Intel richens on swap after earnings beat, job cuts; Alere drops outright, jumps on swap

By Rebecca Melvin

New York, April 20 – Intel Corp.’s convertible bonds traded actively and higher on an outright and dollar-neutral basis on Wednesday after the Santa Clara, Calif.-based semiconductor giant posted earnings and revenue that were better than expected and announced that it is cutting 12,000 jobs, or 11% of its workforce.

Both of the Intel convertible bonds traded better, but the Intel 3.25% convertible outperformed, a New York-based trader said.

“For all earnings thus far, the thinking is that estimates have come down far enough, so that companies are beating, and the market is shrugging off misses as one-time blips,” the trader said. “There are long-only buyers buying the dips.”

Alere Inc.’s convertible bonds traded down sharply on an outright basis but expanded on a dollar-neutral, or swap, basis as shares fell after Abbott Laboratories declined to confirm that it is committed to completing a proposed $5.8 billion acquisition of the Waltham, Mass.-based diagnostics and services company.

In February, Abbott said it would buy Alere for $56.00 per share in cash, or about $5.8 billion, representing a 51% premium over Alere’s share price at the time, and take on about $2.6 billion of Alere debt.

During a Wednesday earnings conference call, however, Abbott chief executive Miles White declined to commit to the purchase. The Alere bonds fell about 10 points on an outright basis but expanded 3 to 6 points on swap, a New York-based trader said.

Alere has experienced delays to filing certain disclosures with the Securities and Exchange Commission and it is unclear when the company will hold a shareholder vote needed to approve the merger. Alere will not send its shareholders a definitive proxy agreement required to approve the takeover until after it has filed its annual report with the SEC, which it hopes to do soon.

Yahoo! Inc. was also a focus in Wednesday’s trade, with the underlying shares rising $1.50, or 4%, to $37.84 after its quarterly earnings beat estimates and as headlines continued to fly around the company regarding potential deals for a sale of its internet business.

At this point, “it’s all noise,” a trader said about a potential deal for the company.

Yahoo!’s 0% convertibles due 2018 traded up about 0.375 to 0.5 point to 101, according to Trace data.

Intel bonds improve on swap

Intel’s 3.25% convertibles due 2039 were seen around 158, which was up about 0.75 point on a swap basis, a New York-based trader said.

A second trader put the market at 157.75 versus an underlying share price of $32.00.

Intel’s 2.95% convertibles due 2035 traded around 127, which was up 0.375 point on swap.

Intel shares closed up 40 cents, or 1.3%, to $32.00 in heavy volume.

There was also a lot of volume in the convertibles, a trader said. He said that richening of the bonds often happens with even a small uptick in volume.

When the company’s earnings release was released late Tuesday, the shares slipped about 2% in after-hours trading.

For Intel, the layoffs will create a $1.2 billion charge but help it transition away from PC-oriented sales and toward cloud and the Internet of Things instead.

Intel also announced that its chief financial officer, Stacy Smith, will step down to take another role within the company. A successor CFO has not been named.

The company posted revenue of $13.7 billion for the first quarter, which was up 7% from $12.8 billion in the year-earlier period but below expectations.

Net income totaled $2 billion, which was little changed from the first quarter of 2015. Excluding one-time items, the company had $2.6 billion in net income, or 54 cents per share, which was up 19% from $2.2 billion of earnings, or 45 cents per share, in the year-earlier period.

Revenue rose year over year, driven by growth in an expanded portfolio of businesses. Strength in data center and Internet of Things groups’ revenue and a strong start for the programmable solutions group, formerly Altera, helped offset PC market and macro-economic challenges.

The job cuts as part of its restructuring initiative will reduce Intel’s workforce by 12,000 employees.

The cuts will be voluntary and involuntary from mostly PC operations in many locations. The reductions are estimated to save $1.4 billion annually and to be completed in the next year. At the end of last year, the company had 107,300 employees.

Alere drops outright

Alere’s 3% convertibles, which mature in May, fell about 10 points to 103.67 from 113.53 on Wednesday, according to a pricing source.

Alere’s common stock fell $6.11, or 12.4%, to $43.36.

The bonds gained 3 to 6 points on swap, depending on the delta on which the bonds were held, which was generally 95% to 99%, a New York-based trader said.

Alere stock was down “on concerns ABT labs will not confirm commitment,” the trader said.

Abbott chief executive White declined to commit to the Alere purchase in an earnings conference call on Wednesday.

In February, Abbott agreed to pay $56.00 per share and take on $2.6 billion of Alere debt to take over the company. Alere makes tests for infections such as HIV, tuberculosis, malaria and dengue fever. Abbott Laboratories has said it wants to buy the company to help it expand into that area of medical testing. Abbott’s businesses include infant formula, medical devices and drugs.

Alere said in November that the SEC was investigating certain tax treatments in its financial statements and sales practices in Africa.

Mentioned in this article:

Alere Inc. NYSE: ALR

Intel Corp. Nasdaq: INTC

Yahoo! Inc. Nasdaq: YHOO

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