DOV gains on delisting speculation; Nabors slips amid buyout rumors; Harrah's lower with stock

By Kenneth Lim

Boston, Oct. 11 - A lack of significant news and a fair bit of speculation gave the convertible bond market little to get excited about on Wednesday, although DOV Pharmaceutical Inc.'s convertibles gained amid speculation over whether the company will offer a package to avoid having to redeem them at par.

Nabors Industries Ltd. remained active, but slipped with the stock, which corrected a day after rumors emerged on the potential for a leveraged buyout.

Harrah's Entertainment Inc. retreated with the stock after reports emerged that the private equity firms bidding for the company raised their cash offer.

American Express Inc. continued to be active as the stock neared the conversion price amid a slew of upgrades.

The market in general had a lackluster session on Wednesday as investors faced a dearth of significant market-moving news.

"It's fairly quiet," a buyside convertible bond trader said.

DOV climbs on tender hopes

DOV's 2.5% convertible due 2012 gained about 8 points outright on Wednesday as the company faced pressure to stave off threats of delisting and possible technical defaults.

The convertible traded at 46.48 against a stock price of 71 cents, climbing back from a comparable drop on Tuesday. DOV stock (Nasdaq: DOVP) closed at 70 cents, a 7.93% or 6-cent decline.

"Basically they've been lower based on the news, and it's now whether or not the company will give some kind of a payout to get rid of these bonds," a sellside convertible bond trader said.

Somerset, N.J.-based DOV said Tuesday that it had appointed HSBC Securities to help identify strategic options, and that it planned to reduce its cash burn by refocusing its research strategy. The drug maker is also scheduled to meet with Nasdaq on Oct. 19 to address its listed status - the stock continues to trade below the $1 minimum for listing after the company faced problems getting approval for its painkiller bicifadine and sleeping pill Indiplon.

"They're cutting their cash expenditure, and looking for a partner for their late-stage stuff," a sellside convertible analyst said. "They have about four quarters of cash to go, so if they can stretch that it would be good...If they get delisted from Nasdaq, it would trigger the put at par, and they don't have the cash right now to meet that."

The convertible trader said investors were speculating about how the company will address the concerns of bondholders, who could threaten to put the bonds back if the company is delisted and defaults on the paper.

"People are looking for a way out of these things," the trader said.

Although DOV currently does not have enough cash to meet its obligations if all the convertibles are put at par, it could still manage to raise additional cash depending on how its strategic review turns out. And convertible holders may be willing to accept offers lower than par if those offers seem like reasonable exits, the trader said.

"They can be put at par, but what if they bought it back at 80 or 70?" the trader said. "I think people would sell them."

Nabors slips with stock

Nabors' 0.94% convertible due 2011 was flat to a quarter-point lower outright on Wednesday as rumors of leveraged buyout potential continued to make their rounds.

The convertible changed hands at 95.3 versus a stock price of $29.63 on Wednesday. Nabors stock (NYSE: NBR) fell 1.96% or 59 cents to close at $29.57.

"We saw a fair bit of activity in Nabors," a buyside convertible bond trader said.

Bermuda-headquartered Nabors rallied on Tuesday amid unconfirmed rumors that the company could be the target of a leveraged buyout. Nabors, a land drilling contractor for the oil and gas industry, has not commented on the rumors. Market sources said those rumors received a closer look than usual after casino operator Harrah's Entertainment recently received a multibillion-dollar leveraged buyout offer from two private equity firms.

"It's all still rumors at this stage," a convertible analyst said. "People think that Nabors is undervalued, so it's not hard to imagine that someone might find it an attractive target. Regardless of whether the rumors are true, I think some people are going to be closer look at the valuation of the company."

Standard and Poor's equity analyst Stewart Glickman on Tuesday maintained a four-star rating on Nabors stock, saying he "would not be surprised by such a move."

Nabors stock is down 20% year to date, and the forward multiples have also shrunk on concerns about a slowdown in land drilling in the United States, Glickman wrote. But the company's fundamentals are strong, and its international business is growing, Glickman added.

Harrah's lower with stock

Harrah's floating-rate convertible due 2024 ended modestly lower on Wednesday as the stock slipped on concerns about whether a buyout offer will be completed.

The convertible was marked at 121.875 against the closing stock price of $76.34. Harrah's stock (NYSE: HET) closed at $76.34, lower by 0.07% or 5 cents.

"I think there's some concern about the deal even though they said they raised the offer," a sellside convertible bond trader said. "Even if they accept the deal, it'll take some time for the deal to be completed."

Reports on Wednesday said private equity firms Apollo Management Group and Texas Pacific Group raised their cash offer for Harrah's to between $83 and $84 per share, from the earlier offer of $81 per share. At that new price, the offer would be valued at over $15.5 billion, from the earlier $15.05 billion amount.

Las Vegas-based Harrah's on Tuesday was also sued by two shareholders who want the courts to block the deal and force the company to seek more deals. The shareholders, who want class-action status for their suit, say the offer is not enough and is timed to take advantage of the gaming company's low stock price.

American Express sees interest

American Express's 1.85% convertible due 2033 and callable in December was better bid on Wednesday as the stock continued to hover near the conversion price.

The convertible traded at 102.625 against a stock price of $57.50 on Wednesday, while American Express stock (NYSE: AXP) closed at $57.45, down by 0.36% or 21 cents.

"There were better buyers all round," a buyside convertible bond trader said. "It's a unique bond because it's got some warrants that kick in...once the stock hits $60.50, you get additional shares of stock."

Shares of New York-based American Express rallied on Tuesday after equity analysts at Merrill Lynch and Piper Jaffray raised their price target on the common, citing optimism about consumer spending.

Even news on Wednesday of rival credit card company Visa's plans for an initial public offering was seen as a possible positive development for American Express. UBS equity analyst Eric Wasserstrom said listing will make Visa less likely to aggressively cut interchange fees, which will benefit American Express.

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