Nuance, Shutterfly slip on hedge on takeout chatter; newer deals Dominion, AmSurg in trade

By Rebecca Melvin

New York, July 2 – Nuance Communications Inc.’s convertibles traded actively, but contracted on a hedged basis on Wednesday, amid ongoing speculation of a potential takeout for the Burlington, Mass.-based speech-recognition software company, a New York-based trader said.

The Nuance 2.75% convertibles slipped about 0.5 point on hedge during the session and has contracted about 3 points on delta over the past month, the trader said.

Shutterfly Inc.’s 0.25% convertibles due 2018 bumped up on an outright basis but were also lower on a hedged basis after a report that the Redwood City, Calif.-based online photography company is seeking potential buyers for itself.

The Nuance bonds traded right around par, and the Shutterfly bonds rose on an outright basis to about 105 from the 99 context, according to Trace data. But Nuance trading dominated the session, overtaking the action in the Shutterfly bonds, which didn’t trade that actively, the trader said.

Elsewhere, Dominion Resources Inc. and AmSurg Corp., two of last week’s new issues, traded pretty actively and looked to be at levels that were in line, or flat, on a dollar-neutral basis.

Near the end of the session, the Dominion 6.375% mandatory convertibles, which have a $50.00 par, were quoted at $51.25 bid, $51.75 offered versus a share price of $69.63, according to a New York-based sellsider. That compared to $52.10 bid, $52.35 offered versus a closing share price of $71.13 last Thursday when the three-year equity units put in a strong debut in the secondary market following pricing of the Richmond. Va.-based energy company’s $1 billion deal.

The Dominion units were being traded on a 65% delta hedge, the sellsider said.

AmSurg’s 5.25% convertible mandatory preferreds were also trading and seen at 103 bid, 103.75 offered versus a share price of $47.47. AmSurg priced $150 million of the preferred series A-1 shares at a $100 par.

Greenbrier Cos. Inc.'s longer-dated convertibles gained 13 points to 15 points on an outright basis as shares surged on better-than-expected earnings from the Lake Oswego, Ore.-based railcar supplier.

Greenbrier’s 3.5% convertibles due 2018 traded at 183.56 with the shares up about 11%. The shares closed up $6.90, or 12%, at $64.61. The Greenbrier 2.375% convertibles were indicated up to 136.47 from 126.19.

Greenbrier beat earnings estimates by 29 cents and also beat on revenue, and the company guided fourth-quarter and full-year earnings forecasts higher.

Overall, the convertibles market was still performing a little bit better than the overall bond market, a New York-based trader said.

The session was generally quiet ahead of the July 4 holiday but with more active than many expected, which put some pressure on those trading desks that were thinly manned before the long weekend.

“We’re far busier than I thought we’d be,” a trader said, adding that the market “continued to be a bit firmer than it has been.”

Equities were up in the early going but pared gains in the afternoon, leaving the S&P 500 stock index and the Dow Jones industrial average higher but only by about 0.1% but still in record territory. The Nasdaq stock index slipped 1 point into the red.

Nuance slips on hedge

Nuance’s 2.75% convertibles due 2031 traded actively at 100 bid, 100.125 offered, which was little changed on an outright basis but weaker by 0.5 point on a dollar-neutral basis.

“There was a big seller in those,” a trader said.

“They have been crunching a lot relative to the equity on the concern of a cash takeover,” the trader said.

Over the past month, the bonds have come in about 3 points relative to the equity.

Nuance shares added 28 cents, or 1.5%, to $18.78 on the day.

Shutterfly contracts

Shutterfly’s 0.25% convertible bonds traded up to 105 on Wednesday from the 99 context, while shares gained $6.49, or 15%, to $50.00.

The bonds “came in” about a point on a hedged basis.

“The bonds are definitely down on hedge but not materially,” a trader said.

Bloomberg reported on Wednesday that the Redwood City, Calif.-based provider of digital photo services has hired an investment bank to help it identify possible buyers for the company. Shutterfly did not immediately comment.

Mentioned in this article:

AmSurg Corp. Nasdaq: AMSG

Dominion Resources Inc. NYSE: D

Greenbrier Cos. Inc. NYSE: GBX

Nuance Communications Inc. Nasdaq: NUAN

Shutterfly Inc. Nasdaq: SFLY

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