Sybase surges on takeover reports; SunPower weaker after earnings; SanDisk active, higher

By Rebecca Melvin

New York, May 12 - Reports late Wednesday that Sybase Inc. could be acquired by German software giant SAP AG sent Sybase shares spiraling upward and pushed up its $400 million issue of 3.5% convertibles.

The Sybase convertibles were higher but not overly active at 138 versus a share price of $58.00 near the markets' close, a New York-based sellside analyst said. Sybase shares shot straight up after 3 p.m. ET, but the 59% surge was pared to 35% by the close.

On a hedged basis, those convertibles could lose 1 point or 2 points on a takeover, sources said.

"My early read is that you could lose a couple of points, but I am not sure; the stock has come in though, so who knows?" a New York-based sellside trader said.

SunPower Corp., which reported earnings after the market close Tuesday, saw two of its convertible issues actively traded Wednesday, with the 1.25% convertible holding in pretty well, but succumbing to pressure at least partially later on, while the 4.75% paper traded in line with the underlying shares, moving down on a 70% delta. A second sellsider said the bond was moving on a 74% delta.

"At some point, the 4.75% [convertibles] should start to expand on the way down. I just don't think we are there yet," a Connecticut-based sellside trader sad.

The SanDisk Corp. convertibles were trading very actively and higher on an outright basis amid a boost in their underlying shares as investors were taking a favorable view on the semiconductor sector in general.

Overall, the convertibles secondary market was rebounding dollar neutral in tandem with the stock markets' moves. But there were some market participants "taking profits back and marking up their portfolios," a Connecticut-based sellside trader said.

"With the stock rebound, people are taking advantage of that. If it was me and I had positions right now, I'd be unwinding a bit," the sellsider said, referring to the fact that the market could be in for more of a correction.

Primary quiet, but Korea prices

Meanwhile, the U.S. primary market remained quiet as it has been all week amid the turbulent broader markets.

But overseas, Hynix Semiconductor Inc. of South Korea priced $500 million of five-year convertible bonds to yield 2.65% with an initial conversion premium of 30%.

The Regulation S Hynix bonds are non-callable for three years and are provisionally callable after that a price trigger of 130%. There is a put in year three.

The new issue will be used to refinance Hynix's existing $583 million of convertibles bonds, which are putable in June, and for funding capital expenditures and other expenses.

The issue had a lackluster debut in the secondary market on Wednesday, falling slightly below par with its common stock.

"They were just under," a London-based trader said. "The stock fell because of the deal, so that pulled the bonds lower as well."

Hynix priced the $500 million offering on Wednesday with an initial conversion premium of 30% over its latest share price.

"They're essentially extending out their debt profile," the trader said. "But I would say the new bonds aren't as attractive as the older ones."

Sybase quakes on takeover talk

Sybase's 3.5% convertibles due 2029 were seen trading at 138 versus a share price of $58.00 on Wednesday, which was up compared to Tuesday.

Further action in the bonds was expected Thursday.

"On quick look, it's hard to say. If it was a cash takeout at $60.00, you could lose a couple of points. If it were an all-stock deal, you might be OK and might make money. The bond is probably in no man's land right now, neither a buy nor sell," a Connecticut-based sellside trader said.

It appeared that there was paper in both hedged and outright hands.

Late Wednesday, there was a Bloomberg report that Sybase, which has been the subject of ongoing takeover speculation, could be acquired by SAP.

Sybase didn't confirm the report. But Sybase immediately whipped higher, only to come back down some.

"It doesn't make any sense, unless someone had the wrong price target," a Connecticut-based sellsider said of the fact that shares pulled back to $56.00 a piece at the close from $66.00 at their apex.

The Sybase bonds have takeover protection via a make-whole table, and there is plenty of hedge ownership, one sellside analyst said, suggesting that hedge players could lose depending on how they are set up.

A second sellside analyst said, "You could probably lose one or two points on a cash takeout, but noted speculation that the company could be taken over has been ongoing.

"If they do agree, it's likely to go through," another sellside analyst said.

Sybase of Dublin, Calif., makes database software that competes with SAP and Oracle.

SunPower dimmer after earnings

SunPower's 1.25% convertibles due 2027 held at 90 offered for part of the session but were also reported to have traded at 88.5. It traded last in round lots on May 5 at 90.36 versus a share price of $16.09.

Shares of the San Jose, Calif.-based solar company lost $1.11, or 7.3%, to $14.18 on Wednesday.

Because the convertible doesn't have a lot of equity sensitivity, it made sense that the paper was holding "in" with the stock off a couple of points over the last week, a sellside analyst said.

SunPower's 4.75% convertibles due 2014, which have suffered subsequent to the new 1.25% convertible deal, which priced during the last quarter, traded at 81.458 versus a share price of $13.97 on Wednesday, compared to 85.877 versus a share price of $15.55 on Tuesday.

The solar company put in a lackluster quarter, but Wedbush upgraded the company's shares to "neutral" from "underperform."

First-quarter earnings were within guidance, but revenue and non-GAAP earnings were below analysts' consensus estimates.

Guidance for the second quarter is below initial consensus.

In recent months, the solar credits in general have tightened, and valuations weren't that dislocated, muting activity in the names among convertibles players. But renewable energy needs sponsorship from governments, and given the debt crisis situation currently affecting developed countries around the world, renewable energy may not be a priority, a sellside analyst said. "At best, they'll stay the same or move down; fundamentally they are not that attractive."

Independent from the credit story, however, SunPower has a solid credit profile, with enough cash balance to deal with its debt, the sellsider said.

For fiscal 2010 the company reaffirmed its guidance of revenue of $2 billion to $2.25 billion on net income per diluted share of $1.25 to $1.65. The company also expects capital expenditures of $375 million to $475 million and solar cell production of about 550 megawatts.

SanDisk adds a point outright

SanDisk's 1% convertibles due 2013 traded up from 88 to 89; but the underlying shares of the Milpitas, Calif.-based flash memory maker added $2.02, or 4.8%, to $44.27.

"Although the credit has tightened, and I think that is an offset, it looks like premium may actually have expanded," a New York-based sellside trader said.

The move up was explained, according to one sellsider, by continued benefit from Standard & Poor's Ratings Service's upgrade of SanDisk corporate credit ratings to BB- from B on Monday and also by improvements in the flash memory space.

The rating actions were based on SanDisk's currently strong financial profile due to a recent cyclical upswing in the flash memory industry, S&P said. Operating conditions and pricing were expected to remain favorable throughout 2010 amid continued growth in demand.

About $35 million of SanDisk bonds changed hands by late afternoon.

Kenneth Lim contributed to this article

Mentioned in this article:

Hynix Semiconductor Inc. Korea: 000660

SanDisk Corp. Nasdaq: SNDK

SunPower Corp. Nasdaq: SPWRA

Sybase Inc. NYSE: SY

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