ON Semi, OSI Pharma at bat; Entergy goes to 50.5 bid; Intel steady; Abgenix issues climb

By Ronda Fears

Nashville, Dec. 15 - Convertible traffic Thursday was dominated by the rush for capital that is typical as year-end approaches. In a particularly tough year for issuance, one sellside analyst said December is already tracking toward the best monthly proceeds total in two and a half years, with the two deals slated to price after the closing bell.

Although December is just half over, there not only are the holidays - Christmas, Hanukkah and Kwanzaa - coming up but the potential for a strike among transit workers in New York City, all of which will make doing business a little more difficult in the final fortnight of 2005.

ON Semiconductor Corp. and OSI Pharmaceuticals, Inc. were at bat after Thursday's close on the heels of a steady stream earlier in the week, which a sellside convertible analysts said would already put December's deal proceeds at $7.6 billion - the best he has tracked on a monthly basis in 2.5 years.

"Unfortunately," the desk analyst said, "it's too late to save the year."

With the ON Semiconductor and OSI Pharmaceuticals deals, convertible issuance to date will be $42.7 billion by Prospect News' tally, versus $49.34 million for the same period last year.

Intel action levels off

Computer chip giant Intel Corp. was among the week's earlier deals - pricing at 2.95%, up 18%, toward the middle of coupon talk for 2.875% to 3.125% and at the cheap end of premium guidance for 18% to 20%. It traded actively Wednesday and went up to 101 but sellsiders said it seemed to plateau there on Thursday.

One sellside market source saw the issue at 101 offered and said in addition to the low volatility in Intel shares being a strike against the issue for a lot of convertible players, some were taken back by quirks in the call provision.

He said the junior subordinated convertible debentures have a clause in the call provision that if the Internal Revenue Service rules against the tax advantage from the contingent payment feature of the issue then the company can call the bonds next summer. This, he said, caused some convertible players to be "taken aback."

But a buyside market source, said that while the IRS clause was "tricky," people knew about it before the bonds were issued.

A sellside trader said the bonds were not very active Thursday, and were last seen at 101.0625 bid, 101.125 offered. Intel shares ended off 5 cents on the day, or 0.19%, at $26.58.

Entergy treads water

Entergy Corp. sold $500 million of 3.25-year mandatory convertibles at par of 50 with a 7.625% dividend and 24% initial conversion premium - smack in the middle of guidance for a dividend of 7.375% to 7.875%, and at the aggressive end of premium talk at 20% to 24%.

Entergy is a New Orleans-based electric utility that is temporarily headquartered in Clinton, Miss., due to devastation in the region caused by Hurricane Katrina. The company has earmarked proceeds to repay debt incurred under its $2 billion, five-year revolving credit facility that expires in May 2010.

The company also has pending a new revolving credit facility with capacity of up to $1.5 billion that would supplement an existing five-year $2 billion revolving credit facility. In addition, Entergy plans to provide funding of $300 million to its Entergy Gulf States unit.

The issue was seen at 50.5 bid, 50.6 offered with Entergy stock at $71.25. Entergy shares closed at $71.25, up 57 cents, or 0.81%.

ON Semi launches drive-by

ON Semiconductor Corp. launched early Thursday $95 million of 20-year convertible notes talked to yield 1.5% to 2.0% with a 20% to 24% initial conversion premium via joint bookrunners Merrill Lynch & Co., Citigroup Global Markets, Inc., and JP Morgan Securities, Inc.

The Rule 144A issue was slated to price after Thursday's close.

The issue will be non-callable for seven years, with cash-only puts in years seven, 10 and 15. Holders will have full dividend protection, and there is a contingent conversion trigger with a 103% parity test for 6.5 years and freely convertible thereafter.

There is a greenshoe of $14 million available.

Phoenix-based ON Semiconductor, which makes chips for portable electronic devises such as cell phones as well as the automotive and industrial markets, said it plans to use proceeds to repay its outstanding 10% junior subordinated note due 2011.

Abgenix risk arbs scramble

Arbitrageurs were scrambling to cover short positions in Abgenix, Inc. on its $2.2 billion buyout by Amgen, Inc., plus risk arbitrageurs were clawing into the scene as well.

Amgen's acquisition of Abgenix was a long-speculated deal but the $2.2 billion price tag, plus the assumption of some $500 million or so of Abgenix debt, was not fully anticipated.

Abgenix shares on Thursday mirrored after-hour activity Wednesday with the stock ending near the takeout price of $22.50 a share but it drifted lower from the open. Abgenix shares opened Thursday at $21.80 and closed out the session higher by $7.03 on the day, or 47.99%, at $21.68.

Volume in the stock was huge, with 61.72 million shares changing hands Thursday, versus the norm of 2.86 million, but market sources also noted massive activity in Abgenix options.

"There's too much downside risk in the stock," said one risk arbitrage fund manger. "Abgenix is a one-drug company, so if the deal falls apart the stock has 10 points of downside risk. We are trying to buy call spreads, to estimate a definitive loss if the deal falls apart."

He said the January 2006 and April 2006 call options with strike prices at $12.50 and $15.00 were a focal point for most players. The January 2006 $12.50 call options shot up $4.20 to $9.20 on Thursday with open interest of 13,328. The January 2006 $15.00 call options shot up $5.40 to $6.90 on Thursday with open interest of 9,801. The April 2006 $12.50 call options shot up $5.70 to $9.30 on Thursday with open interest of 1,706. The April 2006 $15.00 call options shot up $4.35 to $6.80 on Thursday with open interest of 3,733.

Amgen shares also zoomed on the news after closing off by 68 cents, or 0.88%, at $76.78. Amgen was last seen, at 5:26 p.m. ET, up $2.22, or 2.89%, at $79.

The merger is expected to be completed by the end of first quarter 2006 and Amgen said it would be funded with cash on hand.

Abgenix converts rocket up

The Abgenix debt to be assumed by Amgen is its two convertible issues - a newer 1.75% bond and older 3.5% bond - both of which Amgen indicated in a conference call it would redeem soon after the merger was sealed.

Abgenix's 1.75% convert was among the first group of bonds issued in the convertible market with cash takeover protection, a sellside convertible analyst said, and the older 3.5% issue is putable at par in the event of a change of control. Since the 3.5s have been trading below par for an extended amount of time, the analyst said it would seem reasonable to guess that holders will put them as a result of the merger event.

Because of takeover protection, the analyst estimated that the Abgenix converts roughly were worth an extra 4 shares of stock or 9 points.

The 1.75s were seen moving up Thursday to the 177 area with the stock at $21.75, versus trading Wednesday in the 120 neighborhood. The 3.5s moved up from the mid-90s to the low 100s.

Cell Genesys gets boon, too

Cell Genesys, Inc., the former parent to Fremont, Calif.-based Abgenix, saw a nice bounce the Amgen buyout news, as well. It is expected to see a $135 million windfall from the deal by cashing in its equity stake.

South San Francisco-based Cell Genesys, with a market capitalization of $285.5 million, is one of the largest shareholders of Abgenix, owning about 6 million shares as of September.

Analysts said the cash would be a huge shot in the arm for Cell Genesys and possibly help raise its credit rating. The company's lead drug, GVAX, is in phase 3 clinical trials for prostate cancer and pPhase 2 clinical trials for pancreatic cancer and leukemia.

Cell Genesys shares rose Thursday by 70 cents, or 12.57%, to $6.27. Its 3.125% convertible bonds due 2011 rose in tandem with the stock, adding 7 points on the day to 86.5.

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