3M overnight $500 million proceeds convertibles talked to yield 0.25% to 0.75%, up 36% to 40%

By Ronda Fears

Nashville, Nov. 14 - 3M Co. jumped into the market late Thursday pitching $500 million in proceeds of 0% convertibles with guidance for a 0.25% to 0.75% yield and a 36% to 40% initial conversion premium.

Merrill Lynch & Co. is lead manager of the Rule 144A deal.

The deal, while described by many in the market as priced aggressively, was last seen in the gray market at 0.375 to 0.625 over issue price.

3M shares closed up $1.32 to $130.

"It's expensive but it's bid up," said a convertible trader at a hedge fund in New Jersey.

Everyone is scrambling to participate, the trader said, "but sometimes it can come back to bite you."

Deutsche Bank Securities put the deal 0.8% rich to 1.3% cheap, using a credit spread of 25 basis points over Libor and 27% volatility in the stock.

Indications were that it would be a wild home run, though.

"Demand can artificially inflate new deal valuations," said a source familiar with the deal, noting that valuations on new issues recently have become "a new art form."

"Volatility is the wild card. People are trying to outguess the market. But it seems in general that people are willing to pay more for volatility."

3M said proceeds of the deal would to toward general corporate purposes.

Earlier this week, the manufacturing giant agreed to buy Corning Inc.'s television lens business for about $850 million.

The 3M issue will mature in 30 years and is non-callable for five years.

There are puts in years three, five, 10, 15, 20 and 25.

Continent conversion and contingent payment triggers are set at 130%.

There is a greenshoe available for $50 million in proceeds.

The deal is expected to be rated AA by Standard & Poor's and Aa1 by Moody's.

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