Beckman Coulter slips on raised bid; Dune gains on debut; Pennsylvania, Epicor, Sinclair quiet in gray

By Kenneth Lim

Boston, May 2 - Beckman Coulter Inc. slipped on Wednesday after the company raised its bid for Biosite Inc. to match a rival offer.

Meanwhile, Dune Energy Inc. was up a touch after its deal priced within talk. The deal was hampered by limited interest with mostly outright accounts holding the new paper and a weak stock.

Pennsylvania Real Estate Investment Trust, Epicor Software Corp. and Sinclair Broadcast Group Inc. were expected to price after the market closed, but unexciting price talk failed to attract bids in the gray market.

Beckman Coulter

Beckman Coulter's 2.5% convertible due 2036 fell by a point outright after the company said it was raising its bid for Biosite to $1.67 billion to match a competing offer by Inverness Medical Innovations Inc.

Beckman Coulter, a Fullerton, Calif.-based maker of biomedical test instruments, said it is now offering Biosite shareholders $90 per share, up from its original bid of $85 per share. Its offer expires at midnight ET on May 15.

The convertible was marked at 102.5 bid, 103 offered against a stock price of $62.15 on Wednesday. Beckman Coulter stock (NYSE: BEC) fell 1.83% or $1.16 to close at $62.16.

"Beckman's a touch weaker on the fact that they raised their bid for Biosite, so they're going to lose more cash because of that acquisition," a sellside convertible analyst said.

A convertible trader said the move raised concerns that the company may have to raise its bid again or pay a break-up fee if a higher offer emerges. The new offer price is a premium of 62.5% over Biosite's closing stock price before the initial offer was made in March.

"People were already thinking that they may have been paying too much at $85 per share," a convertible trader said. "Now they're paying even more and the concern is that if Inverness comes back with another offer they may be stuck in a bidding war."

Dune slips on limited interest

Dune Energy's new 10% convertible perpetual preferred was slightly higher early Wednesday but weakened as the stock slipped amid narrow interest in the deal and a falling stock.

The convertible was marked at 101.5 against a stock price of $2.50 early Wednesday. Dune Energy stock (Amex: DNE) closed at $2.43, down by 2.8% or 7 cents.

"It's all outright guys taking these," a convertible trader said. "The hedge guys can't play it because there's no borrow."

Dune Energy priced the upsized $180 million deal Tuesday with an initial conversion premium of 20%.

The preferreds were sold at par of $1,000 apiece. The deal was talked at a dividend rate of 9.875% to 10.125% and an initial conversion premium of 18% to 22% and was initially expected to price Wednesday.

The size of the deal was originally $140 million. There is no over-allotment option.

Jefferies & Co. was the bookrunner of the Rule 144A offering.

Dune Energy concurrently offered an upsized $300 million of five-year senior secured notes that priced at a coupon of 10.5%.

Dune, a Houston-based oil and gas exploration company, said it will use the proceeds from both deals to acquire all of the outstanding capital stock of Goldking Energy Corp. as announced on April 18. Any remaining proceeds will be used to pay for acquisition-related expenses and for working capital.

"To be honest we didn't look at these that much," a convertible analyst said. "I didn't hear anything about them. They modeled 2% to 3% cheap, which is probably what they need to be considering they're very, very risky issue. They are issuing a lot of debt compared to their market value. I think the bonds, they're issuing $180 million, the market cap is $146 million and I think they're issuing $300 million in straight debt concurrently, so they're basically levering up two times with this debt issue."

The analyst said it was difficult to evaluate the deal.

"You really have to believe in the company," the analyst said. "The borrow, which I heard wasn't that great, isn't an issue for outright investors, so I modeled them with an easy borrow just to see how it would look. But it's hard to peg a credit like this."

Sinclair seen as rich

Sinclair's planned $300 million of 20-year convertible senior notes was mostly quiet in the gray market on Wednesday as investors described the deal as too rich.

The deal did not draw any bids, but was offered at 100.5. The offering was talked at a coupon of 2.5% to 3% and an initial conversion premium of 32.5% to 37.5%. Sinclair stock (Nasdaq: SBGI) fell 7.37% or $1.22 to close at $15.33 after the deal was announced before the open Wednesday.

The convertible was offered at par.

There is an over-allotment option for a further $45 million.

Deutsche Bank and UBS Investment Bank were the bookrunners of the registered offering.

Sinclair, a Hunt Valley, Md.-based television broadcasting company, said it will use the proceeds of the deal to partly redeem its 8% senior subordinated notes due 2012.

"It didn't look that good to me," a sellside convertible analyst said. "If they price at the cheaps they'll look OK."

The analyst was using a credit spread assumption in the mid-100 basis points over Libor region with a volatility in the low 30% range.

"I think one of the big reasons is probably the coupon's low compared to the common dividend, which is about 3.75%," the analyst said. "The common actually pays higher than the bonds."

But another convertible strategist who used the same credit spread and a slightly lower volatility felt that the deal was expensive even at the cheap end of talk.

"You don't get the vol even at the cheaps," the strategist said.

Epicor, Pennsylvania seen as fair

Epicor's planned $200 million of 20-year convertible senior unsecured notes was seen as the most attractive of the three deals pricing Wednesday, but not by much.

"At the mids it's maybe a little cheap, but nothing that stands out as extremely compelling at the mids," a sellside convertible analyst said. "Of all three it's probably the most interesting one."

Epicor's deal was talked at a coupon of 1.875% to 2.375% and an initial conversion premium of 27.5% to 32.5%.

The convertibles were offered at par.

There is an over-allotment option for a further $30 million.

UBS Investment Bank and Lehman Brothers are the bookrunners of the registered offering.

Epicor, an Irvine, Calif.-based developer of enterprise application software solutions, said the proceeds of the deal will be used to repay its outstanding term loan and to fund general corporate purposes.

The analyst said some investors appeared to be using a credit spread as tight as 200 bps over Libor, "which seems a little tight," but the deal could be just slightly cheap at the mids.

"I know it's a software company and they always trade tight, but they're paying down a term loan, which is Libor plus 250bps and that was only a year ago, and it's not like things have improved dramatically since then," the analyst said. "I think you have to stretch a little on the credit to get it cheap, but people seem to like software companies."

Pennsylvania Real Estate Investment Trust's planned $250 million of five-year exchangeable senior notes also seemed just slightly cheap, the analyst said. The analyst said that the deal would be worth a look if they came at the cheap end of talk using a credit spread in the low 100 bps over Libor region and a volatility in the high teens.

"At where they're pricing it with price talk somewhere around 98.5-.75, they may start to look interesting if they price it at 98," the analyst said.

Pennsylvania talked its deal at a reoffered price of 98.5 to 98.75 with a coupon of 4% and an initial exchange premium of 20%.

The exchangeables will be issued by Pennsylvania's operating partnership, PREIT Associates LP, and exchangeable into Pennsylvania common stock.

There is an over-allotment option for an additional $37.5 million.

Merrill Lynch, Citigroup and UBS Investment Bank are the bookrunners of the Rule 144A offering.

Pennsylvania Real Estate, a Philadelphia-based real estate investment trust with a portfolio of mall and power and strip centers, said it will use the proceeds of the deal to fund capped call transactions, repay part of a credit facility and for general purposes.

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