Vertex Pharmaceuticals shines; Nortel up on venture talk; AMD up on EU's Intel raid; SLM upgraded

By Evan Weinberger

New York, Feb. 13 - Vertex Pharmaceuticals Inc. was the story Wednesday as its newly minted $250 million in 4.75% convertible senior notes due 2013 opened high and kept moving higher.

Vertex's convertibles carry a 35% initial conversion premium.

The convertibles came in at the outer reaches of the rich end, and beyond.

Nortel Networks Corp. convertibles were up on rumors of a joint venture with a mobile phone giant.

SLM Corp. preferreds moved higher on an analyst's upgrade.

Advanced Micro Devices Inc. convertibles nudged higher on potential trouble for its rival in Europe.

Yahoo! Inc. gained on reports that another suitor might enter the fray for the internet portal's heart.

Trading still stalled

Trading was stagnant again Wednesday despite another rally in the stock markets. One trader said he thought a lot of investors were licking their wounds after recent losses.

A second trader disagreed. "There's terrific volatility. You have several absolute home runs in the market in the past few months," the second trader said, specifically pointing to Yahoo's convertibles among others. "I find it hard to believe that people have anything but a couple of scratches. Unless you were inordinately heavy in some financials that got banged up, you're OK." The big drop in financials came a few months ago, the second trader said.

An analyst added that he thought some new earnings reports could provide a goose to the market. The analyst said Long Beach, Calif.-based Molina Healthcare Inc.'s earnings report Tuesday night might help.

Molina, a managed health care organization, said a jump in membership led to a jump in profits for the fourth quarter of 2007. Molina also said that it expects to meet its earlier 2008 guidance.

"Maybe they trade a little tomorrow," the analyst said of Molina's convertibles.

Molina's 3.75% convertible senior notes due Oct. 1, 2014 closed Wednesday at 103.794 versus a closing stock price of $33.55. They closed Tuesday at 103.936 versus a closing stock price of $33.29.

Molina stock (NYSE: MOH) gained 26 cents, or 0.78%, on the day.

Stocks leap

Following an upbeat January retail sales report, stocks moved higher throughout the day.

The Dow Jones Industrial Average added 178.83 points, or 1.45%, to close at 12,552.24.

The Nasdaq jumped 53.89 points, or 2.32%, for a 2,373.93 close.

And the Standard & Poor's 500 picked up 18.35 points, or 1.36%, for a close at 1,367.21.

Vertex's aggressiveness rewarded

When trading opened Wednesday, the market had its first chance to bid on Vertex Pharmaceuticals' $250 million in 4.75% convertible senior subordinated notes due Feb. 15, 2013, which priced Tuesday after the market close. The convertibles carry a 35% initial conversion premium.

Despite the deal coming in rich - the coupon was talked at 4.75% to 5.25% and the initial conversion premium at 27.5% to 32.5% - Vertex's notes opened high and kept moving higher. One trader reported opening bids over 105. Another saw them at 106.25 to 107.5 versus a stock price of $18.55.

They kept moving higher throughout the day, eventually closing at 108.49 versus a closing stock price of $19.14.

Vertex stock (Nasdaq: VRTX) saw a similar bump, adding $2.00, or 11.67%, on the day.

The activity came despite a lack of buzz reported on the deal prior to pricing Tuesday. "[The] stock did well so [the] deal obviously did well," a third trader said. "[I] heard most of the issue was placed in a few large outright hands."

The other details of the deal are as follows:

There is a $37.5 million over-allotment option on the Securities and Exchange Commission-registered transaction.

Settlement is expected on Feb. 19.

The conversion price is $23.14, and the conversion ratio is 43.2171, with a conversion ratio cap of 58.3430.

The convertibles are callable beginning Feb. 15, 2010. There are no puts.

The convertibles carry fundamental change protection and a make-whole premium.

Vertex launched a concurrent offering of 6 million shares of common stock. There is a 900,000 share greenshoe on the common stock offering. The two offerings are separate and not contingent upon each other.

Vertex is a Cambridge, Mass.-based drug maker. The company plans to use the proceeds for general corporate purposes, which include the marketing and development of its drug telaprevir and for other purposes.

Nortel up on venture talk

Much of the telecommunications sector was up Wednesday. Toronto-based Nortel led the way.

The company was pushed higher on news that it was in talks on a joint venture with Finnish mobile phone maker Nokia. The deal is reported to involve combining the two companies' wireless communications infrastructure.

Nortel's 1.75% convertible senior notes due April 15, 2012 closed Wednesday at 74.3359 versus a closing stock price of $11.60. They closed Tuesday at 72.1565 versus a closing stock price of $10.31.

Nortel's 2.125% convertible senior notes due April 15, 2014 closed Wednesday at 69.556 versus a closing stock price of $11.60 after finishing Tuesday at 67.625 versus a closing stock price of $10.31.

Nortel stock (NYSE: NT) stretched $1.29, or 12.51%, on the day.

SLM up on upgrade

SLM Corp., the student lender better known as Sallie Mae, received good news from Friedman Billings Wednesday. The firm upped Reston, Va.-based Sallie Mae to "Outperform" from "Market perform."

That put a charge into Sallie Mae's 7.25% series C mandatory convertible preferred stock due Dec. 15, 2010. They closed Wednesday at 1,068.4 versus a closing stock price of $21.06 after finishing Tuesday at 1,037.6 versus a closing stock price of $19.80.

Sallie Mae stock (NYSE: SLM) moved up $1.26, or 6.36%, Wednesday.

AMD up on Intel raid

AMD's biggest rival, the semiconductor giant Intel, saw its offices in Munich raided by European Union agents Wednesday as part of an antitrust investigation. Several personal computer retailers were also raided as part of the investigation.

The raids raised the spirits of AMD investors, despite reports of concerns over the company's next generation of computer chips.

AMD's 5.75% convertible senior notes due Aug. 15, 2012 closed Wednesday at 75.65 versus a closing stock price of $6.70. They closed Tuesday at 74.704 versus a closing stock price of $6.41.

AMD's 6% convertible senior notes due May 1, 2015 closed Wednesday at 68.9166 versus a closing stock price of $6.70 after finishing Tuesday at 66.1861 versus a stock price of $6.41.

Sunnyvale, Calif.-based AMD's stock (NYSE: AMD) picked up 29 cents, or 4.52%, Wednesday.

Drama doesn't drive Yahoo convertibles

Apparently another suitor may be entering the courtship dance for Sunnyvale, Calif.-based internet portal Yahoo. Word surfaced Wednesday that Rupert Murdoch's News Corp. was in talks with Yahoo that could net News Corp. a 20% stake in Yahoo, the Wall Street Journal reported Wednesday afternoon. The deal would merge Yahoo with News Corp.'s other online assets, including MySpace and the Wall Street Journal's web site.

It remains to be seen whether those talks will trump Microsoft's Feb. 1 bid for Yahoo.

Investors weren't particularly impressed, however.

Yahoo's zero-coupon convertible senior notes due April 1 closed Wednesday at 146.631 versus a closing stock price of $29.88. They closed Tuesday at 144.18 versus a closing stock price of $29.57.

Yahoo (Nasdaq: YHOO) moved up 31 cents, or 1.05%, Wednesday.

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