Gannett jumbo deal, GSI issue on tap; Huntsman surges on merger; Amgen slides; Medtronic rises

By Evan Weinberger

New York, June 26 - After-hours launches of a $1 billion convertible floater from Gannett Co. Inc. and a $100 million offer from GSI Commerce Inc. capped off what analysts called an otherwise steady day in the convertibles market Tuesday.

Volume was average, according to one sellside analyst, who said that there were a few possible reasons for it. "I would say it's just kind of steady," he said. "We had one new issue, a couple of active names. Nothing very noteworthy I guess."

A second analyst speculated that investors were waiting for the fallout from subprime mortgage foreclosures to become clear before they jumped heavily into the convertibles market.

"It could be the summer," the sellside analyst said. "It could be people biding their time to see if the subprime mortgage situation will spill into anything else."

The lack of any new deals didn't mean that all convertibles stood still.

Basell Polyolefins Co.'s $5.6 billion takeover agreement for Huntsman Corp., announced Tuesday, led to Huntsman's outstanding 5% mandatory (NYSE: HUN-P) to jump $6.70 to $49.01, a rise of 15.84%. The convertible was trading slightly lower in after-hours action. The transaction, at $25.25 per share, is valued at $9.56 billion including debt.

Sellside analysts said that investors wanted to jump in as the Huntsman convertible's value rose along with the Salt Lake City-based chemical manufacturer's stock price. Huntsman common stock (NYSE: HUN) shot up $5.31 to $24.21, a gain of 28.1%, on the buyout news. Basell's acquisition of Huntsman is supported by the Huntsman family, which owns 57% of the company's outstanding shares.

Meanwhile several existing issues saw movement over the course of the day,

A recent convertible offering from Archer-Daniels-Midland Co. was trading at 95 versus $33.30 for the stock. The Decatur, Ill.-based agricultural conglomerate's stock (NYSE: ADM) closed down $0.28 at $32.76.

Companhia Vale do Rio Doce saw action in its two convertibles, also new to the market. The Rio De Janeiro-based mining company's mandatories traded at $49 versus $44.30 on the stock. CVRD's stock (NYSE: RIO) closed down at $0.0068, or 1.53%, at 43.64.

Molson Coors Brewing Co. of Boulder, Colo.'s 2.5% convertible traded at 102.5 versus $90.50 for the stock (NYSE: TAP), which closed down $0.59 at $89.86, a drop of 0.65%. A sellside analyst said investors were attracted to Coors because of its unique position in the market.

"There aren't that many consumer products firms out there in the convert world," he said. "I guess it's a safe name for buyers."

Two issues from Vornado Realty Trust saw action, as well. Its 3.625% issue traded at 97.25 versus $107.375 on the stock while the 2.85% traded at 92.25 on the same stock price. Vornado (NYSE: VNO) closed up $0.43 at $107.80, a rise of 0.40%.

Non-U.S. primary active

There also were several smaller new issue announcements from overseas, in addition to the Tektronix issue, which traded at expectations following its pricing after the close Monday as investors were eager to jump on the volatility, according to one sellside analyst.

Tulip IT Services Ltd. of New Delhi priced a $125 million five-year unsubordinated unsecured zero-coupon convertible with a 7.375% yield and an initial conversion premium of 35% at par.

3i Infotech Ltd. of Mumbai priced $100 million five-year zero-coupon foreign currency convertible bonds on Tuesday with a yield of 7.05% at maturity and a 10% initial conversion premium. The conversion price is Rs. 331.87 with a conversion premium of 10%.

A third foreign issue merely in the talk phase was Dana Petroleum plc, an Aberdeen, United Kingdom-based oil and gas production firm. There was talk the £150 million of seven-year senior guaranteed convertible bonds due 2014 would yield 2.5% and 3% with an initial conversion premium of 50% and 55%, according to a filing with the London Stock Exchange. One sellside analyst based in Europe said traders heard talk that the issue was priced with a 2.9% coupon and a 50% conversion premium and a 5-year put.

In U.S. action, GSI Commerce Inc. launched $100 million of 20-year convertible senior unsecured notes talked to yield 2.125% to 2.625% with an initial conversion premium of 22.5% to 27.5%. The issue is scheduled to price before the market open Wednesday. Shares of GSI (Nasdaq: GSIC) traded up $0.24 to $24.36, a rise of 1%.

Tektronix trades down on debut

Tektronix's new 1.625% convertible, which priced with an initial conversion premium of 15%, traded down from par to 99.375 bid, 99.875 offered. Market sources said it appeared the deal was oversubscribed, although it was not clear by how much. The convertibles were described as finding popularity amid the bullish tone for technology issues of late.

The new issue priced at the mid-point of price talk to yield 1.5% to 1.75% and an initial conversion premium talk of 12.5% to 17.5%.

A sellside trader was pleased with movement on the convertible. "It looks like it traded pretty well," he said.

Tektronix has a "fair amount of cash" so the credit spread was not a big point of contention in modeling the new deal, one sellside analyst remarked. The real issue, he said, was volatility. Historically, Tektronix runs in the low 20% area, similar to its nearest competitor Agilent Technologies Inc., but with Tektronix shares trading at or around a 52-week high, the stock price has muted the volatility. Thus, he felt a 24% volatility assumption was on the high side.

Another sellside analyst said volatility may not be enough to entice him to invest at par.

"Personally, I think people are paying up for vol, which I don't think is the right way to look at it," he said. "It looks a little expensive at those levels in my mind."

The 52-week high for Tektronix shares is $34.87; the stock (NYSE: TEK) closed Tuesday down $0.93 at $33.64, a drop of 2.69%.

Gannett issue not turning heads

Gannett's plans to issue $1 billion in floating-rate 30-year convertibles caused barely a shrug. One buyside analyst said that it is not something he would take much note of upon seeing terms of the issue, while a sellsider said it did not appear to be coming at the best of times.

"It's one of those ones that doesn't really perk your interest," the buyside source said. "It's probably something that's not going to play. Everything looks rich. I don't imagine the guys are going to spend too much time looking at it."

The issue, which was to be priced before the open Wednesday, is for 30-year unsecured senior convertible notes that will pay an interest rate of one-month Libor minus 23 basis points. The initial conversion premium will be 70%. The conversion rate is 10.8530 and the conversion price $92.14.

Bookrunner Citigroup planned to price the convertibles at par and then reoffer them, although there was no talk of a reoffer price.

Craig Dubow, Gannett's chairman, president and chief executive officer told a mid-year media review on June 20 that the MacLean, Va.-based company, which publishes 85 daily newspapers in the United States along with other holdings, was continuing to see soft advertising revenues. In trading Tuesday, Gannett's stock (NYSE: GCI) closed down $0.05 at $54.20, a drop of 0.09%.

A sellside convertible source at an origination desk away from Citigroup was not impressed with the deal terms and speculated it would be remarkable for it to be reoffered in the 99 area.

"Gannett [equity] is down like 40% in the past three to four years, so what option are you paying for?" he asked. Beyond that, he added, "The market's kind of ugly today. People are worried about interest rates, and credit spreads."

Amgen down as testimony given

On the day that Amgen Inc. submitted testimony to the House Ways and Means Committee on the safety and pricing of its drug Epogen for dialysis patients suffering from anemia, the company's 0.125% convertibles traded at 90.5 versus $55.375 on the stock.

Amgen representatives testified that the price of their drug, which helps fight anemia in patients on kidney dialysis, was fair and that proposals to change the way that Medicare and Medicaid provide reimbursements for dialysis treatments should not be allowed to go ahead because they would decrease the use of Epogen.

Amgen's stock (Nasdaq: AMGN) closed down $0.76, or 1.36%. The Thousand Oaks, Calif.-based company's shares closed at $55.10.

Medtronic up as court looms

Medtronic Inc.'s 1.5% convertibles traded at 105 versus $51 on the stock as the U.S. Supreme Court granted a review in the case of Riegel vs. Medtronic. The case will determine whether a patient is barred from seeking state court remedies against the manufacturer of a medical device approved by the Food and Drug Administration. The case will be heard in the term beginning in October.

The case stems from lawsuits filed after a patient suffered severe complications when a physician improperly used a balloon catheter, according to Medtronic. The Minneapolis-based company's stock (NYSE: MDT) traded up $0.55, or 1.08%, on the news, closing at $51.67.

Medtronic said that the decision to take up the case means that for the first time the Supreme Court will decide whether a patient is precluded from seeking state court remedies against the manufacturer of a device approved by the FDA through its pre-market approval process.

Bausch flat, Advanced Medical blinks

Bausch & Lomb Inc.'s six-month Libor plus 50 basis points convertible due 2023 stayed flat Tuesday in the face of word from Advanced Medical Optics, Inc. (NYSE: EYE) that it expects to see full-year losses following the recall of a popular contact lens solution.

Advanced Medical Optics' Complete MoisturePlus solutions were pulled from the market in May following reports that 26 people had contracted a corneal infection after using the product - a day after the company said it was interested in making a rival bid for Bausch & Lomb. The solution accounted for 10% of Advanced Medical Optics revenues in 2006.

Bausch & Lomb (NYSE: BOL) is looking at a $65 per share offer from private equity firm Warburg Pincus. Advanced Medical Optics, based in Santa Ana, Calif., had been considering an offer for Bausch & Lomb of Rochester, N.Y. Executives from Advanced Medical Optics refused to comment on the proposed takeover during a Tuesday conference call, but had previously stated that they would recover from the recall before pursuing any takeovers.

"There doesn't seem to be a lot of activity on EYE or Bausch & Lomb," said one sellside analyst. "People have already made their opinions on whether EYE is going to bid for B&L."

Bausch & Lomb closed up $0.70, or1.03%, at $68.57 while Advanced Medical Optics didn't budge, closing at $33.48.

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