Bristol-Myers gains amid takeover talk; Sunpower distribution could be tight; Amgen continues decline

By Kenneth Lim

Boston, Jan. 29 - Bristol-Myers Squibb Co. rose amid active trading after reports said the company could be taken over by Sanofi Aventis SA.

Meanwhile, Sunpower Corp. launched a $130 million offering of 20-year convertible senior unsecured notes, which market sources say is likely to end up in a limited number of hands.

Amgen Inc. continued to retreat with its stock after the company announced lackluster results the weak before and released disappointing data on some key drugs.

The rest of the convertible market started the week on a quiet note, as a broader sense of economic uncertainty put a damper on activity.

"Volume's pathetic," a buyside convertible trader said. "There's just not that much going on."

Bristol-Myers up slightly

Bristol-Myers Squibb's Libor minus 50 basis points convertible due 2023 gained slightly with the stock on Monday following reports that the company could be taken over by French drug maker Sanofi Aventis, although investors said the jury is still out as to how any transaction will impact the convertible.

The floating-rate convertible, which currently pays a coupon of about 4.86%, traded at 100.875 against a stock price of $26.20 on Monday, higher by about 1/8 point. Bristol-Myers stock (NYSE: BMY) rose 4.65% or $1.22 to close at $27.43.

"We don't normally see these trade and there were a few quotes today, so I guess it was more active than usual," a sellsider said.

A French newspaper report said the two drug makers had signed a pre-merger memorandum last week, but did not provide details about any possible deal. New York-based Bristol-Myers and Sanofi Aventis did not comment.

A sellside convertible analyst said speculation about a merger had been around for some time, but the newspaper report was the strongest rumor to emerge recently. The analyst said a merger between the two companies was possible, but declined to comment on how likely it was.

"The two companies are already partners on a couple of drugs, so a case could be made that a merger or a takeover makes sense," the analyst said. "Bristol-Myers also has a number of products in the pipeline that Sanofi Aventis could be interested in."

Without details of the deal, it will be difficult to know how a takeover would affect the convertibles, the analyst said.

"But I would think that if Sanofi Aventis is taking over Bristol-Myers it's going to pay a bit of a premium," the analyst said. "The outright guys are probably going to do fine if any deal emerges. For the hedge guys, there's no make-whole, so I suppose you might find someone who's going to have issues with any takeover. But I'm not sure that it's going to make much of a difference even then. It'll really depend on how any deal is structured, if any."

The analyst said there the biotech sector has always been on the lookout for merger-and-acquisition activity, although a combination of two companies the size of Bristol-Myers and Sanofi Aventis was unusual.

"Buying companies to get their products and pipelines is an established way of business in this sector, so it wouldn't surprise me to see more deals every now and then," the analyst said. "But whether you're going to get another two big companies...in a deal, I wouldn't bet the farm on it."

Sunpower launches deal

Sunpower plans to price $130 million of 20-year convertible senior unsecured notes on Thursday after the market closes, and market sources said the deal is likely to be end up with a small number of investors.

"It's probably going to be a very tightly distributed deal," a buysider said.

The convertible is talked at a coupon of 1.25% to 1.75%, and an initial conversion premium of 25% to 30%. It will be offered at par.

There is an over-allotment option for a further $19.5 million.

Lehman Brothers and Credit Suisse are the bookrunners of the registered off-the-shelf offering.

Sunpower is concurrently lending an unspecified number of shares of its common stock for a separate stock offering that will be used for a stock borrow facility.

Sunpower, a San Jose, Calif.-based maker of solar electric power products, said the proceeds of the deal will be used for general purposes.

"There's going to be a borrow facility, and it looks like it's priced OK," the buysider said. "But it's the kind of deal that maybe should have been done as a private deal. They'll probably make five phone calls and that's it."

Sunpower stock (Nasdaq: SPWR) closed at $44.30 on Monday, gaining by 2.31% or $1 after the deal was announced.

Amgen slips further

Amgen's 0.375% convertible due 2013 continued to retreat on Monday in the wake of the previous week's disappointing earnings and drug data news.

The convertible traded at 99.875 versus a stock price of $71.50, about a point lower outright from Friday's levels. Amgen stock (Nadaq: AMGN) declined 2.14% or $1.53 on Monday to close at $69.97.

"Amgen dropped some more today," a sellside convertible trader said. "It's not as active as last Friday, but we're still seeing quite a bit of volume in the name."

Amgen, a Thousand Oaks, Calif.-based drug maker, before the weekend reported flat fourth-quarter earnings of about $833 million, or 71 cents per share. The company also said its anemia drug Aranesp showed higher death rates and lacked significant improvements versus placebos in trials, while its colon cancer drug Vectibix did not demonstrate significant improvement over existing treatments.

"The market right now is pessimistic about the company's revenue outlook," a sellside convertible analyst said. "You have a couple of key drugs not performing as well as expected during trials, so everyone's going to have to trim their forecasts a little."

The analyst said Amgen's revenue for 2007 and 2008 could be about 5% lower than forecast because of the drug setbacks.

"That's disappointing if you're a stockholder or if you're outright," the analyst said. "But it's not really going to make much of a difference for the credit. I don't see Amgen collapsing because of this. You're still going to get your coupon on time and you're most probably still going to get your principal back when the convertibles mature."

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