Saks 'comes in' on hedge amid takeover talk; SanDisk gains, NetApp, Salesforce.com better

By Rebecca Melvin

New York, Aug. 31 - Saks Inc.'s convertible bonds were higher on an outright basis Tuesday, but down a point or two for hedged investors, after rumors that the luxury retailer may get taken over.

The Saks convertibles didn't keep pace with the underlying shares, which soared after a report in Britain's The Daily Mail that a consortium of U.S. and British firms may make a cash offer of $11.00 per share, or $1.7 billion, for the New York-based department store operator.

The new convertibles of SanDisk Corp. were a bit better after they slumped last week subsequent to initial pricing Aug. 20.

Also a couple of "put names" were described as trading "a bit better" on Tuesday, a West Coast-based sellside trader said, mentioning Salesforce.com Inc. and NetApp Inc.

The new Ford Motor Co. convertibles were also said to be trading fairly actively, although there didn't appear to be any particular news driving that activity, a sellsider said.

Otherwise trading was described as quiet, or dead, as the seasonal slowdown of trading activity finishes the last unofficial week of summer.

Equities were mixed to mostly lower at the close of markets, although they did swing into positive territory during the session after CPI data revealed a small rise in consumer confidence to 53.5, compared to a reading around 50 expected by many economists.

In addition, Standard & Poor's Case-Shiller home prices data showed home prices rose 1% in June from May and were up 4.2% from June 2009. It marked the third consecutive increase following the now-expired tax credits that fostered a flutter of home buying.

But U.S. stocks finished the month with their worst August performance since 2001 amid many readings of the economy during the month that revealed a slower pace of recovery.

The Dow Jones Industrial Average lost 4.3% this month, ending Tuesday at 10,014.72. The S&P 500 index lost 4.8% for the month, ending Tuesday at 1,049.33; and the Nasdaq Stock Market shed 6.2% for the month, ending Tuesday at 2,114.03.

August new issues

For August, U.S. convertibles new issuance was $2.05 billion in four deals, higher compared to August 2009, when $463 million of new paper in three deals was priced, but lower from July 2010 when $4.5 billion in five deals priced, according to data compiled by Prospect News.

The $2.05 billion figure was higher than the August tally of a large New York-based sellside firm, which put the August new issuance total at $1.5 billion in three deals. Those three deals included the SanDisk deal along with the Teleflex Inc. seven-year convertibles priced Aug. 3 to yield 3.875% with an initial conversion premium of 15%, and the MannKind Corp. five-year convertible notes priced Aug. 18, to yield 5.75% with an initial conversion premium of 22.5%.

Goldman Sachs & Co. and Morgan Stanley & Co. were the top U.S. convertibles underwriters in August, each bringing $580 million of new issuance in two deals, accounting for 28% of the total, according to Prospect News.

ABG Sundal Collier Norge ASA was the No. 3 underwriter for August, bringing $550 million in a single deal, accounting for 27% of total issuance.

For the year to date, U.S. convertibles issuance totals $24.80 billion in 56 deals, which is 6.7% higher compared to $23.25 billion priced in 72 deals for the same period of 2009.

J.P. Morgan Securities Inc. stands atop the convertibles new issuance league tables for the year to date, having brought $5.55 billion in new issuance in 26 deals, accounting for 22% of total issuance.

Saks 'comes in'

Saks' 2% convertibles due 2024 traded at 92 versus a share price of $8.10 on Tuesday, compared to 88.75 versus a share price of $6.96 last week, according to a New York-based sellside desk analyst.

Saks' 7.5% convertibles due 2013 traded at 167 versus a share price of $8.10, compared to 155.25 versus a share price of $7.20 last week, the same analyst said.

The Saks 2% notes were about 22 points over parity, compared to about 30 points previously, the analyst said.

The Saks 7.5% paper came in to about 21 points over parity from 26 points over parity.

"The interesting thing about [Saks] is they are one of the few bonds out there that were issued before the advent of takeover protection matrices. It would have been nice to have a make whole here, although it's been so long since the issue in 2004 that most of the matrix would have decayed away by now in any event," a New York-based sellside trader said.

A second sellsider underscored the fact that the bonds had no takeover protection. In addition, he said, the borrow was tricky.

"They came in, with whoever owned them on a 20% to 40% [delta]. They probably came in a couple of points," the sellsider said.

He said outrights would be "somewhat happy," however, provided the takeover bid is adequate and he said he thought the convertibles were mostly held outright.

But the first sellsider said there appeared to be a "decent mix of hedged and outright holders of the name."

Saks has been the subject of takeover speculation in recent years. Potential buyers cited have included Cerberus Capital Management.

Saks shares have been weak as doubts about the pace of a U.S. economic recovery weighed on performance.

Last year Saks removed a poison pill aimed at averting a potential hostile takeover by Mexican billionaire Carlos Slim. Slim had raised his stake in Saks shares when they fell below $3 in November 2008. Slim now holds a 15.9% stake in Saks.

NetApp a bit better

NetApp's 1.75% convertibles due 2013 were at 137.5 at the end of the session, which was down outright by 0.75 point on the day, according to Trace data, and compared to 134.75 bid versus a share price of $39.25 on Aug. 18.

Shares of the Sunnyvale, Calif.-based company were little changed on the day, ending down 15 cents, or one-third of a percentage point, to $40.38.

NetApp, which was mentioned along with Salesforce.com as a put name, was better Tuesday.

One sellsider said the two names trade over par, and the weaker the stocks get, the more into play the put comes.

Short maturity names would act the same way, the sellsider added.

Another sellsider disputed the put name label, saying the in-the-money bonds have at least three years to maturity.

NetApp, a data-storage company, has been in focus as a potential takeover target, along with EMC Corp. in light of the bidding war between Hewlett-Packard and Dell over data-storage firm 3Par.

Mentioned in this article:

Ford Motor Co. NYSE: F

NetApp Inc. Nasdaq: NTAP

Saks Inc. NYSE: SKS

Salesforce.com Inc. NYSE: CRM

SanDisk Corp. Nasdaq: SNDK

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