Takeover chatter lifts SanDisk, spurs activity in Transocean; Vornado adds on tender news

By Rebecca Melvin

New York, Sept. 2 - Takeover chatter, of which the markets have seen a decent amount recently, drove some trading activity in Thursday's generally quiet, pre-holiday trading session in the convertible bond market.

Although the markets are open Friday ahead of the long Labor Day weekend, traders were not expecting a significant amount of activity on the last day of the week.

Among the most actives in Thursday's convertibles session was SanDisk Corp.'s newish 1.5% convertibles, which have taken a rather steep ride downward since pricing Aug. 20. But they traded up on Thursday.

The SanDisk bonds "finally caught a strong bid today," a New York-based sellside trader said of SanDisk, citing takeover rumors involving Toshiba as driving trade.

Transocean Ltd. was also active, although the convertibles were more or less steady after having significant price moves Wednesday amid possible takeover rumors for Transocean and the beleaguered oil drilling sector in general.

In addition, news of a Mariner Energy Inc. oil platform explosion in the Gulf of Mexico rattled markets temporarily Thursday. But they recovered once follow-up news showed that the accident wasn't comparable to the devastating Macondo oil rig explosion in April, a sellsider said.

Vornado Realty Trust convertibles were also fairly active, particularly the Vornado 3.625% convertibles, after the New York-based equity real estate investment trust launched cash tender offers for both the 3.625% convertibles due 2026 and the 2.85% convertibles due 2027.

Vornado announced that it has started cash tender offers for any and all of the $382 million of the 3.625% convertible senior debentures and its $22.5 million of 2.85% convertible senior debentures.

Overall, it was pretty quiet, with the usual larger issues in trade and the less liquid paper untouched, a sellsider said

Equity markets meanwhile moved up following pretty positive housing and jobs reports.

The National Association of Realtors said the number of homebuyers rose 5.2% in July after hitting a record low in June.

In addition, the Labor Department said first-time claims for unemployment benefits fell slightly last week but remain above levels that indicate a healthy economy.

SanDisk catches a bid

SanDisk's 1.5% convertibles due 2017 traded up to 92.5 versus a share price of $25.50, a sellsider said.

The bonds, which since their debut in secondary dealings less than two weeks ago have slumped to the upper 80s context, were lifted by several points on Thursday.

Shares of the Milpitas, Calif.-based flash storage company gained $1.20, or 2.5%, to $36.01 on Thursday in heavier-than-average trade.

The convertibles' long seven-year maturity was counted as a big strike against the paper when it first priced.

Transocean little changed

Transocean's 1.5% series C convertibles due 2037 were the most actively traded of the three sister Transocean convertibles on Thursday.

The RIG Cs were mostly unchanged by the end of the day, trading at 92 bid, 92.25 offered, after having moved up 0.5 point on Wednesday, according to a New York-based trader.

On Wednesday, the Transocean C paper was 91.5 bid, 91.75 offered.

The three Transocean issues were trading amid takeover rumblings and the jitters over the oil drilling sector, in general. Comments by Seadrill Ltd. that Transocean stock looked like a bargain triggered market speculation about a possible tie up of the companies.

Transocean's 1.5% series B convertibles due 2037 were called up about 0.125 point, and the Transocean 1.625% series A convertibles due 2037 were unchanged.

Shares of the Vernier, Switzerland-based oil-services company also ended little changed - up 33 cents, or 0.6%, to $54.00 - after jumping 7% on Wednesday.

"The Cs were kind of unchanged by the end of the day compared to how I saw it opening," the sellsider said.

In the middle of the session, the convertibles and stocks dipped lower after news that the Mariner Energy rig had exploded in the Gulf. But the securities recovered when it became apparent that it was not a major disaster.

"People might have sold, if they thought that might [the Mariner accident] threaten the drilling moratorium. I think it came up pretty quickly that it was in shallow water, and Mariner said there was no leaking oil. It was determined pretty quickly that it was not anywhere comparable to the Macondo well," the sellsider said.

Wednesday's stock move, the sellsider said, was the result of "talk of consolidation in the drilling space."

"Seadrill was talking about RIG stock looking pretty cheap, and a possible takeover play," the sellsider said.

But the validity of such takeover chatter was in question.

"I think takeover rumors in RIG have virtually no credibility because of the legal overhang, even though things appear to be moving in the right direction. Because there has been so much real takeover activity of late, any rumor is bound to get some attention," a New York-based sellside trader said.

Vornado up on tender

Vornado Realty Trust's 3.625% convertibles were active Thursday and higher by about a point to 101-102 after the company announced a cash tender offer for the 3.625% convertibles and the Vornado 2.85% convertibles, of which there is not too much left outstanding.

There was "a lot of activity" in the 3.625% convertibles, which trade outright.

The Vornado 2.85% convertibles saw "a couple of trades."

The securities will be purchased at $1,020 per $1,000 principal amount of 2026 debentures and $1,015 per $1,000 principal amount of 2027 debentures, plus accrued interest up to but excluding the purchase date.

The tender expires Sept. 30.

Mentioned in this article:

SanDisk Corp. Nasdaq: SNDK

Transocean Ltd. NYSE: RIG

Vornado Realty Trust NYSE: VNO

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