Watson, OSI add on buyout rumors; Alexandria up; Ford jumps, GM mixed; Old Republic to price

By Rebecca Melvin

New York, April 22 - More takeover speculation Wednesday, this time dealing with OSI Pharmaceuticals Inc., brought the number of buyout rumors in recent days affecting convertible names to three.

OSI was pulled into trade at slightly higher levels amid "a news item that Roche may be looking," a New York-based sellside analyst said.

The analyst was referring to Swiss drug maker Roche Holding AG, which according to another sellsider, "is always looking." He discounted the rumor.

Nevertheless, such speculation appears to be becoming a trend. On Tuesday, Watson Pharmaceuticals Inc. edged higher by 0.5 point amid speculation that it could be bought by Teva Pharmaceutical Industries.

Last week, Omnicare Inc. convertibles gained in tandem with their underlying shares amid speculation that the geriatric pharmaceutical concern may be taken over.

Elsewhere, Ford Motor Co.'s convertibles jumped in tandem with its shares after a Goldman Sachs analyst upgraded the shares to "buy," saying Ford, which has avoided a government bailout thus far, will likely get a boost if its competitors General Motors Corp. and Chrysler file for Chapter 11 bankruptcies.

Meanwhile, GM convertibles were mixed after The Wall Street Journal reported that the Detroit automaker expects to skip its $1 billion debt payment due June 1, making the potential for a bankruptcy more likely.

Alexandria Real Estate Equities Inc. 's new 8% convertibles, which priced late Tuesday, were released for secondary dealings and traded to 101 last.

Among other recently priced paper, SBA Communications Corp.'s 4% convertibles, which priced late Monday, traded at 103.23 versus a share price of $25.40.

Digital Realty Corp., which debuted in the secondary market a week ago, traded at 99.5 versus $26.50, which was down from 102 last Thursday

"The last few deals were not as cheap, and clearly the market has had a less than enthusiastic reaction to REIT convertible issuance," an East Coast buyside trader said, referring to Alexandria and Digital Realty, which are both REITs.

But the new 3.5% convertibles of French REIT Unibail-Rodamco, which were launched in Europe on Monday, were very successful.

The private placement's order book of more than €4.5 billion corresponded to a nine times oversubscription in less than two hours coming primarily from long-term investors, according to a release.

Also in the primary market, Old Republic International Corp. said after the close Wednesday that it planned to price $250 million of three-year convertible senior notes.

The notes were talked to yield 7.75% to 8.25% with an initial conversion premium of 17.5% to 22.5%, and were seen pricing after the close Thursday, according to a syndicate source.

Watson remains higher, OSI adds

OSI Pharmaceuticals' 3.25% convertibles due 2023 traded at 85.25 versus a share price of $32.50 on Wednesday, which was higher compared to prior levels in the 82.5 bid, 83.5 offered range.

Shares of the Melville, N.Y.-based mid-cap biotechnology concern added just $0.11, or 0.34%, to $32.47 in not very active trade.

One sellsider said trading action was spurred by takeover speculation. But another sellsider was skeptical. "The stock not acting like it. Vol is up a little but nothing to lead me to think it's getting taken over," the West Coast-based sellsider said.

Meanwhile, Watson's 1.75% convertibles due 2023 traded up 0.5 point to 97.50 on Tuesday and held that gain on Wednesday, while shares of the Corona, Calif.-based branded and generic drug maker ended the day Wednesday lower by $0.72, or 2.4%, to $30.09.

Watson's convertibles are well liked among convert players for the company's solid fundamentals, and because it is expected to be able to fund the cash put on the converts next March.

One sellsider said on Wednesday he was putting in orders and looking to trade the 1.75s.

The converts traded at 97.5, versus $30.81 on Tuesday. "Looking at those numbers, we have a 4.67% yield to put up 26.74%. Using a light 10 delta and the 40.05 strike as a deal price, the convert breaks even at 99.81," the sellsider said.

"If there's a cash deal, then there's not much there," he said, adding that while Teva should be able to raise that sort of money easily, he still didn't think an all-cash deal was a slam dunk.

"The volatility created by the speculation the options present is a nice way to enhance the play," he said.

Including Omnicare, "all three mentioned are in the medical space," the sellsider pointed out of the recent takeover rumors.

"If you think the market has hit some kind of bottom especially from a company standpoint, then buying now makes sense," the sellsider said, adding that health care is a sector where this is possible.

Nevertheless, "these are all rumors; we're not seeing a flood of deals. More deals would certainly encourage people," he said.

Alexandria last at 101

Alexandria's newly priced 8% convertibles were active in the first hour of trading and were seen toward the close at 101.

A syndicate source said that given that its shares tumbled nearly 10%, it was likely that the new paper settled south of there. But no closing level was available.

One syndicate source said that figure probably wouldn't be available until Thursday.

Alexandria priced an upsized $225 million of 20-year convertible senior notes to yield 8% with a 15% initial conversion premium.

The deal was initially talked at $175 million in size.

Bank of America-Merrill Lynch, JP Morgan and Citigroup were bookrunners of the Rule 144A offering.

The notes are non-callable for five years, with investor puts in years five, 10 and 15. The notes will have net share settlement.

Proceeds are expected to be used to reduce borrowings under an existing credit facility, as well as for selective redevelopment or development of life science properties.

Pasadena, Calif.-based Alexandria is a real estate investment trust that focuses on offices and laboratories that are leased to research entities and government agencies.

Old Republic to price

Chicago-based Old Republic, an insurance holding company, said it plans to sell $250 million of three-year convertible senior notes.

The deal, which was announced after the close Wednesday, was talked to yield 7.75% to 8.25% with an initial conversion premium of 17.5% to 22.5%.

The registered offering is being sold via joint bookrunning managers Merrill Lynch & Co. and J.P. Morgan Securities Inc.

The bonds have a $37.5 million greenshoe. They are non-callable for life with no puts, and they will be stock settled, not net-share settled.

Mentioned in this article:

Alexandria Real Estate Equities Inc. NYSE: ARE

Digital Realty Corp. NYSE: DLR

Ford Motor Co. NYSE: F

General Motors Corp. NYSE: GM

Old Republic International Corp. NYSE: ORI

Omnicare Inc. NYSE: OCR

OSI Pharmaceuticals Inc. Nasdaq: OSIP

SBA Communications Corp. Nasdaq: SBAC

Watson Pharmaceuticals Inc. NYSE: WPI

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