Endo jumps on debut; takeout news lifts Millenium, other biotechs gain; NatCity in play

By Rebecca Melvin

New York, April 10 - The new 1.75% convertibles of Endo Pharmaceuticals Holdings Inc. dominated early dealings in the convertibles market Thursday, with the bonds of the specialty drug developer rising steadily in early trading to a peak of 106 - which is about where they closed, market players said.

"It's a wild market. Do you want a quick flip? Do you want to wait until they bust? Whatever your desires, the market is likely to soon provide the opportunity!" a New York-based buysider said, when asked about Endo.

Two other two new issues released for secondary trading Thursday weren't as notable. Neither the Globalstar Inc. 5.75% convertibles, nor the upsized $400 million issue of new 4.75% convertibles from LDK Solar Co. Ltd. were seen in trade, traders said.

"Endo was the most fairly valued, while the other two had difficult borrow," a New York-based sellside analyst said.

Another sellside analyst remarked that Endo was in the right sector, given that the biotechnology sector overall moved higher on Thursday.

Spurring gains in the biotech sector was news of a takeover agreement for Cambridge, Mass.-based Millennium Pharmaceuticals Inc. Millennium's stock and convertibles surged in response, and "had the whole sector popping," a Connecticut-based sellside trader said.

Other biotech names moving up were PDL Biopharma Inc., which saw its 2% convertibles due 2012 trade at 80.25 versus a stock price of $11.625, and Amgen Inc., which saw its 0.125% convertibles at 92 and its 0.375% convertibles at 89, versus a stock price of $44.50. Amgen shares closed a little below that level, but still up 5.75% at $43.98.

Elsewhere, National City Corp. convertibles were active on the heels of a CreditSights report, which made investors "nervous" about the regional bank, a Boston-based sellside trader said.

Back in the primary arena, the $1 billion of eight-year convertible senior notes that Virgin Media Inc. were expected to price after the market close. They were seen up in the gray during the session even as their underlying shares hit a 52-week low. The convertibles, talked to yield 6.5% to 7% with an initial conversion premium of 47.5% to 52.5%, were quoted at 100.25 bid, 101.25 offered in gray market trading.

Endo finds Shangri-La

The new Endo 1.75% convertible senior subordinated notes were at 106 a little before the close and better bid at that time, a West Coast-based sellsider said.

The issue was thought to be helped by a positive sector move - sort of a happy Shangri-La isolated from the "outside world" since the convertibles market overall was seen as just "okay."

Endo priced a total of $379.5 million of seven-year convertibles, including the already exercised greenshoe of $34.5 million. The notes priced near the midpoint of talk for the coupon, which was 1.625% to 2.125%, and at the midpoint of talk for the initial conversion premium of 15% to 20%.

The notes are non-callable, and they have contingent conversion, subject to a 130% handle, as well as full dividend and takeover protection.

Proceeds of the offering will be used to help fund a two-year $750 million share repurchase program announced Wednesday.

The Chadds Ford, Pa.-based specialty drug developer entered into convertible hedge and warrant transactions with an affiliate of an initial purchaser and also entered into a privately-negotiated share repurchase agreement as part of its share repurchase program.

Early in the session the Endo convertibles traded at $102.375 versus a share price of $24.75. At about 2 p.m., they traded at 105.5 to 106.5, versus a share price of $26.20.

Endo shares (Nasdaq: ENDP) closed up $1.43, or 5.75%, at $26.28.

Globalstar, LDK indicated higher, but no trades

The Globalstar 5.75% convertibles opened at "plus 0.5 point" from issue, and then were offered at issue, a New York-based sellsider said, adding that he didn't see them trade.

One source suggested that the share lending agreement was a problem for the issue. Concurrent with the offering, Globalstar entered into a share lending agreement with a Merrill Lynch affiliate, under which Globalstar will lend up to 36.145 million shares of common stock to the share borrower.

Globalstar also entered into an underwriting agreement with Merrill Lynch and the share borrower, under which the share borrower intends to sell the borrowed shares in an underwritten registered public offering and will use the short position resulting from the share sale to help investors establish hedge positions in the notes, according to the company's press release.

Almost 22 million of the loaned shares will be offered at $4.15 per share in a fixed price offering. Subsequently, shares will be offered and sold from time to time.

The share borrower will receive all proceeds from the sale of the borrowed shares. Globalstar intends to use proceeds from the notes to acquire enough government securities to make the first six semiannual payments of interest, to pay a portion of the costs of launching Globalstar's second-generation satellite and related ground facilities, and for other general corporate purposes.

Milpitas, Calif.-based Globalstar provides satellite voice and data services.

Its shares (Nasdaq: GSAT) closed down 80 cents, or 16%, at $4.10.

LDK had poor borrow as well, but was seen garnering investor interest because it is a solar power play.

LDK priced an upsized $400 million of convertible senior notes to yield 4.75%, with an initial conversion premium of 25%.

Initially LDK was expected to price $300 million of notes. The notes priced beyond the cheap end of talk for the coupon, which was 3.5% to 4.5%; and at the cheap end of talk for the initial conversion premium, which was 25% to 35%.

The Rule 144A deal, sold via underwriters Morgan Stanley, UBS and J.P. Morgan, will be convertible into LDK's American depositary shares, or cash, or a combination of cash and American depositary shares.

Shares of LDK (NYSE: LDK) closed up 81 cents, or 2.58%, at $32.24/

Millennium surges on Takeda offer

Cambridge, Mass.-based cancer drug maker Millennium saw its 2.25% convertible senior notes due Nov. 15, 2011 jump to 166 versus a share price of $24.50, which compares to a price more than 40 points lower a week ago, at 124 versus a stock price of about $16.

"I see them trading with a 166 handle while parity is 157, so there must be a make-whole matrix involved," a Connecticut-based sellsider said via email.

Millennium stock (Nasdaq: MLNM) moved up 49% to close at $24.34.

Millennium has inked a definitive agreement with Japan's Takeda Pharmaceutical Co. Ltd., under which Takeda will acquire Millennium for about $8.8 billion through a cash tender offer of $25 a share.

The transaction was unanimously approved by the boards of both companies.

Millennium's flagship product is Velcade, a market-leading oncology product, and it is advancing a pipeline of novel product candidates in oncology and inflammation, including a potential therapy for inflammatory bowel disease expected to enter phase three clinical trials in late 2008 or early 2009.

NatCity actively traded after credit report

The National City 4% convertibles followed their underlying shares down and then higher on Thursday after independent research firm, CreditSights, published a report on the Cleveland-based bank.

The CreditSights analysts said they believe a sale of the company is probably the most likely outcome because of its earnings and asset quality challenges.

"In our opinion, National City's three primary areas of credit quality weakness include home equity, subprime mortgage, and residential construction," analysts David Hendler, Baylor Lancaster and Pri de Silva said.

Wells Fargo, KeyCorp, and Fifth Third are the most likely acquirers, they said. "We estimate that a combination with National City could be highly accretive to most potential buyers due to National City's low valuation as well as potential cost savings."

They feel Fifth Third has the edge in a link-up as it is the one with a business mix most complementary to National City's and that should be able to wring out substantial cost savings.

The report also outlined the bank's credit profile and risks facing the company.

National City's 4% convertibles due 2011 traded early Thursday at 83.5 versus a share price of $8.50. Later the convertibles were seen higher, with Trace showing the last sale at 88.5.

National City shares (NYSE: NCC) dipped lower early in the session, but moved up through the afternoon to close higher by 39 cents, or 4.58%, at $8.91.

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