Ford gains on deal speculation; Tanger gains on REIT sentiment; Lucent, Medtronic unchanged

By Kenneth Lim

Boston, Aug. 25 - The convertible bond market ended the week on a whisper, with Ford Motor Co.'s convertible preferreds gaining slightly as the stock rose on reports of potential buyers for some of the auto maker's businesses.

Meanwhile, Tanger Factory Outlet Centers Inc. continued to gain with the stock as other real estate investment trust convertibles remained active. REIT convertibles have become more attractive recently with a run up in REIT equity, analysts said. But while hedge investors stand to gain from potential volatility and stock corrections, outright investors may want to be cautious, a Lehman Brother research note recommended on Friday.

Lucent Technologies Inc.'s 7.75% convertible preferreds were flattish a day after the company's plans to merge with Alcatel got a boost from proxy advisory firm Institutional Shareholders Services. The preferred traded at 1,010 versus a stock price of $2.20 on Friday. Lucent stock (NYSE: LU) gained 0.45% or 1 cent to close at $2.22.

"It didn't change much today, but they've gotten slightly better this week," a sellside convertible bond trader said.

Institutional Shareholders Services on Thursday urged Lucent shareholders to approve the planned takeover by Alcatel, a share-swap valued at about $10.4 billion. Also on Thursday, Lehman Brothers described as attractive Lucent's convertibles, citing volatility and call opportunities if the deal goes through.

Lucent is a Murray Hill, N.J.-based telecommunications equipment company.

Medtronic Inc.'s 1.25% convertible due 2021 was also unchanged Friday, shrugging off comments by the company that it was not selling itself, contrary to mid-week speculation. The convertible changed hands at 99.5 versus a stock price of $46.20 on Friday. Medtronic stock (NYSE: MDT) closed at $46.14, down by 0.13% or 6 cents.

Medtronic chief executive Art Collins on Thursday said the Minneapolis-based medical devices maker is not for sale. Rumors emerged earlier in the week that Johnson & Johnson was planning to make an offer for Medtronic.

Ford gains on reports

Ford's 6.5% convertible preferred gained about half a point outright on Friday after reports emerged about potential buyers for some of the auto maker's underperforming brands. The resignation of a board member over potential conflicts of interest also raised speculation that some restructuring at the company would take place.

The convertible traded at 32.875 versus a stock price of $7.75 on Friday. Ford stock (NYSE: F) rose 3.09% or 24 cents to close at $8. The preferred closed at 32.70.

Media reports on Friday said One Equity Partners LLC, a JP Morgan private equity firm, is interested in buying parts of Ford's Premier Auto Group, which includes the Jaguar, Land Rover, Volvo and Aston Martin brands. Construction machinery company JCB on Thursday said it was interested in buying Jaguar.

Also on Friday, Robert Rubin resigned from Ford's board of directors. Rubin, who is a member of the chairman's office at Citigroup, left to avoid possible conflicts of interest. His resignation spurred speculation that Dearborn, Mich.-based Ford, which recently hired mergers and acquisitions veteran Kenneth Leet as a strategic adviser, was planning a deal.

"If Ford can sell some of its underperforming businesses and get cash, that might be better for the credit," a sellsider said. "But it's not going to stop them losing market share."

Tanger keeps climbing

Tanger's newest 3.75% exchangeable due 2026 continued to trade well above par on Friday, two weeks after the deal came to the market.

"Most of the new REITs have done pretty well," a convertible bond trader said. "Guys are going for the vol."

The Tanger convertible traded at 108 against a stock price of $35.30, about two points higher outright than levels two days earlier. Tanger stock (NYSE: SKT) closed at $35.53, up by 0.57% or 20 cents.

Tanger is a Greensboro, N.C.-based real estate investment trust that develops and operats factory outlet shopping centers.

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