Virgin Media adds on merger talk; Alliant up; Bottomline expands on way down; Micron eyed

By Rebecca Melvin

New York, Feb. 5 - Virgin Media Inc.'s convertibles traded sharply higher outright and added a couple of points on a hedged basis Tuesday amid reports that the New York-based provider of communication services in the United Kingdom is in talks to be taken over by Liberty Global Inc.

The Virgin Media convertibles started out at more than double par, and traded up to 250 before being seen last at 247.

Holders are expected to convert out of the bonds into shares if the takeover gets done.

Earnings news in Alliant Techsystems Inc. caused that company's 3% convertibles to move up in line with the underlying shares of the Arlington, Va.-based defense company after it posted quarterly earnings that beat estimates.

Bottomline Technologies Inc. dropped outright, but expanded on the way down, after the Portsmouth, N.H.-based software company reported earnings that were also a beat. Bottomline shares fell 4.7%.

In primary market action, Micron Technology Inc. launched an offering of $440 million of 20-year convertible senior notes in two evenly divided tranches after the market close Tuesday that were seen pricing after the market close on Wednesday.

After a small retrenchment on Monday, equities resumed their rally higher on Tuesday. The Dow Jones industrial average ended up 99.22, or 0.7%, at 13,979.30; the S&P 500 stock index gained 15.58, or 1%, to 1,511.29; and the Nasdaq Stock Market pushed higher by 40.41 points, or 1.3%, to 3,171.58.

Virgin jumps on merger talk

Virgin Media's 6.5% convertibles due 2016 traded up more than 30 points outright and were seen last at 247.

Shares traded actively and climbed $6.92, or 18%, to $45.61.

The pricing represented an expansion of about 2 points on a swap basis, a Chicago-based trader said during the session.

The bonds are callable and there is a takeover matrix.

One trader said the increase in the convertibles was due to the increase in their conversion or parity value.

A second trader said that if the deal gets done, it will likely include a "kiss" of some extra stock to the conversion ratio, and holders are likely to convert out of the bonds into shares.

"There will be some kind of kiss; they'll get a little more in a cash takeover," he said.

Virgin Media, which is worth more than $10 billion, confirmed it was in talks with Liberty Global Inc.

A deal may be announced late Tuesday or Wednesday.

Virgin Media is the No. 2 pay television operator in the United Kingdom and has almost 5 million customers.

Liberty Global, based in Englewood, Colo., focuses on broadband markets outside of the U.S. and has networks in 13 countries, mainly in Europe.

In June 2011, Liberty Global tendered for 99.8% of its $935 million of 4.5% convertibles that were due in 2015.

Alliant in line to higher

Alliant Techsystems' 3% convertibles due 2024 traded at 107.227, which was up 1.227 points on the day on an outright basis.

Shares ended the session at $65.22, which was up $1.67, or 2.6%.

On Monday, the paper traded 106.07 likely against an underlying share price of $63.67.

On hedge it was flattish if the name was held on a 40% delta, a New York-based trader said during the session. After the market close, a second New York-based trader said the Alliant convertibles expanded slightly on a hedged basis.

"They were up small, by maybe 0.25 point on the day," the trader said.

The convertibles have picked up some delta as the shares rose. It had been held on a 25% to 30% delta previously.

The paper breaks even at 121 with a $95 stock price.

Alliant said it earned $63.2 million, or $1.93 per share, for its fiscal third quarter, up from $49.7 million, or $1.51 per share, in the same quarter a year earlier. Excluding one-time items, the company posted an adjusted profit of $1.84 per share, down from $2.03 per share a year earlier.

Revenue fell 5% to $1.06 billion.

The results beat estimates which were for profit of $1.71 per share on revenue of $1.01 billion.

The aerospace and defense contractor said aerospace sales were flat at $301 million, while sales at its defense business fell 18.4% to $467.5 million. Sales in the sporting group jumped 18% to $287.6 million helped by higher sales volume and selling prices of ammunition.

Alliant also raised its 2013 profit and revenue outlook. For the full year, Alliant now expects to post a profit of $7.90 to $8.10 per share, up from its previous estimate of $7.40 to $7.70 per share. Revenue is expected to rise to $4.25 billion to $4.3 billion, up from a previous range of $4.1 billion to $4.2 billion. Analysts had been expecting profit of $7.68 per share on $4.21 billion.

Bottomline expands on way down

Bottomline's 1.5% convertibles due 2017, which priced in December, were seen at 115.8, which was down 3 points outright, but it expanded a bit on the way down.

Bottomline shares fell $1.35, or 4.7%, to $27.55 in active trade.

One trader familiar with the name said that the convertibles expanded by 0.375 point to 0.5 point on the day, following lower early prints.

A second trader said, "EPAY looks up about 80 to 90 cents."

The Portsmouth, N.H.-based business-to-business software company reported earnings after the market close Monday that beat profit estimates by 10 cents and beat on revenues.

Micron to price

Boise, Idaho-based chip maker Micron said after the market close Tuesday that it planned to price $440 million of 20-year convertible senior notes in two tranches in a Rule 144A offering.

Morgan Stanley & Co. LLC, Goldman Sachs & Co. and J.P. Morgan Securities LLC are the joint bookrunners of the deal.

The first tranche, referred to as the E notes, is for $220 million and was talked to yield 1.75% to 2.25% with an initial conversion premium of 32.5% to 37.5%.

The second tranche, referred to as the F notes, is also for $220 million and was talked to yield 2.125% to 2.625% with a premium of 32.5% to 37.5%.

There is a $30 million greenshoe for each tranche.

The E notes are non-callable for five years and freely callable thereafter, with investor puts in years five and 10.

The F notes are non-callable for seven years and freely callable thereafter, with investor puts in years seven and 10.

Micron plans to enter into capped call transactions with counterparties in connection with the convertibles.

Proceeds will be used to redeem part of Micron's 1.875% convertible senior notes due 2014 and for investments.

Mentioned in this article:

Alliant Techsystems Inc. NYSE: ATK

Bottomline Technologies Inc. Nasdaq: EPAY

Micron Technology Inc. NYSE: MU

Virgin Media Inc. Nasdaq: VMED

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