Human Genome climbs on takeover hopes; DryShips takes off on stock upgrade; UAL higher

By Kenneth Lim

Boston, Nov. 11 - The convertible market continued to weaken on Thursday amid a sell-off in the equity markets and a lack of strong volumes, but several convertibles moved higher on news-related stock gains.

Human Genome Sciences Inc. rose on speculation that the company could become a takeover target if a lupus drug candidate wins approval.

DryShips Inc. was also higher on an upgrade by Morgan Stanley ahead of the company's upcoming third-quarter results.

But the rest of the market was mostly lower.

Ciena Corp.'s recently priced 3.75% convertible senior notes due 2018 were slightly lower at 99 versus a common stock price of $14.30.

The shares closed at $14.63, up by 0.14% or 2 cents.

Ciena is a Linthicum, Md.-based internet network specialist.

United Continental Holdings Inc.'s 6% convertible note due 2029 rose with the stock to trade at 341 against a $28.05 stock price following progress on a joint venture.

United Continental stock gained 1.28%, or 36 cents, to close at $28.40.

"There was something on the wires last night about a joint venture to Asia, they got past antitrust issues, so that's something positive for them," a sellside trader said. "On a slow news day, it makes a difference."

United is a Chicago-based holding company for Continental Airlines and United Airlines.

Priceline.com Inc.'s 1.25% convertible senior notes due 2015 were active but ended mostly flat as its common stock recovered from an early drop.

The notes were seen at around 154.5 versus a common stock price of $419. The stock closed at $419.57, higher by 0.12% or 50 cents.

Priceline stock has been active over the past few days because "they reported earnings last week and a couple of firms upgraded them," another sellsider said.

Priceline, a Norwalk, Conn.-based online travel company, on Monday said it expects fourth-quarter profit to be between $2.91 and $3.06 per share, beating Street expectations of about $2.68 per share.

The new SL Green Realty Corp. 3% exchangeable senior notes due 2017 were a touch lower at 100.25 versus a stock price of $64.55.

Shares of SL Green, a New York-based commercial real estate investment trust focused on Manhattan, slipped 0.87%, or 57 cents, to close at $64.75.

Quiet session

The market overall had another quiet session with bond markets taking the day off for Veterans Day.

"It's been pretty slow with the bond market closed, obviously," the sellsider said.

The trader said the lack of money being put to work was reflected in the weak bids seen on Thursday. The stock market's lackluster session did not help.

"Just a tough week to get anything going at all," the sellsider said. "This morning we had some negative earnings news from Cisco [Systems Inc.] that got us off on the wrong foot, and the market didn't have enough to overcome that. Guys are thinking we'll come back after the weekend and start again."

Human Genome gains

Human Genome's 2.25% convertible due 2011 rose about 15 points outright to trade at 180.25 versus a stock price of $26.40.

The common stock climbed by 8.84%, or $2.15, on Thursday to close at $26.48.

"Human Genome stock was up on somebody saying it was a takeover target," the sellsider said.

Human Genome, a Rockville, Md.-based biopharmaceutical company, became the subject of takeover speculation on Thursday following a report by RBC Capital Markets.

The drug company has a drug candidate for lupus that could get approval from the U.S. Food and Drug Administration in December, wrote RBC's Michael Yee in a report.

Human Genome's partner on the drug, GlaxoSmithKline plc, may make an offer if the drug is approved because of the attraction of the drug, the analyst wrote. Other big pharmas that could also be interested include Amgen Inc., Roche Holding AG, Abbott Laboratories and Johnson & Johnson, Yee said.

The convertible trader said the name has not been particularly active, and the takeover put will probably not be a big factor for holders because the bonds are already far in the money.

"Assuming there's a takeover and the buyer pays a premium, you can just convert into shares and collect the premium," the trader said.

DryShips gets upgrade

DryShips' 5% convertible due 2014 traded at 105.5 against a common stock price of $5.50 on Thursday following an upgrade on the stock by Morgan Stanley.

DryShips, an Athens, Greece-based shipping and deepwater drilling company, saw its common stock jump 9.43%, or 49 cents, on Thursday to close at $5.63.

"DryShips was pretty active," the trader said. "They had some news in the morning about a new drilling contract that got the stock up, then in the afternoon Morgan Stanley upgraded them and the stock really took off. Pretty nice move up."

DryShips said Thursday that it received a $77 million 90-day drilling contract off the Falkland Islands to start in the fourth quarter of 2011, with an option for an additional 135 days and three more wells.

Morgan Stanley on Thursday upgraded the common stock to "overweight" from "equal weight," with a $9.00 target on the stock.

Mentioned in this article

Ciena Corp. Nasdaq: CIEN

DryShips Inc. Nasdaq: DRYS

Human Genome Sciences Inc. Nasdaq: HGSI

Priceline.com Inc. Nasdaq: PCLN

SL Green Realty Corp. NYSE: SLG

United Continental Holdings Inc. NYSE: UAL

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