Goodyear treads higher ground; Toys "R" Us drops 0.375 points; Gateway off, BearingPoint up

By Ronda Fears

Nashville, Dec. 20 - Many convertible players have already headed off to grandma's, so to speak, for the holidays so volume was not terrific Monday, but merger news for Public Service Enterprise Group Inc. sent its mandatory up another 3.5 points. The onset of winter, which begins officially on Tuesday, helped push Goodyear Tire & Rubber Co. higher, too.

Meanwhile, it was looking rather bleak for some retailers as conflicting holiday shopping figures were not perceived well, one sellside trader said. Toys "R" Us Inc. had a big selloff, he said, and Gateway Inc.'s new convertibles were lower even as it announced an agreement to sell its personal computers at Circuit City.

BearingPoint Inc.'s new convertibles, however, were higher with the 2.5s up 1.5 points to 102.375 and the 2.75s up 1.625 points to 102.625.

There were no new issues launched, as expected, what with so many desks - buyside as well as sellside - having a light crew for the remainder of the year.

"The year is basically over," said one trader. "We're not expecting anything much to happen this week, or next."

Gateway issues off 1.125 points

Personal computer maker Gateway announced another move to expand retail sales of its PCs, this time at Circuit City, but traders said the new Gateway convertibles suffered as the health of PC sales came into question.

Beginning in January, Circuit City will begin carrying Gateway notebook and desktop PCs, continuing Gateway's focus this year to expand into retail chains outside its own "Gateway Country" stores. Earlier this year, Gateway signed retail deals with Best Buy and CompUSA.

Both new Gateway convertibles were down by 1.125 points with the 1.5s at 99.875 and the 2s at 99.375. Gateway shares on Monday lost 12 cents, or 2.04%, to close at $5.77.

"We don't know a lot about PC sales but the headlines don't look that good," said one buyside trader. "We were involved in the new deal because, frankly it was a new deal, and then [we] turned around and got out."

The PC industry has been described as on the decline, he said, with recent articles predicting consolidation amid slow sales.

Toys "R" Us sales feared low

Holiday sales in general are a point of contention, and Toys "R" Us saw a big selloff Monday.

One trader cited a headline from the Wall Street Journal online edition - "Gift shoppers hit the brakes on spending" - as cause for concern about Toys "R" Us. But, he said the real source of anxiety was that Toys "R" Us may have overshot its aim for toy sales this year, along with perhaps an over-zealous gain in its stock.

"Last year, TOY lost its throne to Wal-Mart so this year they stocked up big time, but now sales are not looking that good," he said. "Besides, now is a good time to take profits in TOY, before the final numbers come in and disappoint everyone. The stock is up over 60% year over year."

On Monday, retail researcher ShopperTrak said that holiday sales were down 7% to $6.7 billion on Saturday versus a year ago. MasterCard, however, reported a 9.2% increase in transactions over the past weekend compared with year-ago figures.

In August, Toys "R" Us said it was considering selling its toy business to focus on its Babies "R" Us division, so its 2004 holiday sales are expected to be a major factor in its decision.

Goodyear gains 2.125 points

Just as winter hits, with a snow storm dusting much of the East Coast, traders remarked about nice traffic in the Goodyear convertibles on Monday. One also mentioned speculation about assets sales at the tire company that could improve its performance.

Goodyear's 4% convertible added 2.125 points to 142.875 while the stock rose 32 cents on the day, or 2.25%, to close Monday at $14.56.

There has been speculation, a buyside trader said, that Goodyear will sell parts of its engineered products division, "and the value of these sorts of things - belts and hoses - could be significant, given a wide variety of potential buyers."

Moreover, he said, "Goodyear has turned the corner from big losses to profitability."

There are still rumors, too, he added, that Goodyear is planning to shut another plant, "but that has not gotten any traction yet."

PSEG adds 3.5 pts on buyout

Chatter from Friday that Public Service Enterprise Group, or PSEG, was being eyed by Chicago-based Exelon Corp. as a merger target was supported with a mega $13.2 billion deal announcement Monday. And, the PSEG mandatory shot up another 3.5 points after gaining 2 points on the buzz Friday.

The PSEG 10.25% mandatory due November 2005 climbed 3.5 points on the news to 65 bid, 65.75 offered, a sellside trader said. The issue closed on the New York Stock Exchange up 3.31 points, or 5.32%, to 65.55 on huge volume with 1.4 million units changing hands, versus the three-month running average of 101,876.

Merrill Lynch convertible analyst Tatyana Hube said in a report Monday that the all-stock merger should have no material effect on the PSEG mandatory from a credit, equity volatility or common dividend standpoint but noted that the conversion ratio will be adjusted by the transaction, if consummated before the issue's settlement date of Nov. 15, 2005.

Steven Fleishman, Merrill's utility analyst, said that the merger looked favorable, given significant cost reduction potential, diversification of geographic and regulatory risk and complementary expertise in nuclear operations as well as the potential restructuring of PSEG's merchant plants and international assets.

PSEG shares also rose sharply on the news, adding $3.29 on the day, or 6.96%, to end Monday at $50.56.

Wall Street watching bonuses

Instead of visions of sugarplums, this time of year often brings daydreams about bonuses to mind for many professionals in the financial markets. And reports indicate thus far that those employed at the major investment banks can be looking for a better stocking stuffer this year, maybe the best in three or four years.

"This is the time when people think about this stuff," one origination official said. "It's on the minds of many bankers at this time of year."

To be sure, however, analysts and traders are thinking about bonuses, also. But, they are perhaps a more skeptical class at the investment banks.

"Yeah, there was an article last week talking about how the bonuses are going to be big this year," said one trader. "That doesn't mean everyone's going to get a big fat bonus, though."

In a Wall Street Journal report on Friday, it was suggested that Goldman Sachs, Morgan Stanley, Lehman Brothers and other Wall Street firms may be paying the best year-end bonuses since 2000.

The article noted that the fund from which Goldman Sachs draws bonuses has risen 25% and at Lehman, the pool is up about 15%, while at Morgan Stanley those coffers are up by as much as 20%. Merrill Lynch bonuses could be 10% to 20% higher, the Journal said.

Brokerage firm bonuses rose only about 10% last year, the article said.

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