Dendreon gains with stock after aggressive pricing; Intel results lift techs; Nielsen ahead

By Kenneth Lim

Boston, Jan. 14 - Dendreon Corp.'s new issue dominated the quiet convertible market on Friday, gaining slightly after the deal came at the cheap end of price talk.

Intel Corp. pulled tech names higher after the Santa Clara, Calif.-based chip maker reported strong quarterly earnings.

The market on the whole had another quiet day.

"Other than the new issue, there really wasn't a whole lot going on today," a sellside trader said.

The trader said the primary market has not been active partly because interest rates continue to hover at historically low levels.

"Straight debt isn't as prohibitive as it used to be a few years ago," the trader said. "Companies can get relatively cheap debt financing without having to offer the conversion option, so if they don't have to do a convertible they won't do a convertible."

Without an active primary market, the secondary market suffers for lack of liquidity, the trader added.

"The new issues keep the market moving because people want to get out of old paper and into the new ones, and when there isn't anything new to buy, people don't really want to sell and then you don't really have a market," the trader said.

At least the primary market already has a deal lined up for the week ahead, with Nielsen Holdings BV slated to sell $250 million of three-year mandatory convertible subordinated bonds.

The Nielsen mandatory was talked to yield 6.25% to 6.75% with an initial conversion premium of 15% to 20%, according to a preliminary filing Monday.

The mandatories have a $50 par, and the $1.725 billion of common stock, which will be listed on the New York Stock Exchange under the ticker symbol NLSN, was seen pricing a $21.00 per share.

The mandatories have a $37.5 million greenshoe.

Underwriters involved in the deal include JPMorgan, as left lead bookrunner, Morgan Stanley, Credit Suisse, Deutsche Bank, Goldman Sachs and Citigroup, with Bank of America Merrill Lynch, William Blair, Guggenheim Securities, RBS Securities, Wells Fargo, Blaylock Robert Van, HSBC, Loop Capital Markets, Mizuho Securities USA, Ramirez & Co., and Williams Capital Group LP.

Nielsen is a global information and measurement company incorporated in the Netherlands with its principal executive offices located in New York City.

Dendreon gains on debut

Dendreon's new 2.875% senior convertibles due 2016 gained about ½ point on their first day of trading.

The new notes, which were offered at par, were seen as high as 100.75 versus a common stock price of $36 during the day. The stock closed at $37.16, up by 1.53% or $0.56.

The upsized $540 million offering priced Friday with an initial conversion premium of 40%.

Price talk was at a coupon of 2.375% to 2.875% and an initial conversion premium of 40% to 45%.

The size of the deal was originally $500 million with an overallotment option for an additional $75 million. The greenshoe is now $80 million.

J.P. Morgan Securities was the bookrunner of the off-the-shelf deal.

Proceeds will be used to fund investment in the company's manufacturing facilities, including construction of a new immunotherapy manufacturing facility in Europe, and expenses associated with increasing capacity at its existing facilities in Morris Plains, N.J., Atlanta and Orange County, Calif., as well as covering expenses associated with pursuing non-U.S. marketing approvals of its prostate cancer drug Provenge, and to research other products and to fund general purposes.

Dendreon, a Seattle-based biotechnology company, may also use proceeds to acquire strategic assets.

In connection with the offering, JPMorgan plans to distribute in a registered offering $63.8 million of shares of common stock at $35.70 apiece to facilitate the hedging of notes by buyers of the bonds.

Dendreon will not receive any proceeds from the stock sales.

The convertible deal was up mostly on the strength of the stock, a sellsider said.

"Up just under a point, most of it with the stock," the sellsider said. "Looks like it's in line."

The deal was aggressively priced during marketing, but seemed to find enough demand to be upsized.

"Trying to get conversion premium of 45% was ambitious," the sellsider said. "I guess they had to come at the cheap end eventually, but 40% is still pretty impressive. And they got to upsize the deal. I think they priced it pretty aggressively, but I think they did a pretty good job of getting the best terms possible for the issuer."

The company managed to get relatively cheap terms for the financing partly because of optimism about its prostate cancer drug.

"There's a lot of bullishness about the company, a lot of outrights," the sellsider said.

Intel pulls techs higher

Intel's 3.25% convertible due 2039 was about ½ point higher early Friday at 122 versus a common stock price of $21.35 after the company reported strong quarterly results after the Thursday close.

The common stock ended the day at $21.08, lower by 0.99% or $0.21.

"Intel was one of the active names today," a trader said. "They reported outstanding earnings, went up right out of the gate. The stock was down a little in the afternoon, that kind of pulled the convert down a little bit as well."

Intel said Thursday that it earned $3.4 billion in the last quarter of 2010, a 48% year-on-year increase, giving the chip giant its best year in the company's history.

Intel also forecast revenue of $11.5 billion for the first quarter of 2011.

The strong results gave other tech names a boost, the trader said.

"They're one of the first to report, so that gave a bit of optimism for the rest of the sector," the trader said.

SanDisk Corp.'s 1% convertible due 2013 added about a point to trade at 98.75 versus a common stock of $52.10. The stock rose 2.67%, or $1.37, to close at $52.77.

"That's pretty much trading to maturity at this point," the trader said. "You've got two years to maturity and unless something dramatic happens at SanDisk it's not going to be converted."

SanDisk is a Milpitas, Calif.-based maker of flash memory products.

ON Semiconductor Corp.'s 2.625% convertible due 2026 saw spotty trading, but was marked a point higher at 129.625 versus the closing stock price of $11.64.

ON is a Phoenix-based maker of semiconductor chips.

Mentioned in this article:

Dendreon Corp. Nasdaq: DNDN

Intel Corp. Nasdaq: INTC

Nielsen Holdings BV NYSE: NLSN

ON Semiconductor Corp. Nasdaq: ONNN

SanDisk Corp. Nasdaq: SNDK

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