WaMu bringing big deal; A&P watching P's & Q's; Millennium up on drug tests; MGI up on merger

By Evan Weinberger

New York, Dec. 10 - Millennium Pharmaceuticals Inc. was up on positive results for a new drug, and MGI Pharma Inc. surged on takeover news Monday.

Horizon Lines Inc. convertibles were down on an analyst downgrade.

Suntech Power Holdings Co. Ltd. convertibles ended Monday higher.

The big news in convertibles came in new deals Monday. Washington Mutual, Inc. launched $2.5 billion in convertible perpetual preferred stock talked at a dividend of 8% to 8.5% and an initial conversion premium of 18% to 23% Monday after the market close. The deal is part of a major restructuring due to the bank's losses in the subprime mortgage market.

The registered transaction has a $375 million over-allotment option.

The deal is expected to price Tuesday after the market close.

Seattle-based Washington Mutual also announced around $1.2 billion in cost-cutting measures and layoffs as well as a reorganization of its mortgage lending unit due to big losses in its subprime lending.

The Great Atlantic & Pacific Tea Co., Inc. (A&P) launched a total of $380 million in convertible senior notes in two tranches Monday. The first tranche of $150 million in convertible senior notes will mature in 2011. The second tranche of $230 million will mature in 2012.

Banc of America Securities LLC and Lehman Brothers are joint bookrunners of the registered transaction, which is meant to pay down the remaining debt on a bridge loan established to finance the acquisition of Pathmark, which closed on Dec. 3.

The registered transaction is expected to hit the tape Thursday. No price talk was available as of press time.

The 2011 tranche will have a $15 million over-allotment option, and the 2012 convertibles will have a $25 million greenshoe.

And A&P announced a series of convertible hedge and warrant transactions, complete with possible derivative spin-offs, along with a stock lending agreement as part of the deal.

Cash injections from private and foreign sovereign sources and the expectations of a Federal Reserve rate cut Tuesday pushed stocks up strongly Monday.

The Dow Jones Industrial Average closed at 13,727.03, a gain of 101.45 points, or 0.74%.

The Nasdaq picked up 12.79 points, or 0.47%, to close at 2,718.95.

The Standard & Poor's 500 added 11.30 points, or 0.75%, to close at 1,515.96.

Market watchers said waiting for the Fed's announcement Tuesday kept convertibles trading at a solid, if unspectacular, pace on Monday.

WaMu coming to market

With a combination of $2.5 billion in convertible perpetual preferred stock and a raft of cost-cutting measures, Washington Mutual is trying work its way out of the subprime mess.

After a $1.5 billion to $1.6 billion write-down on its outstanding loans, Washington Mutual announced that it was significantly cutting back its lending activities, including a full stop on all subprime mortgages.

The company announced that it will discontinue issuing subprime mortgages and close 190 of 336 home loan centers and sales offices as well as nine home loan processing and call centers.

All in all, there will be more than 3,000 jobs cut in the lending, corporate and support areas and Washington Mutual Capital Corp., WaMu's institutional broker-dealer business, and the company's mortgage banker finance warehouse lending operation will be closed.

Finally, Washington Mutual announced that it was decreasing its quarterly dividend by 15 cents to 56 cents per share for the fourth quarter.

"A substantial infusion of new capital, significant expense reductions, the major change in our home loans business, and our planned dividend reduction all combine to further fortify WaMu's strong capital and liquidity position," WaMu chairman and chief executive officer Kerry Killinger said in a statement.

Unlike its hawking of free checking on television, WaMu had better be ready to pay.

"It models out pretty cheap," one sellside analyst said, adding that the deal is probably going to have to.

Washington Mutual stock (NYSE: WM) closed up 85 cents, or 4.47%, at $19.88 on Monday.

After-hours trading following the cost-cutting and capital raising plans came to light was a different story. A little before 6 p.m. ET, the stock was down $1.55, or 7.80%.

A&P deal better watch its P's & Q's

A&P hasn't released any talk yet about its $380 million in convertible senior notes to be issued in two tranches later this week. But one aspect of the deal raised at least one set of eyebrows.

As part of the deal, along with convertible hedge and warrant transactions, A&P entered into a stock lending agreement.

With only 19.5 million out of 42 million existing shares traded publicly, the stock is already a tough borrow, the analyst said. He was quoting numbers from Bloomberg.

"Things that can't be borrowed can't widen out. They just keep getting cheaper," he said, which may drive away hedge funds. "The terms better be damn good, that's all I can say, because there's an extra element of risk"

A&P originally announced that it would issue up to $450 million in convertibles, senior secured high-yield bonds or a combination of the two. A&P was able to reduce the bridge loan from the Pathmark transaction, which closed on Dec. 3, to $380 million through the sale of shares in Canadian supermarket chain Metro Inc.

A&P opted for convertibles because the company found they provided better covenant flexibility and substantial interest savings.

A&P is a Montvale, N.J.-based supermarket chain, and manages A&P, Pathmark, Waldbaum's, the Food Emporium and other supermarkets. Along with financing the Pathmark deal, A&P plans to use the proceeds to pay for the hedge and warrant transactions.

Millennium up on new drug hopes

Cambridge, Mass.-based cancer drug maker Millennium had a strong trading day after it revealed at a weekend blood disorder conference that its drug Velcade quadrupled complete remission rates for multiple myeloma patients in late-stage studies.

Multiple myeloma is an often fatal cancer that affects the blood and bone marrow.

On the strength of those tests, Millennium's 2.25% convertible senior notes due Nov. 15, 2011 closed Monday at 122.264 versus a closing stock price of $15.99. They closed Friday at 116.824 versus a stock price of $15.07.

Millennium stock (Nasdaq: MLNM) moved up 92 cents, or 6.10%, on Monday.

Eisai buys MGI

Tokyo-based Eisai Co., Ltd. announced Monday morning that it agreed to a merger with Bloomington, Minn.-based cancer drug maker MGI Pharma Inc. for a total of $3.9 billion.

The $41 per share deal represents a 23% premium over MGI's closing stock price on Friday.

Eisai is a pharmaceutical company that focuses on neurology, gastrointestinal disorders, oncology and critical care.

The merger is expected to close by the end of the first quarter of 2008.

The deal met with roaring approval from investors.

MGI's 2.25% convertible cash to zero senior subordinated notes due March 2, 2024 closed Monday at 94.9379 versus a closing stock price of $40. They closed Friday at 82.9353 versus a stock price of $33.45.

MGI stock (Nasdaq: MOGN) surged $6.55, or 19.58% on Monday.

Horizon slips on downgrade

Charlotte, N.C.-based shipping firm Horizon Lines lost ground Monday after a JPMorgan analyst downgraded the company over concerns about growth in two key markets.

Horizon's 4.25% convertible senior notes due Aug. 15, 2012 closed Monday at 83.8978 versus a closing stock price of $17.87. They closed Friday at 85.8142 versus a stock price of $19.12.

Horizon stock (NYSE: HRZ) fell $1.25, or 6.54%, on the day.

Suntech looks bright

Wuxi, China-based solar power components producer Suntech Power's 0.25% convertible senior notes due Feb. 15, 2012 closed Monday at 181.528 versus a stock price of $83.11. They closed Friday at 176.193 versus a stock price of $80.31.

Suntech Power stock moved up $2.80, or 3.49%, on the day.

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