Allergan mandatory edges higher on news of deal talks; Peabody sinks to new lows; NXP, Rovi shares drop

By Rebecca Melvin

New York, Oct. 29 – U.S. convertibles players were watching different situations on a big earnings day for the market on Thursday as well as a deal on tap post-close from Integrated Device Technology Inc. and uncertainty stirred by a potential tie up between Allergan plc and Pfizer Inc., a New York-based trader said.

A lot of focus was on the Allergan mandatories, which were up about 0.375 point on a swap basis at 104.5 versus an underlying share price of $310.00, a trader said.

Elsewhere, Peabody Energy Corp.’s convertibles traded down to a new low as the company’s shares fell further following weak earnings posted earlier this week by the St. Louis-based coal company.

“There is the possible question of how much time do they have left before they have to restructure at some point,” a Connecticut-based trader said regarding the distressed company.

Meanwhile, NXP Semiconductors NV reported earnings that took its shares down 20% and Rovi Corp. shares plunged 20% after the Santa Clara, calif.-based software and internet media company reported a quarterly loss of $18.5 million.

Bunge Ltd. was also a miss on earnings expectations, a New York-based trader said.

The Bunge convertibles preferreds were down on swap amid instability of the setup of the structure even though Bunge’s shares didn’t really move, the trader said.

The Bunge preferreds were seen around 19 when the shares were slightly lower. The stock ended lower by 6% at $74.09.

Rovi reported a loss on lower revenue, but for the full year, the outlook for Rovi remained intact. It expects earnings in the range of $1.35 to $1.60 per share with revenue between $500 million to $530 million.

Rovi shares fell 23% to $8.69, however. A level on Rovi’s 0.5% convertibles due 2020 couldn’t be ascertained.

In the primary market, the shares of Integrated Device fell $1.69, or 6.5%, to $24.33 ahead of the expected pricing of the San Jose, Calif.-based semiconductor company’s planned $325 million of seven-year convertible bonds. Pricing details of the new bonds weren’t available as of Prospect News’ deadline.

Overseas, Marine Harvest ASA said its €340 million deal of five-year convertible senior bonds was expected to price with the caveat that if its Oslo-listed shares fell more than 5.5% between launch and pricing it could withdraw the deal. The Marine Harvest American Depositary Receipts fell 2% on the day on the New York-Stock Exchange.

Allergan’s preferreds add

Allergan’s 5.5% series A mandatory convertible preferred stock due 2018 traded up about 0.375 point to 104.5 versus an underlying share price of $310.00.

The Allergan shares added $17.18, or 6%, to $304.38 on the day amid discussion about a potential merger of the Ireland-based health care company with New York-based Pfizer Inc.

A convertibles trader said that the possible corporate nuptials were “really stirring things up.”

“People are taking a different look at the Allergan profile,” the trader said.

The Allergan convertibles are the former Actavis plc convertibles of which $5.06 billion priced in February. Actavis merged with Allergan and changed its name to Allergan earlier this year.

On Thursday, the companies confirmed reports that they were engaged in discussions that could lead to a potential business combination transaction.

An Allergan-Pfizer deal could be the biggest merger of what has been a blockbuster year for M&A in the health care sector. Negative sentiment about drug pricing may continue to spur this trend.

Pfizer is interested in moving its headquarters overseas to take advantage of a lower tax rate.

Peabody drops to new lows

Peabody’s 4.75% convertibles due 2066 traded last at 8.5, which represented a new low, a trader said. Earlier in the week, the bonds had gone from 12 to 9. Peabody shares fell $4.19, or 24%, to $13.10 on Thursday.

“The last couple of days it’s been going lower,” the trader said.

On Tuesday, Peabody reported a quarterly loss, but earnings excluding one-time items beat estimates and revenue beat as well, but the coal company lowered its 2015 volume guidance.

Revenue was $1.42 billion for the period, compared with $1.72 billion in the third-quarter a year earlier, due to a 7% decline in volume and lower realized pricing, according to the company’s earnings release.

Adjusted earnings were $129 million.

The coal sector globally fell in the quarter on concerns over slowing global growth and economic weakness in China, Peabody said. This resulted in a reduction in global coal demand that more than offset recent cuts in supply and put pressure on seaborne coal prices.

Seaborne metallurgical coal markets have been hurt by a 5% decline in domestic Chinese steel consumption through September. Meanwhile, the low prices of natural gas have depressed demand in the United States for utility coal. Peabody now projects utility coal demand will decline about 100 million tons in 2015. Coal’s share of U.S. electricity generation is expected to be 35%.

U.S. coal shipments are projected to decline 90 million tons this year, and additional production cutbacks are expected.

Mentioned in this article:

Allergan plc. NYSE: AGN

Bunge Ltd. NYSE: BG

Integrrated Device Technology Inc. Nasdaq: IDTI

Marine Harvest ASA NYSE: ADR: MHG

NXP Semiconductors NV Nasdaq: NXPI

Peabody Energy Corp. NYSE: BTU

Rovi Inc. Nasdaq: ROVI

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