BioMarin comes in ahead of new issue; Casual Male seen as cheap; Vista delay could mean tech troubles

By Kenneth Lim

Boston, March 21 - BioMarin Pharmaceutical Inc.'s existing convertible bonds came in slightly on Tuesday ahead of a new issue expected to price later in the week.

Meanwhile, analysts say Casual Male Retail Group Inc.'s convertible is starting to look very cheap after the stock has been running up this year.

In other news, technology-related names could face losses on Wednesday after Microsoft Corp. announced after the market closed Tuesday that it would delay the consumer launch of its new Windows Vista operating system to January 2007 and miss the 2006 holiday season. Analysts had been expecting the new software to help drive computer sales in the later part of the year.

In trading Tuesday, electronics retailer Best Buy Co. Inc.'s 2.25% convertible due 2022 was marked at 125.89 bid, 126.39 offered versus the closing stock price of $55.50 on Tuesday. In after-hours activity, shares of Richfield, Minn.-based Best Buy (NYSE: BBY) fell 1.47% or 83 cents.

Chip maker Intel Corp.'s 2.95% convertible due 2035 was marked at 86.78 versus a stock price of $19.62 on Monday. Santa Clara, Calif.-based Intel's stock (Nasdaq: INTC) closed up 16 cents, or 0.82%, to end at $19.78 on Tuesday, but retreated 9 cents, or 0.46%, to $19.69 in after-market trading.

Meanwhile, Amgen Inc.'s convertibles continued to be actively traded but were relatively unchanged on a dollar-neutral basis. A convertible trading desk marked the 0.125% convertible due 2011 at 100.63 bid, 101.13 offered versus the closing stock price of $71.97 on Tuesday, while the 0.375% convertible due 2013 was marked at 100.75 bid, 101.25 offered against the same stock price. Amgen stock (Nasdaq: AMGN) fell 88 cents, or 1.21%, on Tuesday.

Coherent Inc.'s newly issued 2.75% convertibles due 2011 continue to look interesting, and were marked at 109.75 bid, 110.5 offered versus a stock price of $34.05 on Tuesday, said an analyst.

"I like the story," the analyst said. "You got the dominant market playing buying the second market leader and getting bigger market presence."

The convertibles were offered in a $175 million deal earlier in the month as a fundraising effort by Coherent to help pay its $376 million acquisition of Excel Technology Inc. Coherent is a Santa Clara, Calif.-based designer and manufacturer of lasers and precision optics used in areas such as semiconductor manufacturing and environmental research.

Also on Tuesday, Riverstone Networks Inc. said telecom Lucent Technologies Inc. had won the auction for Riverstone's business with a bid of $207 million in cash. The terms of the agreement are subject to approval by the U.S. Bankruptcy Court for the District of Delaware on Thursday. Murray Hill, N.J.-based Lucent's 2.75% convertible due 2023 was marked at 102.38 bid, 102.88 offered versus the closing stock price of $2.80 at a convertible trading desk. Its 2.75% convertible due 2025 was marked at 105.37 bid, 105.87 offered versus the same stock price. Lucent stock (NYSE: LU) slid 2 cents or 0.71% on Tuesday. Riverstone filed for Chapter 11 bankruptcy protection in February this year.

BioMarin comes in ahead of deal

BioMarin's existing 3.5% convertible bond due 2008 came in about 1.5 points on a neutral basis on Tuesday ahead of a new stock-and-convertible offering, said a buy-side source.

The 3.5% convertible traded at about 107.4 against a $13.76 stock on Tuesday, the source said. BioMarin stock (Nasdaq: BMRN) closed lower by 4.64%, or 65 cents, to end at $13.35.

"It's because of the new deal announcement," the source said.

BioMarin is expected to price a $125 million offering of seven-year convertibles on Thursday after the market closes. Price talk guides for a coupon between 2.5% and 3%, and an initial conversion premium between 22.5% and 27.5%.

The buy-side source said a credit spread of Libor plus 800 basis points and a volatility of 45% were reasonable, and the new convertibles would be cheap based on those assumptions.

Novato, Calif.-based BioMarin announced the deal on Monday together with a planned offering of 9 million shares. It could also issue a further $18.75 million in convertible bonds and another 1.35 million shares under over-allotment options give to Merrill Lynch, which is running the books on both deals.

The fund-raising came just days after BioMarin reported positive results from Phase 3 trials of its drug Phenoptin, which is used to treat metabolic disorders. The test data increased the likelihood that BioMarin will be able to take its product to market, and sent the stock skyrocketing last week. A buysider remarked that the timing of the deals "took advantage of the share-price run-up."

BioMarin plans to use the proceeds from stock and convertible deals to fund the commercialization of its products, additional clinical trials of products that include metabolic disorder drug Phenoptin, and potential acquisitions. The company may also use some of the proceeds to buy back some or all of the $125 million outstanding of its 3.5% convertible bonds due 2008, which an analyst said are likely to be redeemed by the company when they become callable in June this year.

Casual Male looking cheap

Casual Male Retail Group's convertibles are starting to look "extremely cheap" after the stock has been climbing sharply this year, said a sell-side analyst.

"The stock's run up very significantly over the last couple of month, and guys who are involved in this are in all kinds of deltas," the analyst said.

The analyst marked the company's 5% convertible due 2024 at about 104 points versus a stock price of $9.59. Casual Male stock (Nasdaq: CMRG) slid 4 cents, or 0.42%, to close at $9.55 on Tuesday.

Casual Male stock has gained almost 55% since the start of the year, when the shares closed at $6.17 on Jan. 3, and the company is rated buy by most equity analysts who cover it.

"It's a story that's finally gaining traction," said the analyst.

The company is "far and away the leader" in men's clothing targeted at the "big and tall" population, and management has committed to raising operating margins to around 10% by this year, the analyst explained. But stock's run-up in the past three months has created opportunities for hedge investors, he said.

"You could be on a delta of 40% up to 60% if you got the stock at a much higher price," he said. "People are all over the place on the hedge. The bonds are extremely cheap."

But a buy-side analyst said investors may be discounting the convertible because it does not offer any takeover protection, the analyst said.

"It does look cheap. It looks very cheap, but that may be because it doesn't have any takeout protection," he said.

That's especially pertinent with hedge funds still smarting from Monday's news that Kerzner International Ltd.'s directors were leading a buy-out of the resort and casino operator. Kerzner's convertibles, which had no takeover protection, came in about nine to 10 points on a hedged basis on Monday after the announcement.

Canton, Mass.-based Casual Male sells men's apparel through its Big and Tall retail chains in Canada and the United States.

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