Central Parking up; Whole Foods off as Wild Oats rises; Ivax better, Curagen slides; Leucadia easier

By Ronda Fears

Nashville, March 15 - Traders reported a busy day in convertibles Tuesday but said that despite some rather sharp moves it still seems as if lots of big players are sitting on the sidelines waiting for the end of the month, which also brings the first quarter to a close.

"I think people are looking at what they have very closely right now, and I think there's probably going to be some dramatic shifts in strategy, philosophy after first quarter results are in," said the head convertible trader at a big sellside convertible desk. "Volume is good right now, there's just not a lot of really interesting things to talk about. Everything is pretty mundane."

In the trenches, Central Parking Corp. was trading higher on some small buying after the Nashville-based parking facility management firm said it had hired Morgan Stanley & Co. Inc. to explore "strategic alternatives."

Whole Foods Market Inc. was pitched out in lieu of Wild Oats Markets Inc., which one trader attributed to a yield play.

Biotechs were still a source of action with most of the group heading south, such as CuraGen Corp., but Ivax Corp. was a stand-out gainer. On the back of a good year in 2004, generic drugmaker Ivax forecast 2005 net income of 76 to 86 cents a share for 2005. Plus, for next year, the company projected earnings per share of $1.35 to $1.55, with executives saying Ivax is confident it will eventually win a six-month market exclusivity period to sell a generic version of Merck's Zocor, which would add about $1.45 per share to its after-tax 2006 earnings.

Ivax's 1.5% convertibles added 4.5 points to 99.25 bid, 100.25 offered while the 1.875% issue rose 7.75 points to 110.75 bid, 111.25 offered. The stock closed up $2.66, or 16.85%, to $18.45.

Graftech International Ltd. took a big fall, with its 1.625% convertible losing 8 or 9 points to 77.5 bid, 78 offered while the stock plunged $2.40, or 26.67%, to $6.60. The move came after the graphite electrodes manufacturer provided guidance for 2005 earnings of 50 to 60 cents a share, on sales growth of 10%, which was far short of the First Call analyst consensus for earnings per share of 83 cents on sales growth of 11.5%.

Leucadia National Corp. also was off slightly following its results on Monday. The 3.75% convertible due 2014 was quoted off 0.625 point at 100 bid, 101 offered.

Central Parking moves higher

On Tuesday, Central Parking announced that it has retained Morgan Stanley as its exclusive financial adviser to assist it in evaluating various strategic alternatives in order to "maximize shareholder value," which as usual was interpreted as putting the company up for sale. The company said it expects any actions arising from this review to be executed during the next several months.

"A sale or merger might be in the works for the company," as one trader put it. "They hired Morgan Stanley to evaluate their options, code for putting themselves on the [auction] block. Real estate is fetching nice prices, so the play is to get in ahead of any announcement, then see how much of a premium the assets get."

Central Parking Finance Trust's 5.25% convertible preferred moved up 0.875 point on the news to 20.25, but traders said volume in the issue was very light. Central Parking stock, however, was heavily traded with 1.98 million shares changing hands, versus the three-month running average of 93,090. The stock rose $2.31 on the day, or 16.5%, to close at $16.31.

"Our board believes that the intrinsic value of our operating platform, as well as the value of our owned real estate, is substantially higher than is currently reflected in our stock price. With the goal of maximizing shareholder value, the board has decided to evaluate strategic alternatives at this time," said Monroe J. Carell Jr., chief executive, in a news release.

"Since I founded Central Parking in 1968, the senior management team and I have spent considerable time developing the company into the industry leader that it is today, particularly in streamlining operations and reducing debt since my return in 2003. I now believe that it is time for the company to enter into the next phase of its corporate life in order to capitalize on the significant growth opportunities in today's recovering and improving economy."

Also Tuesday, the company announced that Mark Shapiro has resigned as chief financial officer, citing personal reasons, and the company named chief accounting officer Jeff Heavrin as interim CFO.

In January, the company amended its senior credit facility, lowering interest on its revolver by 100 basis points and lowering pricing on its term loan by 50 basis points, plus boosting the revolver to $225 million from $175 million while decreasing the term loan to $75 million from $175 million. There was $157 million outstanding on the term loan at Dec. 31.

Whole Foods chucked for Oats

Whole Foods was the "Focus Stock of the Week" in a Lehman Brothers Inc. conference call Tuesday hosted by convertible analyst Brendan Lynch along with equity consumer products analyst Scott Mushkin. The convert didn't necessarily get a lot of play from the call, sources said, but traders said there was some switching out of the Whole Foods 0% issue into the Wild Oats 3.25% issue.

"OATS is a yield play whereas the WFMI convert is an equity play," one buyside trader said.

The Whole Foods zero was quoted off 2.25 points, while the stock lost $2.26 on the day, or 2.18%, to close at $101.19. The convertible is deep in the money, trading at parity plus a quarter-point or so, and it was noted that about 44% of the issue was converted to common by holders during first quarter so far, leaving only about $180 million face amount outstanding.

It was also pointed out that Lehman is not always pitching an idea on the Focus Stock conference calls; rather, they are largely designed as a springboard to put convert clients in touch with equity analysts on names that are not always in the mainstream.

Whole Foods' convertible has been callable for around two years now, and onlookers suggest the company hasn't called it yet because it is cheaper to keep a zero-coupon bond outstanding because of the non-cash interest expense compared with calling it and having the rest of the issue convert to common, which would raise its dividend expense.

On the other hand, one observer noted that it could be argued the bond's 5% accretion rate is high relative to what the company could likely get if it were to refinance the issue right now, or just redeem it, given the company's solid credit metrics.

Wild Oats may be ripe for bids

The buyside trader who called the Wild Oats convertible a yield play said it also has been a name associated with some merger speculation.

"There is some noise about a possible deal, but I think as far as the convert goes, people who are looking to buy it are looking at the 4% to 4½% current yield," he said.

The Wild Oats 3.25% convertible due 2011 added 1.25 points Tuesday to 81.5 bid, 82 offered, he said, while the stock rose 30 cents on the day, or 4.25%, to close at $7.36.

"One of the comments I've heard, regarding OATS as a merger target, is that because they have such a low market cap, that will ensure a future deal. Because of that, it also would be very doable for many of the special situations firms looking to turn this over or turn it around margin wise," the trader continued.

"Deals are hot and being pushed hard. Retail deals are hot, too, and there also could be a real estate angle to this one. So, it's supposed to be hot, but the tale may be in the telling.

"One specific tidbit is that Kroger may renew talks that broke down last spring over the price, which at that time was somewhere around $14 to $16 a share. The stock is $7 and some change, right now, so that tells you that it could be ripe to get picked off by somebody."

Curagen active, off with peers

Overall, biotech and drug issues were lower Tuesday and most without any news of their own, such as CuraGen. But there was strong two-way action in the CuraGen 4% convertible due 2011, which dropped about 1.5 points to 79 bid, 80 offered.

CuraGen shares ended Tuesday off by 21 cents, or 4.52%, at $4.44.

A buyer for the bonds, who manages a high-yield fixed income fund, said he likes that CuraGen has established fairly powerful partners, but moreover he feels it's just a good buy.

"At $4.50 for the stock, with a $225 million market cap, plus they refinanced the old 6% converts recently to push out maturities, CRGN seems like solid value given a multiple shots [at new products] in the pipeline, plus preclinical diabetes and melanoma drugs coming into the clinic next year," he said.

A seller, however, who manages an outright convertible fund with an equity bias said he didn't think there was any upside support.

"I think there's more downside waiting on some of these biotech names, not upside," he said. "For sure, it's not a stable story."

New Haven, Conn.-Based CuraGen has focused its research on three types of targets: those that encode protein therapeutics, those amenable to antibody therapeutic development and those amenable to small molecule therapeutic development. The company has established alliances with Abgenix Inc. for antibody projects and Bayer AG to for small molecule projects.

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