Connetics soars on buyout; Ford slips; FiberTower could see tough borrow; United Therapeutics plans deal

By Kenneth Lim

Boston, Oct. 23 - Connetics Corp. dominated a quiet convertible bond market on Monday, improving sharply after the company agreed to be bought in a $640 million deal.

Ford Motor Co. slipped after the company reported its largest quarterly loss in over 14 years.

In the primary market, FiberTower Corp.'s planned $350 million note offering could include a convertible structure with an accreting feature, but a tough stock borrow could limit interest in the deal, market sources said.

United Therapeutics Corp. also launched a $210 million convertible offering expected to price Tuesday after the market closes.

Hasbro Inc.'s 2.25% convertible due 2021 rose by as much as 7 points outright on Monday, in line with its stock after the company beat estimates for its third-quarter results.

The convertible traded at 117 against a stock price of $24 on Monday. Hasbro stock (NYSE: HAS) gained 8.71% or $2.03 to close at $25.33.

"The bond was pretty active," a sellside convertible bond trader said. "It was up with the stock."

Pawtucket, R.I.-based Hasbro said Monday its third-quarter profit rose 8.2% to $99.6 million, or 58 cents per share, from $92.1 million, or 47 cents per share, in the year-ago period. Analysts were expecting 50 cents per share.

The convertible market in general had an unusually quiet session.

"It's been extremely boring," a buyside convertible bond trader said.

The trader noted that the overall convertible scene had been weaker for the past three to four sessions amid rumors about a major deal in the primary market pipeline. But that speculation remained unconfirmed as of Monday.

"I'll believe it when I see it," the trader said.

Connetics soars on buyout

Connetics' 2% convertible due 2015 shot up about 13 points toward par after the company agreed to be bought by Stiefel Laboratories Inc. for $640 million in cash.

The convertible traded around 97.75 throughout Monday as the stock traded at around $7.08. Connetics stock (Nasdaq: CNCT) closed at $17.07 after gaining 45.77% or $5.36.

"It's a home run for outrights," a sellside convertible bond analyst said.

Connetics' 2.25% convertible due 2008 and callable in May 2007 also moved closer to par, adding about 4 points outright to change hands at 98.375.

Palo Alto, Calif.-based Connetics said Monday that Stiefel is offering $17.50 in cash per Connetics share, a 49.4% premium to Connetics' closing stock price on Friday. Connetics is a specialty pharmaceutical company which focuses on dermatological products.

The deal is expected to close late 2006 or early 2007, subject to approval by Connetics shareholders.

Although some analysts had noted that Connetics may be a possible takeover target, the buyout came mainly as a surprise for investors.

"I guess these days nothing's really surprising," a sellsider said. "But I don't think they were frequently talking about Connetics as a name out there to be bought...I don't think people put them at the top of the list."

A buyside convertible bond trader thought the deal had a good chance of being completed.

"They're paying a really nice premium, so the shareholders are probably going to accept it," the trader said. "There's a chance the company could get a competing bid, but I don't know who else will want to pay more, and even if they do, it's probably going to be even better for the shareholders."

Ford slips on loss

Ford's 6.5% convertible preferred declined on Monday after the company reported a third-quarter loss and guided for a weaker fourth quarter.

The convertible closed at 33.65, down by 0.62% or 0.21 point, against Ford's closing stock price of $7.90. Ford stock (NYSE: F) retreated 1.37% or 11 cents on Monday.

"Ford came down on its results," a sellside convertible bond trader said. "The company hasn't been attractive for a long time, and there was nothing in their results or their guidance to change that."

Dearborn, Mich.-based Ford said Monday it lost $5.8 billion, or $3.08 per share, in the third quarter, deteriorating from the year-ago loss of $284 million, or 15 cents per share. The auto maker also said it had $23.6 billion in cash available as at end-September, and expects to spend about $3.5 billion more by the end of the year. The company is considering borrowing cash to maintain its liquidity.

Fitch Ratings placed Ford's senior unsecured debt on negative ratings watch, saying that additional debt will impair the position of unsecured debtholders.

FiberTower may face borrow hump

FiberTower' planned $350 million offering of notes could include a convertible structure with an accreting feature, but the stock borrow looks less than ideal, market sources said.

The deal, announced early Monday, could have a hybrid structure with a coupon of around 10% with an additional accretion feature, market sources said.

Price talk had not been determined as of mid-Monday.

Jefferies & Co. is the bookrunner of the Rule 144A deal.

FiberTower said the offering may include equity or equity-linked securities, but did not provide details on price talk and timing.

FiberTower, an Iselin, N.J.-based wholesale provider of wireless networks, said the proceeds of the deal will be used to expand its existing network footprint and open new markets, and for general corporate purposes.

"It's going to be a convertible deal, but it's a very tough borrow, it's not going to be a deal that everyone's going to be interested in," a buyside convertible bond trader said. "You can't really short the stock."

FiberTower stock (Nasdaq: FTWR) closed at $8.55 on Monday, down by 4.36% or 39 cents after the deal was announced.

United Therapeutics plans deal

United Therapeutics plans to price $210 million of five-year convertible senior notes Tuesday after the market closes, talked at a coupon of 0% to 0.5% and an initial conversion premium of 20% to 24%.

There is an over-allotment option for a further $40 million.

Deutsche Bank is the bookrunner of the Rule 144A offering.

United Therapeutics, a Silver Spring, Md.-based drug maker, said it will use $100 million to $125 million of the proceeds to concurrently buy back its common stock as part of its 4 million-share repurchase program. It will also use the proceeds to fund convertible note hedge and warrant transactions, and for general purposes.

United Therapeutics stock (Nasdaq: UTHR) rose 4.81% or $2.74 in after-hours trading to $59.75.

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