UTi Worldwide up on takeout news; Chesapeake Energy rebounds; SanDisk extends swap gains

By Rebecca Melvin

New York, Oct. 9 – UTi Worldwide Inc.’s convertibles climbed early Friday along with the underlying shares of the ocean freight and logistics company after it announced that it is being acquired by DSV for $7.10 per share in cash, or a 50% premium to UTi’s closing share price on Thursday.

The deal triggers the change-of-control feature of UTi’s 4.5% convertibles due 2019, and those bonds jumped to about 100 from the mid 70s, a New York-based trader said.

Elsewhere, some of the beaten-down issues in U.S. convertibles continued to rebound, particularly in the energy and technology sectors as outright buyers and momentum buyers stepped in.

Still, there were some market players selling into strength, but pricing remained firm for the most part, a New York-based trader said.

Overall, convertibles expanded about 0.375 point to 0.5 point on the day, according to a second New York-based trader.

“A lot of things are substantially better today,” the trader said.

In energy, Chesapeake Energy Corp. continued to see recovery after being crushed several weeks ago.

“Some of the longer-dated stuff really had a good bounce,” a trader said of Chesapeake.

In technology, SanDisk Corp.’s convertibles continued to trade actively and higher, a day after news that it has inked a partnership with Hewlett-Packard Co. to develop new data storage solutions.

In health care, Illumina Inc. had some buyers following a strong down move this week that was overdone, the trader said.

UTi jumps in active trade

UTi Worldwide’s 4.5% convertibles due 2019 traded up about 25 points to near par from about 74.75.

Trace data had the paper at 99.9.

Shares surged $2.41, or 51%, to $7.13.

The surge in active trade came on the heels of news that DSV, a Danish transport company, is buying UTi for about $1.35 billion. The acquisition is expected to close in the first quarter.

UTi priced $400 million of the 4.5% convertibles in February 2014.

“UTIW is trading a lot,” a New York-based trader said.

On Sept. 4, the Virgin Islands-based third-party logistics company reported a steep quarterly loss, pushing the stock and convertibles even lower – to about 73.5 for the converts – and resulting in company management pulling back on its forward-looking projections. The company had sought potential buyers over the last couple of years.

Chesapeake rebounds

Chesapeake Energy’s 5.75% convertible preferreds were trading at about 72.25 bid, 73 offered Friday morning, which was up from about 64 last week and compared to 73 two weeks ago.

The Chesapeake 5.5% convertibles also got beaten up pretty good, the trader said, and they are better. The Chesapeake 6.5% convertibles went down to about 90 from 97, and now they are back up to 97, he said.

Meanwhile, the short-dated 2.75% contingent convertible senior notes due 2035 have rebounded into the mid-90s after word that they will be paid. Holders can redeem the paper at par on Nov. 15.

Gimme Credit analyst Philip Adams said in a note published Friday that he suspects most of the 2.75% notes will be tendered for a maximum cash cost of $396 million.

The short-dated Chesapeake 3.25% convertibles also started trading amid momentum buyers in the name, a New York-based trader said.

Chesapeake “got crushed and it is rallying back,” the trader said. “It has pretty much come full circle.”

Shares of the Oklahoma City-based energy company, which had been on a tear this week, slid on Friday, closing down 46 cents, or nearly 5%, to $8.88. On Thursday the shares had closed up 37%.

Last week, Chesapeake announced a 15% cut in payrolls to help lower costs and match lowered activity amid low commodity prices. The company’s third-quarter results, which are expected to be reported in the first week of November, will include a $55.5 million one-time cash charge. Also last week, Chesapeake announced amendments to its $4 billion five-year first-lien senior secured revolver that matures 2019. The amendments make it easier for Chesapeake to bulk up on the revolver and it may also incur up to $2 billion in junior lien debt.

Moody’s Investors Service and Standard & Poor’s have downgraded the company’s senior unsecured notes to low double B, with a negative outlook. Fitch’s rating remains mid-double B.

SanDisk improves

SanDisk’s 0.5% convertibles due 2020 traded over 101 early Friday from 100.75 at the close on Thursday. That was better by about 0.25 point on swap, on top of a 0.125 point expansion on Thursday, a trader said.

Shares of the Milpitas, Calif.-based data storage chip maker closed down $1.75, or 2.7%, at $62.36.

Technology convertibles especially semiconductors had good interest this past week. Names in trade included Intel Corp., Lam Research Corp., and Micron Technology Inc.

“The SanDisk 0.5% convertibles were better amid outright buyers as the market kind of turned,” a trader said.

“Today there were some sellers on the move up as the stock has had a pretty good run,” he said.

A new, long-term partnership with Hewlett will focus on developing new technology in the storage class memory (SCM) category. Manufacturing and design expertise will center on creating new enterprise-wide solutions for memory-driven computing. The two companies also will partner in enhancing data center solutions with solid state drives (SSDs).

The technology is aimed at addressing massive streams of data generated by the convergence of social media, security, mobility, big data analytics, cloud and the Internet of Things.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Illumina Inc. Nasdaq: ILMN

SanDisk Corp. Nasdaq: SNDK

UTi Worldwide Inc. Nasdaq: UTIW

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