Depomed convertible bonds lose ground amid takeover talk; election eyed; Dynegy recovers

By Stephanie N. Rotondo

Seattle, Nov. 3 – A convertible bond trader said Depomed Inc. was Thursday’s nom du jour, as it was reported that more companies are considering making a takeover bid for the pharmaceutical company.

The trader said the 2.5% convertible notes due 2021 were “down a lot,” seeing a pre-market trade of 140, then trading as low as 133 when the market opened.

He saw an early market of 139.75 bid, 140.25 offered against a stock price of $24.00.

“[The convertibles] are trading like they will be taken over,” he noted.

Later in the day, the issue was seen in a 133.5 to 134.5 context.

The stock underlying the debt was up marginally at mid-morning, adding just a nickel. However, it eventually traded lower, losing 66 cents, or 2.94%, to close at $21.82.

Mallinckrodt plc and Daiichi Sankyo Co. are reportedly considering making a bid for the Newark, Calif.-based Depomed, Bloomberg reported Thursday. Shionogi & Co. is also thinking about making a bid or partnership offer, the article stated, and private equity firms could also throw their hats in the ring.

Depomed said in September that it was working with Morgan Stanley on a possible sale, after fighting off a nearly $3 billion hostile bid from Horizon Pharma plc last year. Hedge fund investor Starboard Value LP has said the company is “extremely attractive” as a takeover target and has fought back against what it has deemed “egregious” takeover defenses.

Away from Depomed, a trader said liquidity continued to be constrained.

“Everyone is waiting for this election still,” he said.

U.S. voters will go to the polls Tuesday for the general election.

Dynegy rallies

Dynegy Inc.’s convertible preferred paper rebounded after weakening on the company’s earnings results.

The 7% tangible equity units (NYSE: DYNC) rose $2.77, or 4.71%, to $61.49. The units had dropped 21.75% in midweek trading.

The common shares meantime pushed up 51 cents, or 6.95%, to $7.85. The stock had dropped 31.53% on Wednesday.

For the quarter, Dynegy reported a net loss of $254 million from $29 million the year before. Revenue slipped 3.9% to $1.18 billion.

The company attributed the wider loss to non-cash asset write-downs and losses on hedging contracts.

Still, management maintained that it would hit full-year adjusted EBITDA of $1 billion to $1.1 billion. For 2017, adjusted EBITDA is expected to be $1.2 billion to $1.4 billion.

Mentioned in this article:

Depomed Inc. Nasdaq: DEPO

Dynegy Inc. NYSE: DYN

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