Brinker trades on redemption news; AmerisoureBergen plummets on revised guidance

By Sara Rosenberg

New York, Dec. 22 - Brinker International Inc.'s zero-coupon convertible traded a bit higher than the redemption price announced Wednesday morning as investors were willing to play the option value. Meanwhile, AmerisourceBergen Corp.'s convertible plummeted on the coattails of its stock as the company cut earnings guidance.

Brinker's 0% senior debenture due 2021 was trading around 64½ in the afternoon, a little bit above the $633.54 redemption price, according to a market source.

The convertible closed around 66.18 versus a stock closing price of $34.84, according to one trader. A second trader quoted the convertible at 64.19 bid, 64.31 offered. The stock was down $0.11, or 0.32% on the day.

"People are willing to pay a little bit for the option value cause if the stock runs between now and the call date you'd just convert into stock," the source said.

Holders have the right to convert each $1,000 principal amount at maturity of the debentures into 18.08 shares of Brinker common stock at any time beginning Dec. 23 until the close of business on Jan. 20. The convertible will be redeemed on Jan. 24.

Also on Wednesday, Brinker announced that it resolved its previously disclosed dispute with the Internal Revenue Service concerning the Tip Reporting Alternative Commitment agreement and that it will be restating its financial statements through the first quarter of fiscal 2005 to correct its computation of straight-line rent expense and the related deferred rent liability.

As a result of the change in straight-line rent accounting and the IRS resolution, the company now expects that its second quarter net earnings will be reduced by approximately $1.2 million, its fiscal 2005 net earnings will be reduced by approximately $3.8 million, second quarter earnings per diluted share estimates will be reduced by approximately $0.01 and it fiscal 2005 earnings per diluted share estimates will be reduced by $0.04.

The company's current estimates of earnings per diluted share are now $0.44 to $0.46 for the second quarter and $2.02 to $2.15 for fiscal 2005.

Brinker is a Dallas-based owner, operator and franchiser of restaurants under the names of Chili's Grill & Bar, Romano's Macaroni Grill, Maggiano's Little Italy, On The Border Mexican Grill & Cantina, Corner Bakery Cafe, Big Bowl Asian Kitchen, and Rockfish Seafood Grill.

AmerisourceBergen falls on slashed guidance

AmerisourceBergen's 5% convertible, which is expected to be called on Jan. 3, dropped a number of points on Wednesday as the company lowered its fiscal year 2005 earnings estimate.

The convertible was trading around 108¼ versus a stock price of $57¼ in the afternoon, according to a market source. The debenture had opened around 115 on Wednesday morning.

At close, the convertible was quoted at 107.92 bid versus a stock closing price of $57.09, according to one trader. A second trader had the convertible at 107.89 bid, 108.01 offered, down 9.235 points on the day. The stock ended down $4.92, or 7.93%.

"They lowered guidance so the stock got hit kind of hard. [The convertible] is trading right on parity now. The call price is 102.14. If parity gets below that you still get 102.14 but then you'd get cash instead of converting," the source said.

AmerisourceBergen reduced its fiscal year 2005 estimate for diluted earnings per share from continuing operations to $4.00 to $4.10 from $4.20 to $4.30 due to lower than anticipated pharmaceutical price increases, fewer product deals from manufacturers and reduced alternate source purchases in the December quarter, according to a company news release.

The company expects diluted earnings per share from continuing operations in the December quarter to be between $0.60 and $0.65.

"Our current estimates for diluted earnings per share from continuing operations indicate we will not meet our expectations for the December quarter primarily due to buy-side shortfalls," said R. David Yost, chief executive officer, in the release. "Our confidence in our revised estimate for fiscal year 2005 diluted earnings per share from continuing operations is due to our continued expectation for a low double-digit pharmaceutical industry growth rate, including price appreciation of approximately 5% in the remainder of the fiscal year; lower interest expense from recent refinancings; the impact of our stock repurchase program; and benefits from profitability and growth initiatives in the pharmaceutical distribution business, such as our Optimiz asset optimization program.

"Although these are challenging times for AmerisourceBergen and the industry, the future remains bright, with generic opportunities ahead, the implementation of the Medicare Modernization Act in 2006, and the evolution to fee-for-service contracts with manufacturers. Assuming projected market growth, we expect to return to our long-term diluted earnings per share growth from continuing operations of 15% in the September 2005 quarter," Yost added in the release.

AmerisourceBergen is a Chesterbrook, Pa.-based wholesale distributor of pharmaceutical products and provider of related services to healthcare providers and pharmaceutical manufacturers.

NRG new preferred up

NRG Energy Inc.'s new private placement 4% convert traded around 1080 versus a stock price of approximately $35 on Wednesday, according to a market source. The preferred was up from morning levels around 1071 bid, 1072 offered.

The stock closed at $35.29, up $0.63, or 1.82%, on the day.

"The stock's up so it's up. Smith Barney initiated coverage of the stock with a buy rating so that could have had a little something to do with it but I'm not sure," the source added.

NRG is a Minneapolis-based wholesale power generation company.

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