Equity Office gains slightly; Medtronic unchanged after rally; Acquicor set price talk

By Kenneth Lim

Boston, Nov. 22 - The convertible bond market had a quiet session on Wednesday, with investors distracted by the long Thanksgiving break ahead.

There were no big movers, but names that were active earlier in the week continued to trade on momentum, with Equity Office Properties Trust inching slightly higher in the wake of a buyout bid.

Medtronic Inc. was mostly unchanged a day after the convertible and stock rallied on the back of stronger-than-expected results.

Meanwhile, Acquicor Technology Inc.'s planned $100 million offering is expected to price at a high coupon range of between 8% and 8.5%, prompting some analysts to take a closer look at the deal.

The market in general was in no mood for work on Wednesday.

"A lot of people have slipped out the side door already today," a sellside convertible bond analyst said.

A convertible bond trader said there were no significant moves among convertibles.

"It's dead," the trader said. "There's nothing necessarily to report...there's more goofing around going on here than anything."

Equity Office gains further

Equity Office's 4% convertible due 2026 rose just under a point outright on Wednesday, two days after the company became the target of a buyout offer.

The convertible changed hands at 119.25 against a stock price of $48.50. Equity Office stock (NYSE: EOP) closed at $48.58, up by 0.12% or 6 cents.

"Takeover names like that continue to trade," a sellside convertible bond trader said.

Chicago-based Equity Office, a real estate investment trust focusing on office property, said earlier in the week that private equity firm Blackstone Group was offering $48.50 in cash per common share to take the REIT private. Blackstone also will call the company's 5.25% convertible preferred and its 7.75% preferred at par plus accumulated and unpaid dividends.

"There's nothing new there," a sellside convertible bond analyst said. "The prices continue to be set by Blackstone's offer, which makes the converts roughly fair value at this point."

The analyst said it remains to be seen whether the deal will be approved.

"It looked like a reasonable offer," the analyst said. "But some shareholders may feel that the premium wasn't good enough."

Medtronic flat

Medtronic's convertibles continued to be active on Wednesday but stayed mostly unchanged from the top of Tuesday's rally.

The Medtronic 1.5% convertible due 2011 traded at 106.125 against a stock price of $53.50, while the 1.625% convertible due 2013 traded at 106.375 versus the same stock price. Medtronic stock (NYSE: MDT) rose 0.6%, or 32 cents, to close at $53.87.

"We did see some of those trading, but they didn't move much," a buyside convertible bond trader said. "Although at this price it's pretty good if you got it when they issued the convert at the start of the year."

The Medtronic convertibles gained about 5 to 6 points on Tuesday after the company's fiscal second-quarter profit was higher than expected. Sales of implantable cardioverter defibrillators were also surprisingly strong, and the company said it gained market share over its rivals.

Medtronic is a Minneapolis-based maker of medical devices.

Acquicor to price offer

Acquicor's $100 million offering of five-year convertible senior notes is talked at a coupon of 8% to 8.5% and an initial conversion premium of 25% to 30%, market sources said.

The notes will be offered at par.

There is an over-allotment option for a further $15 million.

CRT Capital Group is the bookrunner for the Rule 144A offering.

Acquicor is a Newport Beach, Calif.-based blank-check company formed to acquire technology businesses. It is buying specialty wafer maker Jazz Semiconductor for $260 million and will use the proceeds of the offering to help fund the acquisition. The proceeds will be placed in an escrow account pending approval by shareholders. If the merger is not approved by May 31, 2007, the notes will be redeemed at par.

Acquicor's current lack of a business and the high coupon had some analysts doing a double take. A sellsider, who quipped that the high coupon range was "crazy," joked that the offering may trade as well as FiberTower Corp.'s 9% convertible senior notes due 2012.

FiberTower's offering priced late October and shot up more than 10 points on its first day of trading.

A sellside convertible bond analyst said that, at first glance, the deal may have to be priced cheap to get investors interested.

"There's quite a bit of risk involved in a blank check company," the analyst said. "It all comes down to how much confidence you have in the ability of the managers to find a good company, and where you think the company being acquired is heading."

But an 8.25% coupon may be enough to win some investors over, the analyst said.

"With an 8.25% coupon at the mids, I wouldn't be surprised if some investors will think it's worth the risk," the analyst said.

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