Bristol-Myers gains further on takeover rumors; Sunpower quiet amid borrow concerns; Kyphon plans deal

By Kenneth Lim

Boston, Jan. 30 - Bristol-Myers Squibb Co. continued to advance slightly Tuesday amid continuing speculation about a takeover of the company, but gains were muted by uncertainty as the company remained silent on the rumors.

Sunpower Corp.'s planned $130 million offering of 20-year convertible senior unsecured notes was quiet in the gray market, with some investors expressing reservations about the lack of a good stock borrow.

Meanwhile, Kyphon Inc. launched a $350 million two-tranche offering of five- and seven-year convertible senior notes, expected to price Wednesday after the market closes.

The convertible market remained sluggish on Tuesday with the month drawing to a close. A buyside convertible trader said the year has started on a strong note, estimating that convertibles could return 1% to 2% in January.

The positive month and current economic uncertainties have kept volumes thin so far this week, the trader said.

"There's a bit of uncertainty about interest rates and earnings...and it's been a pretty good January," the trader said. "I guess guys are just willing to wait a couple of days before they start moving again."

Bristol-Myers rises slightly

Bristol-Myers' Libor minus 50 basis points convertible due 2023 made modest gains of about 1/8 point outright on Tuesday, feeding off ongoing speculation about a possible takeover by Sanofi Aventis SA.

The convertible traded at 101 versus a stock price of $28.05. Bristol-Myers stock (NYSE: BMY) closed at $28.03, up by 2.19% or 60 cents.

"Bristol-Myers was a touch better," a sellsider said. "The market's hopeful, but there's still a big question mark about whether there really is a deal going on."

A French newsletter on Monday reported that drug makers Sanofi Aventis of France and New York-based Bristol-Myers had signed a pre-merger agreement. The two companies remained mum about the speculation on Tuesday.

A buyside convertible analyst said a deal could make sense for the two companies.

"It's been a theme for BMY for some time," the analyst said, referring to rumors of Bristol-Myers looking to sell itself. "I don't think a deal, if it materializes, is going to surprise many people."

The analyst said a takeover was unlikely to affect Bristol-Myers' credit significantly.

"Both of the companies have solid credit," the analyst said. "There's a good chance that Sanofi may have to borrow money to pay for Bristol-Myers if it wants to buy it, and that will be slightly negative for its credit."

"I think some people are also hoping that if a deal is announced, that you might also get a bidding war for BMY," the analyst added. "But I think most guys are just waiting to see how this will play out. It's definitely interesting, but nobody knows if the speculation is true. And even if it is, how long will you have to wait before an announcement comes out and then how long before the takeover is completed?"

Sunpower clouded by borrow

Sunpower's planned $130 million of 20-year convertible senior unsecured notes did not draw any bids in the gray market on Tuesday, with talk of a tough stock borrow making the rounds.

"Unfortunately you're talking about a total return swap, because they had to create a borrow facility," a buysider said. "And it's not priced that great."

The convertible is expected to price Thursday after the market closes, and is talked at a coupon of 1.25% to 1.75%, and an initial conversion premium of 25% to 30%. It will be offered at par. Sunpower stock (Nasdaq: SPWR) closed at $44.98 on Tuesday, higher by 1.53% or 68 cents.

There is an over-allotment option for a further $19.5 million in the registered off-the-shelf offering.

Lehman Brothers and Credit Suisse are the bookrunners.

Sunpower is concurrently lending an unspecified number of shares of its common stock for a separate stock offering that will be used for a stock borrow facility.

Sunpower, a San Jose, Calif.-based maker of solar electric power products, said the proceeds of the deal will be used for general purposes.

"You're just loaning management stock on swap, and so you have a 100% delta on that, then you put in for the stock to put in for your delta, by the time you do all of that...I just think it's not worth the machinations," the buysider said.

The buysider said the deal will probably get done, regardless of the borrow issues.

"Lehman is really good at placing a deal," the buysider said. "They'll probably call some guys with a few gazillion dollars and get it done."

Kyphon launches deal

Kyphon on Tuesday announced a $350 million offering of five- and seven-year convertible senior notes expected to price Wednesday after the market closes.

The $175 million five-year series is talked at a coupon of 0.75% to 1.25%, while the $175 million seven-year series is talked at a coupon of 1% to 1.5%. The initial conversion premium will be 20% to 25% for both tranches.

Each tranche has an over-allotment option for a further $25 million.

Goldman Sachs, JP Morgan and Banc of America are the bookrunners of the Rule 144A offering.

Kyphon, a Sunnyvale, Calif.-based maker of spinal medical devices, said it will use the proceeds of the offering to retire part of a $425 million senior syndicated bank term loan that it used to buy St. Francis Medical Technologies. It will also use the proceeds to fund convertible hedge and warrant transactions.

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