HomeAway expands on takeout news; FireEye drops after revenue disappointment

By Rebecca Melvin

New York, Nov. 5 – HomeAway Inc.’s 0.125% convertible bond was the centerpiece of trade in the convertibles market on Thursday, and that paper jumped on an outright basis and expanded on swap after news that Expedia Inc. has agreed to buy the vacation rental site for $3.9 billion in cash and stock, a New York-based trader said.

HomeAway’s convertible was the single-most actively traded bond during the session, according to Trace data.

FireEye Inc. was also in focus after its underlying shares collapsed on news that the Milpitas, Calif.-based network security company missed revenue expectations for the third quarter and provided weaker guidance for the current quarter.

Both FireEye convertible bonds dropped on an outright basis amid a 23% plunge in the underlying common shares. But it wasn’t known how they performed relative to shares on a swap basis. Both issues contracted on a swap basis by about 0.25 point on Wednesday.

Elsewhere, earnings news drove other trading action as well. Alere Inc.’s 3% convertibles due 2016 traded at 106.2, according to Trace data, as shares fell 9% after the Waltham, Mass.-based diagnostics and services company missed earnings and revenue estimates for its third quarter and guided full-year earnings and revenue below consensus.

Moving in the opposite direction was MercadoLibre Inc.’s 2.25% convertibles due 2019, which gained nearly 7 points to 115 after the Latin American e-commerce company reported better-than-expected earnings and revenue for its third quarter. Shares jumped $9.43, or 9%, to $116.43.

MercadoLibre did not provide forward guidance due to challenging macroeconomic conditions currently.

For the year to date, convertibles on an outright basis are up 1.43%, according to Barclays U.S. composite convertibles index, an analyst said. As for how convertibles stand on a hedged, or swap, basis for the year to date, they are up 2.1%, according to the Hedge Fund Research relative value convertible arbitrage index.

After a mid-June drop when convertibles lost a lot of their returns, the market has “improved in line with the rest of the market,” the analyst said.

HomeAway expands

HomeAway’s 0.125% convertibles due 2019 were seen higher at 103.5 bid, 104 offered at the end of the session on Thursday versus an underlying share price of $39.90.

That compared to a bond price of about 103 with the underlying shares at $40.38 earlier in the session and up compared to 96 bid, 96.75 offered versus an underlying share price of $34.04 previously.

Shares of the Austin, Texas-based vacation rental site surged $8.11, or 25.3%, to $40.15 on Thursday.

The HomeAway bonds “actually outperformed,” a New York-based trader said.

“They shot up because of the bid,” a New York-based convertibles analyst said, adding that two related aspects of the bid helped. First, Expedia is considered an investment-grade company and its BBB- rating is going to boost the bonds and second, because the bonds’ takeover protection make-whole table kicks in.

A trader said that initially the bonds were lower as investors were anticipating a higher bid from the likes of a competitor such as Priceline Group Inc.

“They are up about a point and a half after starting off down 0.5 point,” he said.

Under the deal, HomeAway shareholders would receive $38.31 per share, with $10.15 in cash and the remainder in Expedia stock.

FireEye bonds drop

FireEye’s 1% convertibles due 2035 were at 83.375 early Thursday, when shares were around $22.10. That compared to 87.75 bid, 88.5 offered versus an underlying share price of $29.00 on Wednesday.

Falling by a greater magnitude, FireEye’s 1.625% convertibles due 2035 were seen at the close at 80 bid, 89.5 offered, which was down 6 points on the day. On Wednesday, the 1.625% convertibles were quoted at 86.25 bid, 87 offered versus a $29.00 share price.

FireEye shares closed down $6.66, or 23%, to $22.46 on Thursday.

The drops were caused by weak revenue, which the company explained away by saying there were not that many cyber attacks in the past quarter.

In fact, FireEye revenue rose to $165.6 million. But it fell short of analysts' estimates of $167.1 million. Billings were $210.6 million, below its forecast of $225 million to $230 million in July.

The company also cut its full-year revenue forecast to $620 million to $628 million from $630 million to $645 million. Analysts were expecting revenue of $640.77 million.

Meanwhile, the company lost $135.5 million, or 88 cents per share, compared to $120 million, or 83 cents per share in the year-earlier period.

FBR Capital Markets cut its rating on the equity to “market perform” from “outperform,” and cut its price target on the shares to $28.00 from $53.00, a market source said.

Mentioned in this article:

Alere Inc. NYSE: ALR

FireEye Inc. Nasdaq: FLDM

HomeAway Inc. Nasdaq: AWAY

MercadoLibre Inc. Nasdaq: MELI

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