Human Genome to price $230 million of convertibles; Reebok paper jumps on buyout news

By Rebecca Melvin

Princeton, N.J., Aug. 3 - Trading in the convertibles market was active Wednesday, with the session opening to news of a buyout of Reebok International Ltd., which sent its convertibles up, and ending with a shift in focus toward a new deal that showed up after the bell from Human Genome Sciences Inc., traders said.

Human Genome Sciences was expected to price overnight an offering of $230 million of seven-year convertibles to yield 2.25%, with an initial conversion premium of 20%.

Bookrunners for the Rule 144A deal are Citigroup and Merrill Lynch.

The Rockville, Md.-based biotechnology company said that it will use proceeds to buy back two of its older convertible issues.

The secondary market also saw activity in biotechnology names, including Protein Design Labs Inc., while Teva Pharmaceutical Industries Ltd. and Ivax Corp. continued to trade mixed on uncertainty about the recently announced merger of the two generic drugmakers.

"People are still trying to figure out what this is going to mean for holders, with outrights, on the margins, as buyers and hedge funds as sellers," a New York-based sellside trader said Teva and Ivax paper.

Delta Air Lines Inc. continued to slide amid bankruptcy rumors, while Eastman Kodak Co. was also actively traded, as well as one of the bonds of General Motors Corp., which saw a lot of buyers toward the end of the day, traders said.

Reebok paper runs

The convertibles of Reebok ran up 7 points after news that the Canton, Mass.-based sporting goods maker would be purchased by Germany-based Adidas-Salomon for $3.8 billion, or €3.1 billion, based on a Reebok share price of $59 a share.

The offer price represented a premium of 34.2% over the closing price of Reebok's stock on August 2. And on Wednesday the shares surged 30%.

The 2% Reebok convertible due 2024 was apparently owned mostly by outrights who didn't suffer on a hedged basis due to the surge in the company's share price, sources said.

"The bonds came in on swap about 7 points." a buyside source said, "But not many hedge guys owned it though, so there was no real pain across convertible arb guys."

The combined sporting goods company is expected to be able to negotiate better terms from retailers such as Foot Locker, and stands to compete better against Nike, which will still have a bigger chunk of the U.S. athletic footwear market even than a combined Reebok and Adidas.

Adidas said it was confident Reebok's shareholders would approve the deal, which includes Reebok's net cash position of $84 million.

A downgrade from DA Davidson to "neutral" from "buy" didn't douse enthusiasm for Reebok shares, which surged $13.19, or 30%, to $57.14.

The 2s traded between 113.5 and 114, up from trades at 107.3 bid, 107.8 offered on Tuesday.

Pact boosts Protein Design

The convertibles of Protein Design Labs were up 0.75 point to 1 point after the Fremont, Calif.-based biotechnology company and Biogen Idec announced a deal Tuesday for the joint development, manufacture and commercialization of three Phase II antibody products to treat multiple sclerosis, cancer and autoimmune diseases.

Biogen, based in Massachusetts, will pay Protein Design Labs $40 million at the outset and will buy $100 million of Protein Design's stock.

If products are developed successfully and all milestones are achieved, Protein Design could receive milestone payments of up to $660 million.

There were lots of buyers for Protein Design's 2.75% convertible due 2023, which traded up to 143, traders said. Its shares traded up $2.94, or 12.62%, to $26.24.

Profit taking, uncertainty hit Teva, Ivax

The convertibles of Teva and Ivax traded somewhat mixed following earnings news from both companies this week and following the announcement last week that Teva will acquire Ivax for $7.4 billion. The paper of both companies rose after that announcement.

The deal must still be approved by shareholders of both companies and by U.S. and international regulatory agencies. But it is expected to close late this year or in early 2006.

On Monday, when Ivax announced its earnings, which fell short of estimates, chairman Phillip Frost said that he believes the company "has a terrific future as a stand-along company," but that the Teva acquisition will produce "an even better future for Ivax investors."

Teva, which posted earnings in line with expectations on Monday, has faced near-term challenges that are expected to be ameliorated by the purchase of Ivax.

SG Cowen, which expects Teva shares to rise 15% to 20% within the next 12 months, said Tuesday that it believes that now that the Israel-based generic drugmaker has finally acknowledged near-term operating challenges, investors can "focus forward on what should be improving fundamentals."

Teva's 0.375% convertible due 2022 traded at 152, up compared with Tuesday trades at 150.675 bid, 151.125 on Tuesday.

But its 0.50% convertible due 2024 traded at 98.625, down compared to 99.177 bid, 99.677 offered; while its 0.25% convertible due 2024 traded at 100.25, slightly lower compared to Tuesday's level at 100.451 bid, 100.951, according to sources.

Teva shares closed up $0.39, or 1.2%, at $32.59.

Some Ivax convertibles traded flat to lower on Wednesday, while some of its issues were quiet. The Miami-based generic drugmaker's 4.50% convertible due 2008 traded at 99.665 on Wednesday, compared to 101.25 bid, 101.75 on Tuesday.

Ivax stock traded up $0.16, or 0.6%, to $25.78.

Delta paper extends nosedive

The convertibles of beleaguered Delta Air Lines extended losses Wednesday after sliding on Tuesday on speculation that a Chapter 11 bankruptcy filing could be coming soon.

Its 8% convertibles due 2023 lost another 0.25 point to trade at 121.5. On Tuesday, the same paper lost 6 points to 7 points.

Busy trading leaves GM mostly flat

After trading mixed early in the session, General Motor's $25 convertible bonds ended mostly flat to slightly lower, with heavy trading volume in the 5.25% issue.

Traders speculated that an outright player was spurring activity in the 5.25%, which ended down just $0.02 to $22.27, while the other two issues shed just a penny in thin trading, with the 6.25% down to $24.61 and the 4.25% down $0.01 at $24.61.

Meanwhile, General Motors Acceptance Corp., the financial services unit of General Motors, said Wednesday it agreed to sell a 60% stake in its commercial mortgage subsidiary to a private equity investor group that includes Kohlberg Kravis Roberts & Co., Five Mile Capital Partners and Goldman Sachs Capital Partners.

The subsidiary, GMAC Commercial Holding Corp., provides commercial real estate loan origination, servicing, asset management, investment management and technology services. The mortgage unit has a loan servicing portfolio of about $250 billion.

In conjunction with the equity sale, GMAC Commercial Holding will seek to obtain a standalone credit rating to help fund operations on an ongoing basis. Under terms of the transaction, the company will repay all inter-company loans to GMAC when the deal is completed.

Shares of GM closed down $0.13 to $36.40.

Kodak eases in active trade

Eastman Kodak convertibles traded slightly lower, in line with their underlying stock in active trading, a New York-based sellside trader said. "They were all over the place," he said.

The 3.375% convertibles due 2033 traded late in the session at 102.50, off slightly from Tuesday's level. The shares ended virtually flat, up $0.01 at $26.39 after dipping to as low as $25.76 in the session.

The once venerable Rochester, N.Y.-based photography giant, which has recently had its debt fall firmly into junk territory, has accelerated its restructuring program after posting a disappointing second-quarter loss last month.

A chief cause of its recent struggles, the company said, is faster-than-expected decline of traditional film use in Asia. Coastal cities on the continent in particular have gravitated quickly to digital photography, and Kodak must now shed assets and workforce in order to position itself in the evolving market, the company said.

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