Albertson's trades lower in active trade; Wyeth, Omnicare gain; GM sees light buying

By Rebecca Melvin

Princeton, N.J., Dec. 23 - In a mostly quiet pre-Christmas session Friday, the mandatory convertibles of Albertson's Inc. traded down a couple of points in heavy volume after the Boise, Idaho-based grocery and drugstore chain confirmed that talks for the potential sale of the entire company had ended, traders said.

Other notable trades of the day involved buyers, however. The 3.32% floating-rate convertibles of Wyeth Pharmaceuticals gained as much as a point on news it has agreed with Progenics Pharmaceuticals Inc. to jointly develop and market a drug to treat patients suffering from opioid-induced side effects.

Cephalon Inc. extended gains for a second consecutive day as investors - in continuing relief that the Frazer, Pa., company has settled its patent infringement case with a second company - scooped up more of its three most actively traded convertibles.

On Thursday, Cephalon said it had settled a patent litigation suit with Indian generic drugmaker Ranbaxy Laboratories Ltd. over its sleep treatment Provigil. The settlement followed a similar arrangement with Teva Pharmaceuticals earlier this month.

The new Omnicare Inc. 3.25% convertibles expanded another 0.5 point on Friday amid continuing interest this week from both outright and hedge fund buyers, a New York-based sellside trader said.

General Motors Corp., which was dragged lower this week amid negative sentiment and news that billionaire investor Kirk Kerkorian had sold about 12 million shares of the Detroit automaker, found buyers on Friday that lifted mildly its three $25 par convertible bond issues.

Other than that, it was very quiet, traders and market sources said. Starting Thursday, it was difficult to get anything done. By then a lot of players had sent out their "Bloombergs" saying, "have a nice holiday," which was a way of letting others know that they would no longer be available for the next several days and possibly not until the new year, traders said.

"Most trades [on Friday] got done early to take advantage of any liquidity that there was," a New-York based sellside trader said.

The bond markets closed early ahead of the holiday weekend as is typical practice, but the stock markets remained open for a full session. Both stock and bond markets will be closed on Monday.

Albertson's extends losses

Albertson's 7.25% mandatory convertibles due 2007 extended losses for a second consecutive day, trading lower by 1.66 points in heavy volume, while its underlying shares plunged 11.8%.

"There was a lot of trading of Albertson's on news that the deal is off. It was the focus of the morning," a New York-based sellside trader said at midday, adding that buyers had stepped in at about 21.60 and that it stabilized at 21.75.

The mandatory units closed close to that level, down 1.66 points, or 7%, at 21.85. Its shares closed down $2.74, or 12%, to $20.54.

In a short two-paragraph news release, Albertson's confirmed earlier reports that it had terminated all discussions regarding the potential sale of the company. But it said that it continued in talks with several parties regarding the sale of underperforming assets.

An initial report by the New York Times on Thursday, when the mandatories lost 3.3%, said that the Albertson's board had initially planned to approve the $9.6 billion bid by a group of investors including investor Cerberus Capital Management, Kimco Realty Corp. and SuperValu Inc. CVS Corp. was said to be bidding for Albertson's drug stores. But those talks are off too.

Under the terms being discussed, a deal would have translated into $26 a share in stock and cash.

"From an intuitive trading perspective, it makes no sense," a sellside trader said. "You see the stock reaction. The takeout price was $26. Now the stock is at $20 and they're going to be selling assets to compensate."

The company announced Sept. 2 it was interested in pursuing "strategic alternatives" to increase shareholder value and launched a three-month auction to accept bids on the chain.

Fitch Ratings and S&P both said on Friday that Albertson's ratings remain on watch with negative implications.

Fitch rates Albertson's bank credit facility and senior unsecured notes BBB and commercial paper F2.

Its "rating watch negative" considers the ability of Albertson's to complete the sale of its underperforming assets as well as the financial impact of the asset sales, including the use of proceeds, the agency noted.

S&P said affected ratings include the company's senior unsecured debt at BBB-, $900 million bank loan at BBB- and commercial paper at A-3.

Wyeth convertibles add on

The 3.32% floating-rate Wyeth convertibles traded in a range of 104.3 to 104.88 on Friday, up as much as a point from Thursday, according to a sellside shop's prices.

Wyeth Pharmaceuticals, a division of Wyeth, and Progenics Pharmaceuticals have entered into an exclusive, worldwide agreement for the joint development and commercialization of methylnaltrexone for the treatment of opioid-induced side effects, including constipation and post-operative bowel dysfunction.

The companies said that these medical conditions are major therapeutic challenges in individuals treated with opioids for pain or in patients following serious or prolonged surgeries.

Under the terms, Wyeth receives worldwide rights to the drug and Progenics retains an option to co-promote the product in the United States. The companies will collaborate on worldwide development.

The transaction includes an upfront payment to Progenics with as much as an additional $356.5 million payable upon achievement of certain milestones.

Wyeth will pay Progenics royalties. Additionally, Wyeth is responsible for all future development and commercialization costs.

The companies said in a release that there are currently no therapies approved to treat the side effects of opioids. These side effects often prevent optimal pain control and may prolong hospitalization.

Omnicare lures holders

The 3.25% convertibles of Omnicare extended gains for at least a second consecutive day on Friday, adding 0.5 point on a dollar neutral basis, amid demand from both outright and hedge fund buyers, a New York-based sellside trader said.

Omnicare priced the upsized deal of $850 million of 30-year convertibles on Dec. 13.

In the initial aftermarket, the convertibles moved up to 100.375 bid, 100.5 offered amid a lot of outright support and despite a 1.22% drop in its share price.

JP Morgan, Lehman Brothers and CIBC World Markets were joint bookrunners of the deal that priced toward the cheap end of talk, which was 3.125% to 3.625% for the coupon and 32.5% to 37.5% for the initial conversion premium.

"I don't know why it's doing so well. I didn't like it," a West Coast sellside trader said Friday. "When I modeled it up, I didn't like it, so I am surprised every day that it's doing well."

He guessed the attraction is the size of the deal, which lends liquidity to the issue, and the size of the company. "People are looking for decent credit, decent liquidity," the trader said.

Concurrently with the convertibles offering, Omnicare, a Covington, Ky.-based pharmaceutical-care provider for the elderly, priced 12.825 million shares at $59.72 each, $225 million of eight-year senior subordinated notes to yield 6.75% and $525 million of 10-year senior subordinated notes to yield 6.875%.

On Friday, the 3.25s were 100.5 bid, 101 offered. Omnicare shares added 0.58%, or 34 cents, to $59.14.

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