Morning Commentary: Depomed convertible bonds lose ground amid takeover talk; election still eyed

By Stephanie N. Rotondo

Seattle, Nov. 3 – A convertible bond trader said Depomed Inc. was Thursday’s nom du jour, as it was reported that more companies are considering making a takeover bid for the pharmaceutical company.

The trader said the 2.5% convertible notes due 2021 were “down a lot,” seeing a pre-market trade of 140, then trading as low as 133 when the market opened.

He saw an early market of 139.75 bid, 140.25 offered against a stock price of $24.00.

“[The convertibles] are trading like they will be taken over,” he noted.

The stock underlying the debt was up marginally at mid-morning, adding just a nickel.

Mallinckrodt plc and Daiichi Sankyo Co. are reportedly considering making a bid for the Newark, Calif.-based Depomed, Bloomberg reported Thursday. Shionogi & Co. is also thinking about making a bid or partnership offer, the article stated, and private equity firms could also throw their hats in the ring.

Depomed said in September that it was working with Morgan Stanley on a possible sale, after fighting off a nearly $3 billion hostile bid from Horizon Pharma plc last year. Hedge fund investor Starboard Value LP has said the company is “extremely attractive” as a takeover target and has fought back against what it has deemed “egregious” takeover defenses.

Away from Depomed, a trader said liquidity in the convertible bond market continued to be constrained.

“Everyone is waiting for this election still,” he said.

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