Morning Commentary: International Flavors on tap; Integrated Device Technology gains

By Abigail W. Adams

Portland, Me., Sept. 11 – As part of a large capital raise, International Flavors & Fragrances Inc. is tapping the convertibles market with a $750 million offering of three-year $50-par tangible equity units.

The deal is set to price after the market close on Thursday with price talk for a coupon of 6% to 6.5% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

The units will contain a prepaid stock purchase contract and a senior amortizing note due Sept. 15, 2021.

The deal is essentially a mandatory convertible and at “first blush” looks to be fair value, although mandatory convertibles typically come cheap, a market source said.

The equity units are pricing concurrently with a $1.5 billion common stock offering. The concurrent offering is a pretty good indication the stock will not tank, especially given its size.

“They’ll defend it to its death,” a market source said.

Proceeds from the combined offerings, in addition to borrowings under new term loans and cash on hand, will be used to finance the company’s $7.1 billion acquisition of Frutarom Industries Ltd.

Meanwhile, Integrated Device Technology Inc.’s 0.875% convertible notes due 2022 were in focus and making gains on an outright and dollar-neutral basis after news broke that Renesas would buy the semiconductor company for $6.7 billion.

The notes jumped more than 12 points outright to trade north of 150 and were expanded about 1.5 points dollar-neutral, a market source said. The company’s stock was up more than 11% to $46.79 early in the session.

Depending on when the deal closes, bondholders stand to gain about 3 points dollar-neutral on the take out, a market source said. “It’s a 3-point win,” the source said.

The 0.875% convertible notes made large gains on an outright and dollar-neutral basis at the end of August after news broke the company was in negotiations with Renesas.

The 0.875% notes expanded 2.5 points dollar-neutral on Aug. 31 on the buyout news.

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