Sepracor adds on takeout news; Terex, Newmont rise with shares; NetApp weakens on tepid demand

By Rebecca Melvin

New York, Sept. 3 - News that Sepracor Inc. - a long rumored takeout candidate - agreed to be acquired by Dainippon Sumitomo Pharma Co. Ltd. created a little stir in convertibles Thursday, but otherwise the market was mostly unchanged as activity continued to thin ahead of the Labor Day holiday weekend.

Sepracor's two 0% coupon convertible issues, which trade mostly outright, were seen slightly better at just under par.

Elsewhere, a few materials and mining names were in trade, including Terex Corp. and Newmont Mining Corp., and looking a little stronger along with their underlying shares. But other names were a little weaker like Advanced Micro Devices Inc. and D.R. Horton Inc.

NetApp Inc. was also a little weaker with more sellers than buyers in the name.

The week overall saw fewer bidders in the market as the stock market took a breather after moving up in August.

"It's hard to tell what pricing is doing right now. It's pretty quiet and not enough volume," a New York-based sellside analyst said. "We're running at half staff."

Another sellsider predicted very little activity on Friday.

Sepracor slightly higher

Dainippon Sumitomo's offer for Sepracor launched speculation about what the acquisition may imply for other specialty pharmaceutical companies in the United States.

Dainippon will acquire Sepracor for $23 per share in a cash deal valued at about $2.6 billion. That represents a 27.6% premium to Sepracor's closing stock price on Tuesday.

Dainippon, an Osaka, Japan-based pharmaceutical company, said it will begin a tender offer for Sepracor's shares no later than Sept. 15.

Both companies' boards of directors approved the transaction, which is expected to close in the fourth quarter.

Once the merger is complete, Sepracor will operate as a wholly owned subsidiary of Dainippon Sumitomo Pharma America Holdings, Inc. in Marlborough, Mass., and in Canada under the Sepracor name.

Dainippon's rationale for the "proposed acquisition would be to build a U.S. sales presence ahead of the potential 2011 U.S. launch of lurasidone, an atypical antipsychotic for the treatment of schizophrenia," Cowen & Co. analysts Steve Scata and Anant Padmanabhan wrote in a research note Thursday.

"Sepracor currently has a field force of 1,350 reps targeting primary care (Lunesta, Omnaris, Xopenex HFA, Alvesco), CNS/psychiatry (Lunesta and Stedesa when launched in 2010), and respiratory (Xopenex nebules and HFA, Omnaris, Alvesco)," the analysts wrote.

They thought the deal made sense for Dainippon and suggested that other Japanese bidders may emerge.

"Japanese pharmaceutical companies have been aggressive acquirers of specialty pharma assets over the past two years, primarily to build U.S.-based sales and marketing infrastructures. Other companies with strong specialty sales forces that might be on a target list include: AGN (dermatology, aesthetics, CNS, ophthalmology), ENDP (pain, urology), FRX (CNS, cardiology, primary care), KG (pain), MRX (dermatology, aesthetics), SHPGY (CNS), and SNTS," the Cowan analysts wrote.

Sepracor's convertibles don't have takeover protection and trade outright.

Sepracor's 0% convertibles due 2024 traded at 99.375, which was up a little less than half a point, but didn't trade that actively as the issuer has bought back a chunk of that paper, a New York-based sellsider said.

Sepracor's 0% convertibles due 2010 traded actively around 98.625, which was up a little more than half a point.

"Sepracor got a bid: it's been the subject of takeout rumors forever, and most people own them outright," the sellsider said.

The paper was issued in 2003 before takeover protection became common.

Terex, Newmont higher

Terex's 4% convertible notes due 2015 traded at 119.25 versus a stock price of $15.60, which was up about a half a point outright. But shares of the Westport, Conn.-based industrial company were higher by nearly 3% as well, climbing strongly into the close.

Materials stocks did well in the session as well as gold, which extended gains amid technical buying and short covering. Gold prices made their way to fresh six-month highs and stopped less than $1 short of $1,000 per ounce before pulling back a little. Gold prices settled at $997.70 per ounce, up nearly 2% on the day, and after a 2.3% increase in the previous session.

Denver-based gold producer Newmont Mining saw its 3% convertibles due 2012 trade at 120.75 versus a share price of $43.90. Newmont's common stock strengthened going into the final two hours of trading and settled at $45.77, which was up $1.97, or 4.5%.

NetApp slips about 0.5 point

NetApp's 1.75% convertibles due 2013 were quoted at 97.375 bid, 97.875 offered versus a stock price of $22.30 on Thursday, which was down about 0.5 point from where they had been previously, a sellsider said.

Another sellsider said they traded at 97.75 versus a stock price of $22.15 on Wednesday.

But shares of the Sunnyvale, Calif.-based data storage company closed a little higher on Thursday at $22.48, which was up 14 cents, or 0.63%.

There have been more sellers than buyers in the paper this week, and interest has been tepid because they are seen as rich, the first sellsider said.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

D.R. Horton Inc. NYSE: DHI

Newmont Mining Corp. NYSE: NEM

NetApp Inc. Nasdaq: NTAP

Sepracor Inc. Nasdaq: SEPR

Terex Corp. NYSE: TEX

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