PolyMedica convertibles skyrocket on takeover; AmeriCredit, Medtronic, slide; perfect storm slows volume

By Evan Weinberger

New York, Aug. 28 - A big jump in PolyMedica Corp. convertibles on takeover news highlighted Tuesday's trading. On the downside, issues from AmeriCredit Corp., Millennium Pharmaceuticals Inc., Medtronic Inc. Advanced Micro Devices Inc. and Intel Corp. all slipped slightly as the overall markets had a tough day.

Overall, however, the convertibles market continued its slumber, as the combination of no new issues, the coming end of the month and the last chance at the beach for market players combined to whittle volume down to the nub.

"I didn't see a lot. I don't think there was a hell of a lot going on," one trader said.

When there are few people around making trades, each move gets magnified. That appears to be what happened Tuesday as the Dow Jones industrial average, the Nasdaq and the Standard & Poor's 500 all dropped more than 2% in light trading.

"It's just a sell-off on relatively light volume," one trader said.

But the fears underpinning those drops were real, as investors waited for the release of the minutes from the Federal Reserve's Open Market Committee meeting of Aug. 7, hoping for a clear signal of an interest rate cut next month. That didn't appear in the minutes, where the committee still listed inflation as its greatest concern. There was talk of a need to act proactively to stem the credit crisis if necessary, but no clear mention of a cut in the federal funds rate. The meeting happened prior to the Fed's Aug. 17 discount rate cut.

Also crossing investors' desks Tuesday were reports of a decline in consumer confidence, according to the Conference Board, and a Standard & Poor's report saying that house prices in the second quarter of 2007 lost the most ground in a quarter since 1987.

The Dow retreated 280.28 points, or 2.10%, to 13,041.85. The Nasdaq gave back 60.61 points, or 2.37%, to close at 2,500.64. And the S&P 500 sank 34.43 points, or 2.35%, to 1,432.36.

PolyMedica soars on takeover

Convertibles issued by PolyMedica, a Wakefield, Mass., maker of diabetes diagnostics and other diabetes-related products, rarely move. In fact, according to Trace, the last time they traded was Aug. 22, and at around 104.

It's funny what a takeover can do. Medco Health Solutions Inc., a Franklin Lakes, N.J.-based pharmacy benefits manager, announced on Tuesday it is taking over PolyMedica for $1.5 billion, or $53 per share. The deal is expected to close later this year.

PolyMedica's 1% convertible subordinated notes due Sept. 15, 2011 shot up to 114.63 versus a closing stock price of $51.69 on Tuesday.

PolyMedica stock (Nasdaq: PLMD) jumped as well, picking up $6.40, or 14.13%.

"The guys didn't get beat up with it; they made out fine," one trader said of the takeover.

Down day for many convertibles

Volume was low again Tuesday, and most of what did move on the day didn't move up.

"It's coming to the end of the month, so nobody's buying anything," a trader said. "I think if people could sell them right, I think they would. But I don't see a lot of bids standing up."

And if the coffee lines in Lower Manhattan are an indication, there weren't many people around to process the bids and asks.

That doesn't mean the market stood still Tuesday.

AmeriCredit's 1.75% convertible senior notes due Nov. 15, 2023 slipped despite a slight gain for stock in the Fort Worth, Texas-based auto finance company. The convertibles closed at 103.13 versus a closing stock price of $16.73 Tuesday after finishing Monday at 103.25 versus a stock price of $16.62.

"It's just kind of a sign of the times," another trader said. "Financials are hated again."

Maybe not everywhere, because AmeriCredit's stock (NYSE: ACF) picked up 11 cents, or 0.66%, on Tuesday.

Cambridge, Mass.-based cancer drug developer Millennium Pharmaceuticals saw its 2.25% convertible senior notes due Nov. 15, 2011 close at 91.25 versus a $9.66 share price on Tuesday. They had finished trading Monday at 91.625 versus a stock price of $9.76.

Millennium Pharmaceuticals stock (Nasdaq: MLNM) slipped 10 cents, or 1.02%, on Tuesday.

Medtronic, a Minneapolis-based medical device manufacturer, saw two of its convertibles slip over the course of trading Tuesday.

The company's 1.5% convertible senior notes due April 15, 2011 closed at 106.5 versus a closing stock price of $52.97. They had finished Monday at 107.625 versus a share price of $53.69.

Medtronic's 1.625% convertible senior notes due April 15, 2013 finished Tuesday at 107.75 versus a share price of $52.97 after ending trading Monday at 108.375 versus a stock price of $53.69.

Medtronic stock (NYSE: MDT) closed Tuesday down 72 cents, or 1.34%. The company received approval from the Food and Drug Administration for its new cervical disc implant on Monday.

Advanced Micro Devices' 6% convertible senior notes due May 1, 2015 slipped to 82.38 versus a closing stock price of $11.66 Tuesday after closing Monday at 83.75 versus an $11.98 share price.

Stock in the Sunnyvale, Calif.-based semiconductor producer (NYSE: AMD) slipped 32 cents, or 2.67%, on Tuesday.

Staying with semiconductors and computer chips, Intel's 2.95% junior subordinated convertible notes due Dec. 15, 2035 closed at 98.5 versus a closing stock price of $23.96. The convertibles finished trading Monday at 100.25 versus a stock price of $24.45.

Santa Clara, Calif.-based Intel stock (Nasdaq: INTC) slid 49 cents, or 2%, on Tuesday.

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