EMC trades up on Oracle takeover rumor; NII off on wireless report; Alon preferreds ahead

By Rebecca Melvin

New York, Oct. 14 - EMC Corp. moved up Thursday and dominated trading action in the convertible bond market, as the underlying shares jumped, amid unconfirmed rumors that the storage equipment maker could be acquired by Oracle Corp.

NII Holdings Inc.'s convertibles moved in the opposite direction on a newspaper report that Grupo Televisa, a Mexican media company, may end an agreement with NII Holdings' Mexican wireless arm, Nextel.

The technology sector was a definite market focus, with earnings news coming up and various takeover rumors, a sellsider said.

But other than EMC and NII Holdings, there wasn't any particular action that was notable. Action was diffused, sellsiders said.

Micron Technology Inc.'s 1.875% convertibles due 2014 traded last at 91.625, which was down about 0.3 point outright.

Ciena Corp.'s new 3.75% convertibles, which debuted in secondary dealings on Wednesday, were steady, trading about unchanged at 102.5 versus a share price of $15.15. Later, shares of the Linthicum, Md.-based communications networking equipment came off, contrary to the broader market, to end the session at $14.90.

AMR Corp.'s 6.25% convertibles traded at 100 versus a share price of $6.30; MGM Resorts International traded at 97.75 versus a share price of $11.95; and Hologic Inc. traded at 94.5 versus a share price of $16.15.

After the market close, Alon USA Energy Inc. was expected to price a small deal of $60 million of perpetual convertible preferreds. But the planned paper of the $280 million market cap company wasn't heard in the gray market ahead of pricing, sources said.

"No one has mentioned them; and I haven't really looked at it," a Connecticut-based sellside analyst said.

Citi sees 2%-5% return

According to Citigroup convertible market commentary, the U.S. convertible market's outright returns should be roughly 2% to 5% for the December quarter, which will help put full-year convertible returns near or above 10%.

Citi's outlook incorporates an estimate of a 4% increase in the S&P 500 index in the fourth quarter...along with projected returns of another 1% to 3% for high yield and an annual convert market current yield of 4.1%, the Citigroup convertibles team said in its third-quarter review and outlook published this month.

The report sees relatively low levels of new issuance continuing due to low interest rates that steer potential issuers to the straight debt markets.

A New York-based sellside trader agreed that higher rates would lead to increased issuance.

EMC tops volume charts

EMC's 1.75% convertibles due 2013 traded at 143 versus a share price of $21.00, which was up 7 points outright.

The EMC 1.75% convertibles due 2011 traded at 136.375 and later closer to 136, which was up better than 5 points outright.

Shares of the Hopkinton, Mass.-based data storage company jumped 91 cents, or 4.5%, to $21.21 on the day.

Rumors began circulating after a Citigroup analyst report mentioned EMC as well as other companies like BMC Software as potential targets for Oracle.

Nevertheless, whether EMC was the right choice for Oracle at this time was questionable.

First, EMC's 80% stake in virtualization software company VMW didn't seem to be a good link up for Oracle as the Redwood Shores, Calif.-based software giant has already built up its own virtualization platform and WMWare wouldn't provide any synergies.

In addition, EMC stock is at the high end of its 52-week range and therefore would be unappealing for the high price tag such a purchase would command.

It would be expensive and possibly the biggest deal in tech history, with Wedbush analyst estimating it would cost about $50 billion.

The current trend in data storage company buyouts has included of late Hewlett Packard's $2.35 billion acquisition of 3Par in September and IBM's $1.7 billion purchase of Neteeza.

NII Holdings down

NII Holdings' 3.125% convertibles due 2012 traded at 96.75, which represented a widening in price by about 40 basis points to a spread of 442 bps to 482 bps over comparable Treasuries.

A second sellsider said that the NII 3.125% convertibles were down about 0.25 point outright.

That compared to Wednesday, when the NII 3.125% convertibles had tightened to trade at 97.375 bid, 97.5 offered, a trader said.

Shares of the Reston, Va.-based wireless communications company fell $5.27, or 12.25%, to $37.76 in heavy volume.

NII-owned Nextel still holds the licenses to the airwaves won in a Mexican auction that ended in July.

Mentioned in this article:

Alon USA Energy Inc. NYSE: ALJ

AMR Corp. NYSE: AMR

Ciena Corp. Nasdaq: CIEN

EMC Corp. NYSE: EMC

Hologic Inc. Nasdaq: HOLX

MGM Resorts International NYSE: MGM

Micron Technology Inc. NYSE: MU

NII Holdings Inc. Nasdaq: NIHD

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