Depomed surges after activist letter to the board; Yahoo! richens on deal chatter

By Rebecca Melvin

New York, April 8 – Depomed Inc.’s convertibles surged in active trade on Friday after the Newark, Calif.-based specialty pharmaceutical company and Starboard Value LP disclosed that the investor holds a 9.8% ownership stake in the company and is pushing for better execution and capital allocation, removal of the board and potentially a sale of the company.

Depomed’s 2.5% convertibles jumped about 9 points on an outright basis to 109.125 and expanded on a dollar-neutral, or swap, basis by about 2.5 points, a New York-based sellsider said.

Depomed shares were up $1.87, or 12.5%, to $16.87.

Yahoo! Inc.’s 0% convertibles due 2018 also traded actively and richened about 0.25 point on swap on the day amid headlines that a potential deal may be solidifying for the web assets of the Sunnyvale, Calif.-based internet search, content and communications company, a New York-based trader said.

“There was more news about there being some form of a deal. Whether the headlines are true or not, they strengthen the idea that someone is going to buy Yahoo!,” the trader said.

There were many news reports on the subject following Bloomberg’s news article late Thursday, which said that Verizon Communications Inc. plans to bid for Yahoo! next week. It makes sense for Verizon, which also owns AOL, and the fact that it is willing to also buy Yahoo Japan Corp. to help sweeten the deal, according to the Bloomberg report.

Meanwhile, SanDisk Corp.’s convertibles traded up in line, or flat, on a swap basis after a report that the equity deal spread related to the Western Digital Corp. deal has collapsed and that the merger remains in a holding pattern, a New York based trader said.

Both SanDisk issues responded to that story, the trader said. SanDisk’s 0.5% convertibles due 2020 traded last at 104.2, which was up from 103.625 on Thursday. The SanDisk 1.5% convertibles due 2017 traded in the range of 157.75 to 158.375, which was up from 157.64 on Thursday.

SanDisk shares were down 9 cents at $76.25.

Elsewhere, there were “incremental improvements in technology and other sectors, like energy, he said. Things may be incrementally better, but health care is far and away the outperformer in the convert space, he said.

He noted that MicroChip Inc. was trading a little bit, and LinkedIn Corp. saw some long-only buyers stepping in as shares slipped on negative headlines about the slipping job market hurting the job-related social media site. “But Yahoo!, Depo and SanDisk were the three of the day,” the trader said regarding the three most active and closely watched issues.

Depomed surges

Depomed’s 2.5% convertibles due 2021 traded up 9 points on an outright basis to 109.125 and expanded on a dollar-neutral, or swap, basis by about 2.5 points, a New York-based sellsider said.

Depomed shares were up $1.87, or 12.5%, to $16.87.

In a letter delivered to Depomed’s chief executive and board of directors, Starboard wrote that it believes significant opportunities exist to create value and that it was seriously concerned about what it sees as corporate governance deficiencies. It is also disappointed about a reincorporation proposal at the 2016 annual meeting to change the company’s incorporation to Delaware from California. Starboard said it sees this change as an effort to entrench the board.

The Starboard letter also referred back to the unsolicited offer from Horizon Pharma plc last summer to acquire all of the outstanding shares of Depomed in an all-stock transaction for $29.25 per share, which represented a 42% premium to the closing share price of $20.64 on July 6.

Depomed stock reached a high of $33.74 on July 21, following Horizon's final offer of $33.00 per share. But since then, Depomed’s stock price has declined 56%, resulting in significant losses for shareholders, the Starboard letter pointed out.

On Thursday, Depomed’s 2.5% convertibles ended the session at 99.5 bid, 100.25 offered, with the underlying shares at $15.00.

Shares of the Newark, Calif.-based specialty pharmaceutical company, which develops and sells pain products, started lifting on Wednesday. As for the convertibles, the bonds were up from about 97 on Wednesday and trades as low as 94 on that day.

Depomed develops and commercializes products for pain and disorders of the central nervous system.

Yahoo! adds dollar neutral

Yahoo!’s 0% convertibles due 2018 traded just under par at 99.6 on Friday. That was up about 0.25 point to 0.375 point and up about 0.25 point on swap.

Yahoo! shares were off 11 cents, or 0.3%, at $36.00.

In addition to Verizon, Alphabet Inc.’s Google is also said to be considering a bid for Yahoo! as are private equity firms TPG and Bain & Co., and Softbank Group Corp., which owns Yahoo! Japan and also 80% of Sprint. Time Inc. may also be considering a deal, according to the Bloomberg report.

Yahoo! has extended the deadline for first-round bids by a week to April 18.

Mentioned in this article:

Depomed Inc. Nasdaq: DEPO

SanDisk Corp. Nasdaq: SNDK

Yahoo! Inc. Nasdaq: YHOO

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