Alder Biopharmaceuticals surges outright on takeout news, lags on swap; Bookings active

By Rebecca Melvin

New York, Sept. 16 – Alder Biopharmaceuticals Inc.’s convertibles surged more than 20 points on an outright basis in active trade but lagged on swap on Monday after it was announced that the Bothell, Wash.-based developer of therapeutic monoclonal antibodies signed a definitive agreement to be acquired by H. Lundbeck A/S.

Lundbeck will commence a tender offer for all of Alder’s shares for $18.00 per share in cash and one non-tradeable contingent value right that lifts the total potential consideration to $20.00 per share if Alder’s migraine drug eptinezumab gains approval from the European Medicines Agency. The conversion price on the notes is $20.25.

The Alder 2.5% convertibles due 2025 traded up to 109.5 from about 88 last, according to Trace data, with the underlying shares up 83%, to $18.42.

But the $397.5 million of 2.5% Alder bonds didn’t do so well on a hedged basis, where investors might have lost up to 6 points on swap depending on the delta hedge on which they were held, according to one market source. If hedged players were set up on a 65% delta or so, they lost money. However, on a 50% delta, the bonds were break even or expanded 0.5 point, a second market source said.

“We saw them breaking even coming into the day on a 50,” the second market source told Prospect News, referring to a 50% delta hedge. “Some people may have gotten hurt on them, but on a theoretical delta, people did OK.”

Elsewhere, Transocean Ltd.’s 0.5% convertibles due 2023 were active in the early going, with shares of the company up 11.5%, to $6.39. The Transocean 0.5% convertibles due 2023 were seen changing hands up more than 6 points to 96.25 on Monday afternoon.

Booking Holdings Inc., formerly the Priceline Group Inc., was the most active name of the day with both the 0.35% convertibles due 2020 and the 0.9% bonds due 2021 also in trade.

The Booking 0.35% notes traded at 156.74 and the Booking 0.9% bonds due 2021 were at 119.1. Booking shares added $9.05, or 0.4%, to $2,072.95.

Among mandatory convertibles, there was action in International Flavors & Fragrances Inc., which saw its common shares slump $5.29, or 4.2%, to $122.03. Otherwise the market was described as fairly quiet. Peabody Energy Corp., the St. Louis based coal producer, was not heard as a name in convertibles trade after it announced that the company is selling $900 million of straight notes.

There were no new issues announced on Monday.

U.S. stocks fell on Monday and oil prices rose as news of a drone strike on key oil production facilities in Saudi Arabia sent shockwaves through global financial markets. High energy prices could further slow economic growth that would cause further harm to financial markets.

Also this week is the regularly scheduled meeting of policy makers of the U.S. Federal Reserve, and many market observers had been banking on a second rate cut with the wrap up of the meeting on Wednesday. But with higher energy costs comes rising expectations that the Fed could stand pat on rates. Fed chairman Jerome Powell said that the first rate cut was a mid-cycle adjustment. Still many think that a second 0.25% rate cut is in the cards.

Alder jumps outright

The Alder 2.5% convertibles jumped more than 20 points to 109.5 from 88 as the underlying shares surged 83% to $18 and change

The strike price of the convertible at $20.25 is below the takeout price of $18.00 plus the CVR, so parity is below par, a market source said, citing the CVR part of the consideration which the convertible holders will likely receive.

“I see these trading straight into fair value,” the market source said. “On a 50% delta, they would be making 0.5 point. On a 55% delta, people would be hurt by 1.64 point. The CVR consideration is helping a bit.”

Mentioned in this article:

Alder Biopharmaceuticals Inc. Nasdaq: ALDR

Booking Holdings Inc. Nasdaq: BKNG

International Flavors & Fragrances Inc. NYSE: IFF

Peabody Energy Corp. NYSE: BTU

Transocean Ltd. NYSE: RIG

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