Beckman 'comes in' on hedge; Chesapeake up on planned asset sale talk; MF Global on tap

By Rebecca Melvin

New York, Feb. 7 - Hedged players had small losses in Beckman Coulter Inc. Monday after news that Danaher Corp. agreed to buy the maker of diagnostic research equipment for biomedical companies for about $5.8 billion in cash.

"If you were on a light hedge or outright then you made money," a New York-based sellside trader said. But with a 60% delta or so, "on average, guys had small losses in BEC today," he said.

Chesapeake Energy Corp.'s convertibles were in focus after the Oklahoma City-based natural gas company said it plans to sell all of its Fayetteville Shale assets, as well as its equity investments in Frac Tech Holdings LLC and Chaparral Energy Inc., for proceeds that could exceed $5 billion.

Chesapeake plans to pay down about $2 billion to $3 billion of its shorter-dated senior notes and revolving bank credit facility with proceeds of the sales.

Savient Pharmaceuticals Inc.'s 4.75% convertible due 2018, which initially priced a week ago, traded at 110.5 versus a share price of $9.89, which was up compared to 108 versus a share price of $9.45 in the middle of last week.

In the primary market, MF Global Holdings Ltd. launched an offering of $250 million of five-year convertible senior notes that it planned to price after the market close. The paper wasn't really seen in the gray market, but even with its lower 1.75% to 2.25% coupon, it looked liked like a boon for investors since there is no dividend on the common stock, a New York-based buyside source noted.

The paper was pretty quiet in the gray market, with a bid at issue and offered par and a quarter.

Also in primary news, price talk and timing emerged on the Molycorp Inc. deal that has been on the horizon. That paper is supposed to price Thursday after the close with a 5.75% to 6.25% yield and a 17.5% to 22.5% initial conversion premium.

Overall, there were "some big movers on the equity side," a sellside analyst observed about Monday's session, and in general trading in the convertibles market was good.

Beckman gains outright

Beckman Coulter's 2.5% convertibles due 2036 traded a lot at 118.5 with the underlying shares around 82.5, which was up about 5.5 points outright on the day.

The paper was also quoted higher at 119 bid, 120 offered by a New York-based sellside desk analyst, who said that parity including the make whole would be around 119.625, assuming an April closing.

Shares of the Brea, Calif.-based medical device maker surged $7.48, or nearly 10%, to $82.65 in heavy volume.

Timing of the newly announced acquisition by Danaher, a medical and industrial instruments maker, was an issue for convertibles players as they evaluated the deal.

"The company has not been clear about expected closing. There is a coupon to be paid in June on the Beckman [convertible] bonds. If the closing before that date, you might lose that coupon, which would be about 1.25 points," a New York-based sellside analyst said. The analyst added that the company didn't give guidance on the timing of the closing.

But the analyst believes that there is a definite possibility that the deal will close before that June coupon, given that there shouldn't be a lot of antitrust review so it shouldn't take that long to get done.

Under the terms of the deal, Danaher will pay $83.50 a share in a tender offer for Beckman's shares. The price is an 11% premium over Beckman's Friday closing price and a 45% premium over the company's stock price on Dec. 9, just before reports of a potential deal emerged.

Danaher prevailed over two private equity consortiums also interested in Beckman; one including the Blackstone Group and TPG and the other including Apollo Global Management and the Carlyle Group.

Beckman convertibles have been pretty active in trade for many months in anticipation of news of this nature. A week ago they printed on an improved valuation of 112.75 versus a share price of $72.26 on a dealer purchase, according to a New York-based sellside trader.

Chesapeake up dollar neutral

Chesapeake's 2.5% convertibles due 2037 traded at 101.5 on Monday versus a share price of $31.00.

Later, the Chesapeake 2.5% convertibles were higher at 103.155, with shares about 50 cents higher, which represented about a 4-point outright gain.

Chesapeake's 2.75% convertibles due 2015, which are on Bank of America Merrill Lynch's top picks list for 2011, as a balanced convert with a favorable risk-reward profile, were seen at about 114.875 bid, 115.625, versus a share price of $31.29.

"That was pretty much delta neutral, up with the common," a New York-based sellside analyst said.

The Bank of America call is a contrarian one that is based on the fundamentals of natural gas remaining weak for the near term.

The convertibles are a partial equity and partial credit story.

On the credit side, the company is monetizing debt and making its credit profile stronger.

"They have great natural gas assets, and they've attracted a lot of institutional investors both at home and internationally, and they are willing to monetize some of these assets, using the cash to pay down debt and acquire some oil assets in a move to improve its overall production profile," the sellsider said.

"There is an incentive to move some of the production mix to oil," the sellsider said.

All together Chesapeake has about two or three convertible bonds and two or three convertible preferred issues, and it has been labeled a "serial convert issuer," but the preferred paper is not all that liquid and it's difficult to find quotes in those securities.

MF Global to price

MF Global, a New York-based global broker-dealer of commodities and listed derivatives, said it planned to price $250 million of five-year convertible senior notes after the close of markets Monday that were talked to yield 1.75% to 2.25% with an initial conversion premium of 25% to 30%.

The coupon appeared to be pretty low compared to its other convertible paper, which has a higher 9% dividend. MF Global has a 9% perpetual preferred and a 9.75% perpetual preferred.

Goldman Sachs & Co., Citigroup Global Markets Inc. and Deutsche Bank Securities Inc. are the joint bookrunners of the registered MF Global deal, with Bank of America Merrill Lynch, J.P. Morgan Securities LLC, RBS Securities Inc. and Sandler O'Neill + Partners, LP acting as co-managers. There is a $37.5 million greenshoe.

Proceeds are earmarked to repay debt under a $1.2 billion revolving credit facility and for general corporate purposes, and to fund the cost of convertible note hedge transactions, which the company is entering into aimed at covering the number of shares of MG Global common stock that will initially underlie the notes.

The notes are non-callable for life. The notes are convertible prior to Aug. 1, 2015 if the price of shares for 20 out of 30 trading days is 130% of the conversion price. After Aug. 1, 2015, the notes are convertible at any time. The notes can be settled for cash or a combination of cash and shares.

Molycorp talk emerges

Molycorp plans to price $150 million of mandatory convertible preferred stock after the market close on Thursday with a 5.75% to 6.25% yield and a 17.5% to 22.5% initial conversion premium.

There is a $22.5 million greenshoe.

The registered deal is being sold concurrently with a secondary stock offering of 13.5 million shares of common stock.

Proceeds will be used for working capital and general corporate purposes. Previously Molycorp said it expects to use the proceeds to double the production capacity of its Mountain Pass facility in California.

JPMorgan and Morgan Stanley & Co. Inc. are the joint bookrunners for the proposed offerings.

Greenwood Village, Colo.-based Molycorp is a producer of rare earth oxides

Mentioned in this article:

Beckman Coulter Inc. NYSE: BEC

Chesapeake Energy Corp. NYSE: CHK

MF Global Holdings Ltd. NYSE: MF

Molycorp Inc. NYSE MCP

Savient Pharmaceuticals Inc. Nasdaq: SVNT

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