Merrill Lynch suggests DoubleClick convertible holders exercise change-of-control put

Nashville, April 25 - Merrill Lynch & Co. convertible analysts said in a report Monday that holders of the $135 million of DoubleClick Inc. zero-coupon convertibles should exercise the put on the issue as a result of the company accepting a $1 billion takeover offer from private equity firm Hellman & Friedman LLC.

On Monday, DoubleClick announced a definitive agreement to be acquired by Hellman & Friedman, a San Francisco-based private equity firm, in an all-cash transaction valued at $8.50 per DoubleClick share, or $1.1 billion. Investing alongside Hellman & Friedman will be JMI Equity, a San Diego-based venture capital firm. The transaction is expected to be completed in third quarter.

The news sent DoubleClick's convertible higher, although the stock lost 45 cents on the day, or 5.25%, to close Monday at $8.12.

Merrill convertible analyst Tatyana Hube said in the report that compared to the cash value of the convertibles - $647.96 per note - based on the Hellman & Friedman offer, it would make more sense to exercise the par put triggered by the change in control. The $8.50 offer price is well below the conversion price of $13.12 on the convertible, so the conversion value of $647.96 is based on the 76.2311 conversion ratio.

Prior to the anticipated Hellman & Friedman's cash bid for DoubleClick, the 0% convertible was seen trading at about 86.75, and Merrill estimated the theoretical value of the issue at about 86.4 versus a $7.35 stock price, using a credit spread of 370 basis points over three-year Treasuries and a 35% volatility.

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