CommScope up outright, loses on hedge; Carrizo gains on tender news; Digital River on tap

By Rebecca Melvin

New York, Oct. 25 - CommScope Inc. jumped outright but lost about 1.5 points to 2 points on a hedged basis Monday after the Hickory, N.C., communications cable maker said it had been approached by the Carlyle Group with an offer to take the company private for almost $3 billion.

Carrizo Oil & Gas Inc. jumped in active trade after the Houston-based oil and natural gas exploration and development company announced that it is tendering for up to $300 million of its $373.75 million of 4.375% convertible senior notes left outstanding.

Apart from CommScope and Carrizo it was "pretty boring," a New York-based sellside trader said of the convertibles trading session.

A few sundry trades were heard including Host Hotels & Resorts Inc.'s 3.25% convertibles that changed hands at 110 versus a share price of $16.20, according to a New York-based sellside desk analyst.

On Friday, Host, a Bethesda, Md.-based hotel-oriented real estate investment trust, saw its 2.625% convertibles in trade at 99.5 versus a share price of $16.00.

The 2.5% convertibles due 2013 of RadioShack Corp. weren't heard in trade despite the fact that shares of the Fort Worth-based consumer electronics retail chain sunk 9% after its quarterly earnings report showed improved profit on better sales.

In the primary market, Digital River Inc. launched an offering of $250 million of 20-year convertibles after the market close when it reported its quarterly earnings.

The e-commerce service provider's bonds are expected to be priced after the market close on Tuesday. The company beat revenue estimates and raised its fourth-quarter forecast, lifting underlying shares by 3% in after-hours trading. Share trading during the session had been flat.

CommScope loses on hedge

CommScope's 3.25% senior notes due 2015 traded at 127.75 versus a share price of $30.05 in early afternoon trading Monday, according to a sellside desk analyst.

The outright jump for the 3.25% notes, which priced initially May 2009, was about 16 points outright on the day, but lower by 1.5 points to 2 points on a hedged basis, traders said.

Shares of the network infrastructure company surged $7.04, 30.5%, to $30.16 in ultra-heavy volume.

The jump occurred after the company confirmed rumors that the Carlyle Group is interested in taking it private. But it said that no agreement has been reached.

The company said in a news release early Monday that under the terms of the proposed deal, Carlyle would buy all outstanding CommScope common stock for $31.50 a share in cash, in a deal worth about $2.9 billion.

The bid represented a 36% premium over the last closing price of CommScope shares.

Holders of the CommScope convertibles probably had them hedged too heavily to make money on the news that sent shares spiraling upward.

To do "OK" in a cash takeout, "you had to be on a pretty light hedge - like 61%, when I get around 70% for theoretical delta," a New York-based sellsider

"The arb spread shows the market is somewhat skeptical about either the deal closing or the price," the sellsider said.

Initially it was thought that the loss for hedge players might have been more than 1.5 points to 2 points, but based on 127.75 versus a share price of $30.5, "there isn't much more to lose in a takeout from here," he said.

CommScope shares have been moving mostly lower for much of the second and third quarters, bumping up in recent weeks.

The fact that the shares didn't trade all the way up to the takeout price was cited as evidence that there was some uncertainty whether the deal under discussion would actually get done.

"...clearly there are some people out there that don't think a deal gets done," a sellsider said.

Carrizo jumps on tender news

Carrizo's 4.375% convertibles due 2028 traded Monday at 99.25 bid, 99.75 offered, which was up about 5 points on the day. The bond has been in the 85 to 95 range since July.

Shares of the Houston-based energy company lifted 44 cents, or 1.9%, to $23.50 on Monday.

The tender offer, at par plus accrued interest, is conditioned on at least $200 million principal amount of convertibles being tendered.

The tender offer will expire at 5 p.m. ET on Nov. 23.

Credit Suisse Securities (USA) LLC, RBC Capital Markets Corp. and Wells Fargo Securities, LLC are the dealer managers.

Carrizo will hold a roadshow for a $325 million offering of eight-year senior notes this week, according to Prospect News sources, with proceeds to be used to fund the tender offer.

Digital River to price

Digital River plans to price $250 million of 20-year convertible senior notes after the market close on Tuesday.

Deal talk was for a coupon of 2.25% to 2.75% with an initial conversion premium of 27.5% to 32.5%.

Digital River formerly had a 1.25% convertible due 2024, which was putable in 2009. Otherwise, the software service company has no other debt.

"I've always liked DRIV's credit," a West Coast-based sellsider said. "They have no other debt, and they generate decent cash flows."

Commenting further, the sellsider said the premium talked on the new deal might be a little high, but he likes it.

"I think the deal will do fine. Given the stock is close to 52-week highs, it makes sense that they sell it up another 30% through a convertible," the sellsider said.

There is a $37.5 million greenshoe, and the offering is being sold via joint bookrunners Morgan Stanley and Bank of America Merrill Lynch.

The notes will be non-callable for five years, with investor puts in years five, 10 and 15.

Eden Prairie, Minn.-based Digital River is a provider of electronic commerce outsourcing services. It plans to use up to $35 million of the net proceeds to repurchase shares under an existing share buyback program, with the remainder of proceeds for general corporate and strategic purposes.

For the quarter, Digital River reported revenue of $85 million and non-GAAP profit of 20 cents a share. Analysts had been expecting revenue of $77.7 million.

For fourth quarter, Digital River sees revenue of $95 million to $98 million and non-GAAP profits of 28 cents to 31 cents a share. Those numbers are better than the $90.4 million of revenue and 28 cents of profit that analysts had been expecting.

Mentioned in this article:

Carrizo Oil & Gas Inc. Nasdaq: CRZO

CommScope Inc. NYSE: CTV

Digital River Inc. Nasdaq: DRIV

Host Hotels & Resorts Inc. NYSE: HST

RadioShack Corp. NYSE: RSH

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