Micron runs higher on debut; LIN TV gains on buyout hopes; takeover protection enters mainstream

By Kenneth Lim

Boston, May 18 - Micron Technology Inc. took off on its secondary market debut Friday with its upsized deal seen as slightly cheap.

LIN TV Corp. also gained after the company said it was exploring a sale of the company, sparking hopes that a deal will trigger a change-of-control put.

Meanwhile, the U.S. convertible market reached a milestone during the week when Countrywide Financial Corp.'s two new pieces of paper pushed the number of takeover-protected convertibles into the majority for the first time, wrote J Giordano convertible analyst Paul Berkman in a note.

The secondary market in general had a typically slow Friday, with light volume scattered across the board.

"Not too much happening," a sellside convertible trader said. "Maybe summer's coming earlier this year."

Micron climbs on debut

Micron's new 1.875% convertible senior notes due 2014 climbed as high as 2 points above its issued price on Friday with its deal seen as cheap on arrival.

The convertible traded at 101.75 against a stock price of $11.50 but was seen as high as 102. The convertible was offered at par. Micron stock (NYSE: MU) closed at $11.47, down by 0.26% or 3 cents.

"We saw a lot of trades in that," a sellsider said.

Micron priced the upsized $1.135 billion deal on Thursday after the market closed at an initial conversion premium of 23.75%. Price talk was at a coupon of 1.875% and an initial conversion premium of 22.5% to 25%, revised from the earlier talk of a 1.625% to 2.125% coupon and a 22.5% to 27.5% initial conversion premium.

The size of the deal was originally $1.1 billion. The over-allotment option remains at an additional $165 million.

Morgan Stanley was the bookrunner of the registered offering.

Micron, a Boise, Idaho-based maker of semiconductor devices, said it will use $132 million of the proceeds to fund capped call transactions with the remainder earmarked for general corporate purposes.

"It looks like they came slightly cheap," a convertible analyst said. "I heard it moved up, traded up about a point. Around 101 is probably fair at this stage...it's not super-terrific, but it priced slightly cheap and now up about a point it's probably about fair."

The analyst said Micron had a credit spread in the region of 200 basis points to 300 bps over Treasuries.

"It's a decent sized company, and even though its business is pretty cyclical and they're levering up, leverage is still pretty low," the analyst said. "I'm not worried about the credit. The pricing was easy enough for me. It's got a reasonable but not huge volatility, but that might be moving up so that could help."

LIN TV gains on buyout hopes

LIN TV's normally lightly traded convertible saw some signs of life Friday as it rose on news that the company is seeking a buyer.

LIN TV's 2.5% convertible due 2033 was 96.875 against a stock price of $19.06, up by about three-eighths of a point from the previous trade a month ago. LIN TV stock (NYSE: TVL) jumped 12.99%, or $2.17, to close at $18.88.

"The company put itself on the block and they have a convert that's out of the money," a sellsider said. "I expect on Monday some people will be playing that one."

LIN TV, a Providence, R.I.-based television station owner, said Friday that it has hired JP Morgan to explore strategic alternatives, including a possible sale of the company. LIN said no decision to sell the company has been made, and it is still unclear whether the review with result in any transactions.

"This will definitely be an interesting one to watch," a convertible analyst said. "But I think it's not going to work out that great for the hedge guys."

The analyst said the LIN TV convertible may be put back to the company if it is taken over by a private acquirer, but because the convertible was so far out of the money and lacks a make-whole premium, convertible holders will not benefit as much as common stockholders.

"There are a number of ways this can go," the analyst said. "If it's a private acquirer, you would just put them back to the company and get par. You won't convert because it's so far out of the money. If it's a public acquirer, you won't even be able to put it back, but if the guys who are buying them have a better credit, you could gain a few points on the bonds. Either way you're looking at just a few points, if any, so it's not something to retire on."

The analyst cautioned that a deal was not definite yet.

"I think it's not clear right now if they'll be able to find a buyer," the analyst said. "I haven't had to look at this company in ages, so I'm not sure exactly who might want to buy them. But I guess with all the private equity money going around it's not impossible that somebody out there will make an offer."

Takeover protection hits mainstream

Takeover-protected convertibles are now the majority in the U.S. markets for the first time, said convertible analyst Paul Berkman.

In a report, Berkman noted that a scan of the 755 convertible bonds in the United States showed 378 offered make-whole protection in the event of cash takeovers. That left only 377 without takeover protection. Berkman is a senior vice president at J Giordano Securities.

Other safety-net features are also becoming more common, Berkman wrote.

About three-quarters of the U.S. convertibles now have dividend protection, compared to 65% in September 2006. The percentage of convertibles with takeover protection increased to just over 50% from 37% over the same period, while call protection now exists in 84% of the convertibles from 76%.

The deal that tipped the balance was Countrywide Financial Corp.'s two-tranche offering that priced Thursday before the market opened. Countrywide's $4 billion offering of 30-year convertibles was also the largest deal so far this year.

"No, it wasn't the size of the deals that made history, nor anything specific about the structure of the issues," Berkman wrote. "The two CFC bonds edged the number of takeover-protected convertibles into the majority for the first time."

Countrywide's new three-month Libor minus 350 bps convertible due 2037 gained about half a point to trade at 99.25 against a stock price of $41.30 on Friday. Its three-month Libor minus 225 bps convertible due 2037 was 98.625 versus a $41.25 stock price, also about half a point higher. Countrywide stock (NYSE: CFC) eased 0.15%, or 6 cents, to finish at $41.25.

Countrywide is a Calabasas, Calif.-based financial services company.

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