it would price $400 million of senior convertible notes due 2012 Thursday after market close. The convertibles are talked at a coupon of 1% to 1.5% and an initial conversion premium of 22.5% to 27.5%.

So far, the initial reactions to the talked about deal have been positive.

General Cable, a Highland Heights, Ky.-based copper, aluminum and fiber optic wire and cable producer and distributor, plans to use the proceeds to partially fund its purchase of Freeport-McMoRan Copper & Gold Inc.'s wire and cable division. That deal, announced Sept. 12, is expected to cost General Cable $750 million.

The GM deal with the UAW also got rave reviews on Wall Street. The deal drowned out the Commerce Department reporting a tumble in durable goods orders. Reports that Bear Stearns Cos. was considering a sale of a major stake in the company, possibly to Warren Buffett, emerged late in the trading day.

The Dow Jones Industrial Average added 99.50 points, or 0.72%, Wednesday to close at 13,878.15. The Nasdaq added 15.58 points, or 0.58%, for a close of 2,699.03. And the Standard & Poor's 500 closed at 1,525.42, a gain of 8.21 points, or 0.54%.

Deal drives GM, Ford convertibles

The UAW and Detroit-based GM announced early Tuesday morning that they had reached a tentative agreement on a new four-year contract. The major development in the deal is the agreement on the formation of a private trust to pay out benefits to GM's retired workers. Payouts to retirees were proving to be a major anchor on GM profits.

Also rumored to be in the agreement, which will be voted on over the weekend, are an agreement to hire more temporary workers and possibly to buy out higher-income, longer-term workers and replace them with new hires. GM also reportedly agreed to invest in American auto plants.

With GM workers heading back to the assembly lines, GM's convertibles moved up steadily Wednesday. GM's 4.5% series A convertible notes due March 11, 2032 (NYSE: GXM) closed at $21.03, a gain of 83 cents, or 4.11%.

GM's 5.25% series B convertible notes due March 11, 2032 (NYSE: GBM) gained 93 cents, or 4.55%, for a $21.36 close.

The company's 6.25% convertible senior debentures due July 15, 2033 (NYSE: GPM) added $1.30, or 5.56%, for a $24.70 close.

The last of the group, GM's 1.5% convertible senior debentures due May 31, 2009 (NYSE: GRM) gained $1.46, or 5.41%, for a close at $28.47.

GM stock (NYSE: GM) did the best of all, closing at $37.64. The stock motored up $3.22, or 9.36%, Wednesday.

Dearborn, Mich.-based Ford and Chrysler LLC are next up for negotiations with the UAW and will use the agreement with GM as a starting point - assuming that it is ratified.

Ford's 4.25% convertible senior notes due Dec. 15, 2036 sped ahead Wednesday on the UAW deal. The convertibles closed at 120.13 versus a closing stock price of $8.88. They closed Tuesday at 114.25 versus a stock price of $8.34.

Ford stock (NYSE: F) rose 54 cents, or 6.47%, on Wednesday.

General Cable 'good deal for arb guys'

General Cable's coming $400 million of senior convertible notes due 2012 could prove to be very attractive to convertible arbitrage investors, one analyst said. The deal, talked at a 1% to 1.5% coupon and a 22.5% to 27.5% initial conversion premium, is set to price Thursday evening.

He added that the deal would be "OK" for outright investors.

A fund manager said that the convertible's short maturity should provide a decent bond floor "on a bond that could actually open up - if [the] stock weakens."

"I get an investment value premium of between 30% and 25%," he said.

A trader said that the General Cable convertibles modeled a little cheap at the mids, and that the company's business was easy to understand. "What's not to like?" he said.

General Cable stock (NYSE: BGC) fell $2.26, or 3.32%, to $65.83 on Wednesday.

Sirius, XM up on merger talk

The Department of Justice's antitrust head, Thomas Barnett, reportedly told Congress Wednesday that while more information was needed on the XM and Sirius Satellite Radio merger, the Justice Department will act as quickly as possible.

Stock in both companies went up, as did the value of their convertibles, although the convertibles only nudged up.

Washington, D.C.-based XM saw its 1.75% convertible senior notes due Dec. 1, 2009 close at 87.5 versus a closing stock price of $14.38 Wednesday. They closed Tuesday at 87.25 versus a stock price of $13.52.

XM stock (Nasdaq: XMSR) gained 86 cents, or 6.36%, on the day.

New York-based Sirius saw its 3.25% convertible senior notes due Oct. 15, 2011 close at 94.75 versus a stock price of $3.42 Wednesday. They finished Tuesday at 93.988 versus a stock price of $3.28.

Sirius stock (Nasdaq: SIRI) added 14 cents, or 4.27%, on Wednesday.

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