Gilead Sciences overnight $300 million convertible talked at 2.0-2.5% yield, up 20-25%

By Ronda Fears

Nashville, Dec. 12 - Gilead Sciences Inc. tossed an overnighter into the market, pitching $300 million of five-year convertible notes talked to yield 2.0% to 2.5% with a 20% to 25% initial conversion premium.

Goldman Sachs & Co. is sole lead manager of the Rule 144A deal.

Analysts put the deal about 4% cheap at the midpoint of guidance, which was not extremely cheap but interest was very high.

Traders said the new deal was bid 2.5 points over par and offered at 3.25 points over par in the gray market.

"I like it," said a convertible trader at a hedge fund in New Jersey.

"People always make money in this name."

Investors have already made money on Gilead Sciences' existing 5% convertible due 2007 and the shorter maturity of the new convert makes it more appealing.

Gilead's 5% convert was quoted unchanged at 164.375 bid, 165.125 asked. It is one of the few converts with a low premium, at 7.9%, and high delta, at 86.6%. Thus, traders said, the hefty price tag on it.

Gilead shares closed off 4c to $37.38 but were seen in after-hours trading at $35.75.

Wachovia Securities, Inc. convertible analysts put the new deal 4.12% cheap, using a credit spread of 550 basis points over Treasuries and 40% volatility in the stock.

Deutsche Bank Securities Inc. analysts put it 4.05% cheap, using a spread of 500 basis points over Libor and 45% volatility.

"Gilead entered the fourth quarter with roughly $625 million cash and equivalents on the balance sheet and appears to have turned the corner on an operating basis," the Deutsche analyst said in a new issue report Thursday.

The analyst noted Gilead showed operating income of $36 million in third quarter and $48 million for the nine-month period ending Sept. 30, with modest capex of $13 million for the nine months.

The five-year issue will be non-callable for 1.5 years, then with a 150% hurdle and make-whole provision. There is a $45 million greenshoe available.

The company, which specializes in HIV and other anti-viral drugs, plans to use proceeds to augment cash reserves in anticipation of the merger with Triangle Pharmaceuticals Inc. and general corporate purposes, including potential future product or company acquisitions, capital expenditures and working capital.

Gilead agreed to buy the smaller biotech firm earlier this month for $464 million cash, to boost its drug portfolio. The deal would reduce 2003 earnings, have no effect in 2004 and boost earnings in 2005 and beyond, the company said.

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