CKE, Triarc convertibles feel the bite from mad cow scare; Invitrogen shoots up on merger

By Ronda Fears

Nashville, Dec. 24 - The discovery of a cow in Washington state believed to be infected with the mad cow disease "Scrooged" the stock market on Christmas Eve, and the convertibles of CKE Restaurants Inc. and Triarc Cos. Inc. tumbled along with their stocks.

There were several biotech names that benefited from the prospects of more business due to a possible mad cow outbreak, but traders said none of them were in convertibles. Several biotechs were stronger on interest Wednesday, traders said, but due to news of their own in most cases, such as Invitrogen Corp.

"Really, trading in convertibles was practically nonexistent today, it's Christmas Eve," said one junior convertibles trader at a bulge bracket firm, noting that most senior traders in the market had taken the day off.

"We got a lot of calls, interest in some of the tech names that were getting slammed on the stock side, a few biotech names, and some food names because of the mad cow news. But we only traded a little bit, a tiny bit."

Another trader noted that there was a lot of buying interest in several names on the weakness from the mad cow scare.

"There was a CIBC note out saying that buying on mad cow dips has been a successful strategy in the past, and if there is a correlating drop in beef prices that will benefit the restaurants," the trader said.

"As is usually the case, the knee-jerk reaction to this type of news is overblown, so it's an opportunity to buy on the downdraft."

CKE Restaurants, which owns and franchises Carl's Jr., Hardee's and La Salsa Fresh Mexican Grill, and Triarc, which owns the Arby's chain, were two of the high-profile restaurant names in the convertible universe that got pressured from the news even though both companies said they were sure they were not affected by the Washington case.

In a prepared statement, CKE said: "We have confirmed that none of our beef suppliers purchased any meat products from the beef packer involved in the case in question."

Triarc's Arby's issued a similar statement, saying, "Arby's is confident that all Arby's' products remain unaffected by the recent case of BSE [bovine spongiform encephalopathy]. The company in Washington State, which has been named as the source of the infected cow, is not a supplier of Arby's beef."

Still, the stock was slammed and the convertibles marked down as well.

CKE's 4% convertible due 2023 lost 2.5 points to close at 101 bid, while the stock dropped 34 cents, or 5.4%, to $5.90.

Triarc's 5% convertible due 2023 dropped 1.5 points to 103 bid, 104.5 offered. The convertible is linked to a basket of Triarc Class A and Class B shares. The Class A shares ended Wednesday off 8 cents, or 0.72%, to $11.05, while the Class B shares fell 58 cents, or 5.3%, to $10.37.

Banc of America Securities had a research note out early Wednesday, however, suggesting that Sealed Air Corp. should be bought on any weakness as a result of the mad cow scare, noting that the company has a large presence in barrier bags for red meat and food packaging is 60% of Sealed Air's overall business.

The Banc of America equity analysts do not expect the same impact that was seen with the European mad cow outbreak in 2000 and 2001 because, among other things, the U.S. beef industry is very powerful and would likely act quickly to arrest any volume decline and American consumption of beef has benefited in recent years from trends like the Dr. Atkins low-carbohydrate diet.

Sealed Air stock dropped 60 cents, or 1.13%, to $52.36. The Sealed Air 3% convertible due 2033 lost 0.5 point to 104 bid 104.5 offered.

Invitrogen got a big shot in the arm from its acquisition of BioReliance Corp. for about $500 million, including debt assumption of $70 million. Invitrogen, which is involved in genetic research, said Wednesday the BioReliance acquisition will add drug testing and development to its business lines.

Too, Invitrogen estimated the transaction, which is expected to close in first quarter, would add 19 cents to its 2004 earnings per share before special charges.

Invitrogen's 2.25% convertible due 2006 rose 2.5 points to 104.75 bid, 105.25 offered, and the 2% convertible due 2023 added 5.125 points to 123.75 bid, 124.25 offered. The underlying stock gained $4.40, or 6.75%, to $69.55.

Elsewhere, traders mentioned Bunge Ltd., Flextronics Inc., Mesa Air Group Inc., Akamai Technologies Inc., Chesapeake Energy Corp. and Micron Technology Inc.

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