ImClone higher on buyout talk; World Acceptance jumps on debut; Ford gains, GM slips on ceased talks

By Kenneth Lim

Boston, Oct. 4 - The convertible bond market continued to be slower than usual on Wednesday, although ImClone Systems gave investors something to talk about as the stock jumped on takeover speculation.

ImClone improved slightly on Wednesday after the company revealed that it turned down a $36 per share all-stock buyout offer after shareholder Carl Icahn did not support the deal.

World Acceptance Corp.'s newly priced 3% convertible due 2011 soared on its debut, getting a boost from a stock rally even as the deal arrived at the rich end of talk.

General Motors Corp. was slightly lower with the stock after the company confirmed that talks with Renault-Nissan regarding a potential three-way alliance had been terminated. Rival automaker Ford Motor Co. improved outright on the same news.

The primary market remained active, with three new deals launched after the market closed. United Dominion Realty Trust Inc., HRPT Properties Trust and Diodes Inc. all plan to price their deals Thursday after the market closes.

ImClone gains with stock

ImClone's 1.375% convertible due 2024 gained about 1.25 points outright on Wednesday as the stock rose following the company's revelation that it had turned down a $36 per share stock buyout offer.

The convertible traded at 89.625 against a stock price of around $29.25. ImClone stock (Nasdaq: IMCL) climbed 7.95% or $2.16 to close at $29.33.

ImClone said late Tuesday that a "major international pharmaceutical company" offered to buy the company for $36 per share in stock last month provided the deal had the support of Icahn, who holds 14% of ImClone's shares. ImClone urged shareholders to reject Icahn's bid to oust half of its board members because Icahn blocked the deal.

Icahn, who countered that he thinks the company is worth more than $36 per share if run by "competent" managers, said he had blocked a $35.50 per share deal but was not informed that the bid had been increased.

A sellside convertible bond analyst said ImClone stock gained on optimism that other firms in its sector and Icahn appeared to value the company above its current share price.

"Carl Icahn thought it was more than 36, and some big pharmaceutical company thought it was around 36."

The analyst said there was some concern that the bid's valuation was no longer relevant because it was made before regulators approved Amgen's Vectibix, a cancer treatment seen as a competitor to ImClone's only drug, Erbitux.

"But that approval was expected," the analyst said. "It's hard to imagine that a major pharmaceutical company wouldn't have taken that into consideration [when it was making its bid]."

A convertible bond trader was more cautious about the company, saying that any hopes of a new bid were probably slim. And a takeover may not turn out to be good for convertible bond holders.

An all-stock offer by a big pharmaceutical company that pays a dividend on its stock could be worse for convertible holders, especially since the change of control put may not be triggered, the trader said.

"The play here initially was that it was going to be a cash takeout [which would trigger the change of control put]," the trader said. "But now there's an all-stock offer."

World Acceptance gets warm welcome

World Acceptance's newly priced 3% convertible senior subordinated note due 2011 improved about 4 points on an outright basis on its debut amid a stock rally.

The convertible, which was offered at par, traded at 104.125 against a stock price of $47.75 on Wednesday. World Acceptance stock (Nasdaq: WRLD) closed at $47.92, up by 3.66% or $1.69.

"Those did pretty well, but the stock was up today [Wednesday]," a sellsider said. "It ended up at the rich end, so it wasn't as attractive as guys were hoping, but I think people still liked it."

World Acceptance priced its $100 million offering late Tuesday at the rich end of talk, with a coupon of 3% and an initial conversion premium of 35%. Price talk was revised to between 3% and 3.125% with an initial conversion premium of 35% on Tuesday, richened from the original guidance for a coupon between 3% and 3.5% with an initial conversion premium between 30% and 35%.

There is a greenshoe option for a further $10 million.

JP Morgan was the bookrunner of the Rule 144A offering.

World Acceptance, a Greenville, S.C.-based consumer finance company, plans to use $8.7 million of the proceeds to enter into convertible note hedge and warrant transactions, and to buy back up to $50 million of its common stock. It will also repay part of its existing senior secured revolving loan.

Autos move as GM ends talks

General Motors' two longer-dated convertibles saw modest declines in line with the stock on Wednesday after the company confirmed that it had ended alliance talks with Renault-Nissan.

The General Motors 5.25% convertible due 2032 slipped 0.02 point to end at 19.92 against the closing stock price of $33.36. The 6.25% convertible due 2033 declined 0.06 point to 22.87 versus the same stock price. The shortest-dated 4.5% convertible due 2032 and putable in March 2007 did not see any significant trades. General Motors stock (NYSE: GM) retreated 0.27% or 9 cents.

The same news sent Ford's 6.5% convertible preferred higher with its stock. The preferred finished the day at 34.95, up 1.1 point or 3.25%, as the stock closed at $8.56. Ford stock (NYSE: F) rose 4.01% or 33 cents over the day.

Detroit-based General Motors and Nissan-Renault said Wednesday that they had abandoned plans for an alliance after almost three months of discussion. General Motors said Renault and Nissan, which are already in an alliance, did not want to pay a premium to include the American auto maker. Renault-Nissan also wanted a stake in General Motors and sought a structure that would have prevented General Motors from entering into joint ventures with other companies.

Renault-Nissan said compensation went against the spirit of an alliance.

Carlos Ghosn, who heads Renault and Nissan, has said a North American partner "makes sense" for the alliance, fueling speculation that talks with Ford could begin now that the ones with General Motors have fallen through.

"I don't think it was that surprising," a buyside convertible bond trader said. "Last week or the week before there were already signs that both sides may not have been too keen with the deal...I don't know if it's necessarily going to be good for Ford, though."

More deals on the way

Another three new convertible bond deals were announced on Wednesday after the market closed, bringing to four the number of offerings that are expected to price Thursday after the market closes.

Two of those new deals, from HRPT Properties and United Dominion, are from real estate investment trusts, which have dominated issuance in the past few months.

"More REITs!" a buysider remarked. "Just how many REITs can there be out there?"

HRPT Properties' $250 million of series D convertible preferred stock is talked at a dividend of 6.25% to 6.75% and an initial conversion premium of 10% to 15%. The convertibles will be offered at par of $25.

Merrill Lynch and Banc of America Securities are the bookrunners of the registered deal.

HRPT, a Newton, Mass.-based real estate investment trust focusing on office and industrial real estate, said it will use the proceeds of the deal to reduce its outstanding revolving debt. HRPT stock (NYSE: HRP) closed at $12.20 on Wednesday, up 1.08% or 13 cents before the deal was announced.

United Dominion's $250 million offering of five-year convertible senior notes is talked at a coupon of 3.375% to 3.625% and an initial conversion premium of 20%, with a reoffer price of 99.

There is a greenshoe option for a further $37.5 million.

JP Morgan, Merrill Lynch and Wachovia Securities are the bookrunners of the Rule 144A offering.

United Dominion, a Highlands Ranch, Colo.-based real estate investment trust that focuses on mid-market apartment communities, said it will use part of the proceeds of the deal to fund convertible note hedge and warrant transactions. It will also repay its debt under a revolving loan and fund general corporate purposes.

United Dominion stock (NYSE: UDR) gained 2.6% or 79 cents before the deal was announced to close at $31.22 on Wednesday.

Diodes, the only non-REIT to launch its deal Wednesday, proposed $200 million of 20-year convertible senior notes, talked at a coupon of 1.875% to 2.375% and an initial conversion premium of 32.5% to 37.5%.

The notes will be offered at par, and there is a greenshoe option for a further $30 million.

UBS Securities is the bookrunner of the registered off-the-shelf offering.

Diodes, a Westlake Village, Calif.-based semiconductor manufacturer, said the proceeds of the deal will be used for working capital and other general corporate purposes, including acquisitions.

Diodes stock (Nasdaq: DIOD) rose 4.76% or $2.06 on Wednesday before the deal was announced, and ended at $45.35.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.