Millipore a little weaker dollar neutral, but OSI Pharma expands; Amylin, Isis also in trade

By Rebecca Melvin

New York, March 1 - Merger and acquisition activity sparked trading in a handful of convertible names on Monday, including Millipore Corp., which was in focus once again after it garnered a bid, this time from Germany's Merck KGaA.

The equipment maker's convertibles were higher outright, but slightly weaker on a dollar-neutral basis, according to sellside sources.

OSI Pharmaceuticals Inc.'s 3% convertibles expanded on a dollar-neutral basis as their underlying shares surged after the Melville, N.Y.-based pharmaceutical company confirmed that it received a hostile bid from Japan's Astellas Pharma Inc. for $3.5 billion.

"Should both deals go through that would be four issues in all probability going away, which is more that we saw issued in the month of February," a New York-based sellside trader said.

Amylin Pharmaceuticals Inc. was also in trade, and higher by about a point outright compared to Friday when the convertibles gained on a positive research report that lifted its common stock.

Isis Pharmaceuticals Inc.'s 2.625% convertibles due 2027 also traded Monday at 94.5 versus a share price of $9.10 - which looked to be about in line - after the Carlsbad, Calif.-based drug maker reported earnings that missed estimates but beat on revenue.

"They have a string of things that they could sell or partner on but right now there is no catalyst seen," the Connecticut-based analyst said.

Interpublic Group of Companies Inc. extended its gain notched Friday after the company beat earnings expectations and issued comforting guidance.

Whether market activity picked up or not was debatable. Some sources said the market was more active, starting a new month on better footing than the last one. But one sellsider said there wasn't much of an impact except in those names that were the subject of takeover bids.

"There was some buzz in the morning. But I think people are in a sweat, waiting for something to happen. It didn't sound like a real busy day," an analyst said.

Equities lift convertibles returns

In February the outright convertible bond market posted a positive return of 2.68%, which was driven mainly by a recovery in equities and also incremental momentum from credit. The positive return marked a reversal from the negative 1.61% return in January, according to Barclays' equity-linked and convertibles research analysts.

The HFRX Convert Arb index performed in the opposite manner. It was down 0.71% in February, reversing course from a positive 0.54% return in January.

Year to date the Convert Arb index has returned a negative 0.41%, compared to the BarCap Convert Composite return of 1.02%, according to research by Barclays analysts Venu Krishna, Manoj Shivdasani and Peng Cheng.

On Monday, equities were higher amid the M&A activity and news of American International Group Inc.'s agreement to sell its Asian life insurance business to Britain's Prudential plc for $35.5 billion. The asset sale is part of AIG's plan to streamline operations and repay government bailout money.

Millipore gains

Millipore's 3.75% convertibles due 2026 traded at 124.75 versus a share price of $105.00, which was up from about 111 versus a share price of $86.00 a week ago.

On a dollar-neutral basis, the Millipore bonds were slightly weaker, sources said. One sellsider said they contracted by about a point.

Shares of the Billerica, Mass.-based life science company jumped about 11% after news that the Merck conglomerate said Sunday it would pay $7.2 billion in cash to acquire the maker of biotechnology equipment.

A week ago, Millipore was pulled into trade at higher levels after reports that laboratory equipment maker Thermo Fisher Scientific Inc. had offered to buy the equipment maker for $6 billion. That bid was later rebuffed.

OSI expands

OSI Pharmaceuticals' 3% convertibles due 2038 surged 12 points to 107.5 versus a stock price of $54.00 in early trading on Monday, according to a New York-based sellside desk analyst.

One sellsider said that the 3% paper expanded by about 3 points on the day.

The OSI Pharmaceuticals 2% convertibles due 2025 were shown to be higher by 62.76 points to 192, according to Trace data.

The Melville, N.Y.-based pharmaceutical company saw its common stock surge 52%, or $19.00, to $56.25, to above the priced offered for the company by large Japanese drugmaker Astellas.

Astellas said it planned to begin a hostile tender offer of $52.00 a share in cash for all of OSI's outstanding shares, representing a 40% premium over OSI's closing price on Friday.

Astellas valued the deal at about $3.5 billion, adding that the offer was not subject to any financing conditions. The tender offer will begin on Tuesday.

Astellas also said that it first approached OSI about a possible takeover more than a year ago, but OSI had resisted its advances.

Astellas' offer for OSI comes almost a year after it dropped an attempt to buy U.S. biopharmaceutical company CV Therapeutics Inc. in a hostile takeover bid.

Amylin trades up again

Amylin's 3.5% convertible due 2011 traded at 99 versus a share price of $19.00 on Monday, compared with a trade at 98 versus a share price of $18.90 on Friday.

Amylin is a San Diego, Calif.-based drug company. Its common shares added 30 cents, or 1.6%, to $19.19 on Monday.

Amylin has also been the subject of takeover speculation, a New York-based sellside desk analyst said Monday.

But at this point, so close to a decision by regulators on its reformulated, long-acting release Byetta diabetes drug, no suitor is expected to step in, a Connecticut-based sellside analyst said.

The Food and Drug Administration approval decision date for exenatide once-weekly for diabetes, developed by Amylin and Alkermes and co-marketed by Eli Lilly, is expected March 12.

"They are so close to getting a decision on the weekly Byetta, no one would step in between now and the FDA decision seen this month," the analyst said.

Interpublic adds 0.5 point outright

Interpublic's 4.25% convertible due 2023 traded at 102.5 versus a share price of $8.00 on Monday, compared to 102 versus a share price of $7.50 on Friday.

The Interpublic 4.75% convertibles weren't heard in trade on Monday after rising 3 points to 102.25 on Friday.

On Friday, Interpublic's bonds and stock rallied after the New York-based advertising and marketing company reported a fourth-quarter profit that matched expectations but guided for a hopeful year ahead.

Mentioned in this article:

Amylin Pharmaceuticals, Inc. Nasdaq: AMLN

Interpublic Group of Cos. Inc. NYSE: IPG

Isis Pharmaceuticals Inc. Nasdaq: ISIS

Millipore Corp. NYSE: MIL

OSI Pharmaceuticals Inc. Nasdaq: OSIP

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