Alere jumps on Abbott Laboratories’ deal; Ctrip.com 1.25% bond expands; SanDisk edges up

By Rebecca Melvin

New York, Feb. 1 – Alere Inc. was the name of the day in convertibles on Monday after news that Abbott Laboratories said it would buy the Waltham, Mass.-based diagnostics and services company for $56.00 per share in cash, or about $5.8 billion, representing a 51% premium over Alere’s closing share price on Friday.

Alere’s convertible bonds jumped outright and on a dollar-neutral, or hedged, basis in active trade. Meanwhile, market players pored through the documents related to Alere’s convertible preferred, which seemed to have language that gave traders pause regarding what would happen to the preferreds in the event of the takeover.

“There was a little confusion in the documentation on that and people are doing their work on it,” a New York-based trader said.

Ctrip.com International Ltd.’s 1.25% convertibles due 2018, or the B tranche, gained more than 0.5 point on an outright basis and expanded on swap on Monday following a weekend Barron’s article that said the prospects for China’s No. 1 online travel company are positive following its merger with rival Qunar. The article said that Ctrip’s share of China’s online hotel business could rise to 64% and its online air travel business share could reach 84% following the linkup.

The Ctrip bonds traded at 126.75, which was up by 0.57 point on the day, according to Trace data. That represented an expansion on a swap basis of 0.75 point, a trader said.

Elsewhere, SanDisk Corp.’s convertibles were edging a bit higher again along with the underlying shares amid expectations that the tie up with Western Digital Corp. will occur as planned.

The Western Digital-SanDisk deal was unveiled in October for $19 billion in cash and stock, or $86.50 per share, which represented a premium of about 15% over SanDisk’s share price at the time. On Monday, SanDisk shares were up 97 cents, or 1.4%, at $71.67 at late morning but they ended down about a nickel at $70.65.

The SanDisk 1.5% convertibles traded at 151.25 on Monday, which was up from about 150 on Friday.

The broader markets started out the new month on a weaker note amid lower crude oil prices following a dismal January, in which credit struggled and a global stock market rout in the first half of the month left major U.S. stock indices down sharply.

But early weakness on Monday abated and stocks improved heading into the market close. The S&P 500 stock index ended down less than one point, or 0.04%, at 1,939.38, following a 5% loss for January; the Dow Jones industrial average lost 17 points, or 0.1%, to 16,449.18 on Monday, following a 5.5% loss for January. And the Nasdaq stock market pared early losses to end up 6.41 points, or 0.1%, at 4,620.37, following an almost 7% drop for January.

This coming week there will be a number of earnings reports from convertible issuers. There will also be some important economic data, including the January U.S. payrolls report due out on Friday. This data will be closely watched for signs of U.S. economic strength that would serve to keep the Federal Open Market Committee on its intended path to continue to gradually raise interest rates to more normal levels.

In December the FOMC raised rates for the first time in nine years and lifted off the near zero mark for a Federal Funds target rate to 0.25% to 0.5%.

On Monday, data showed that U.S. consumer spending was flat in December and that U.S. factory orders contracted in January and that the U.S. economy grew at only at 0.7% rate in the fourth quarter.

The ISM, a gauge for manufacturing activity, rose to 48.2 from 48 in December. A reading below 50 indicates that the sector is contracting.

Alere surges on takeout news

Alere’s 3% convertibles, which mature in May, jumped more than 20 points on an outright basis to about 123 on Monday and were seen better on a swap basis by about 10 points, according to a New York-based trader. Alere shares jumped $16.91, or 45%, to $54.11.

The bonds gained points on the takeout, a trader said. In addition, the shares improved toward the end of the day with the bonds keeping step and trading in a straight line with the stock.

The Alere convertible preferred shares were indicated better at 312 from 278, but trading in the shares was scant amid uncertainty regarding certain language in the preferreds’ investing prospectus, the trader said.

Alere makes tests for infections such as HIV, tuberculosis, malaria and dengue fever. Abbott Laboratories said on Monday that it is buying that business to help it expand into that area of medical testing. Abbott’s businesses include infant formula, medical devices and drugs.

Abbot said it will pay $56.00 per share for Alere, which is a deal worth $5.8 billion when restricted stock, stock options and preferred shares are included. The deal is expected to close by the end of the year.

Mentioned in this article:

Alere Inc. NYSE: ALR

SanDisk Corp. Nasdaq: SNDK

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