SanDisk higher on rumors; Amkor jumps following results; General Cable up, Millennium silent in gray

By Kenneth Lim

Boston, Nov. 9 - SanDisk Corp. gained on speculation about its takeout potential Thursday although the overall convertible bond market had a relatively quiet session.

Amkor Technology Inc. gained sharply after the company beat estimates for its third-quarter earnings and fourth-quarter guidance.

Meanwhile, General Cable Corp.'s planned $315 million offering of seven-year convertibles rose in the gray market ahead of its expected pricing after the market closed. Millennium Pharmaceuticals Inc.'s $200 million deal, however, was quiet with talk that appeared to be aggressive.

SanDisk rises on rumors

SanDisk's 1% convertible due 2013 rose about half a point on Thursday as investors chased the paper on renewed speculation about the company's potential as a leveraged buyout target.

The convertible was quoted at 90 bid, 90.25 offered against a stock price of $46.34 late Thursday. SanDisk stock (Nasdaq: SNDK) slipped 0.45% or 21 cents to close at $46.13, a day after the stock was downgraded to above average from buy by Caris and Co.

"They were bid on LBO rumors," a sellside convertible bond analyst said. "I think they're interesting in the sense that, if you consider them to be investment-grade large caps, they have a boatload of cash and they trade on a cheap implied. The guys who don't like them, they think they're a commodity, so they discount the credit a bit, so they move around a lot."

A sellside convertible bond analyst said talk about Milpitas, Calif.-based SanDisk being bought may have been fueled by views that the stock is languishing. SanDisk is a maker of flash memory chips.

"I guess the stock's down about 40% from the year's high, plus we've seen a number of big LBOs recently, so someone might look at it and think it looks cheap and the size isn't the same hurdle that it used to be," the sellsider said.

"But it's still a large company with a $9 billion market cap. It's not the first name that comes to mind when you're talking about possible takeover targets in the sector."

Another analyst also heard the rumor, but dismissed it.

"I did see that somewhere, but I'm not sure about the validity of the rumor," the analyst said. "You hear a different one every week, but maybe only 1% of them end up being true."

Amkor jumps on results

Amkor's 2.5% convertible due 2011 gained about 5 points outright with the stock on Thursday, following the company's better-than-expected results and outlook.

The convertible traded at 92 against a stock price of $8.55, while Amkor's soon-maturing 5% convertible due December inched up slightly to close at 99.375 against a stock price of $8.33. Amkor stock (Nasdaq: AMKR) closed at $8.33, up by 11.21% or 84 cents.

"Amkor did better with the stock," a sellside convertible analyst said. "I think shareholders were actually expecting to see signs of weakness in the sector, so this was certainly positive for them."

Amkor reported a third-quarter profit of $52.8 million, or 27 cents per share, from a year-ago loss of $19.5 million, or 11 cents per share. Street estimates were for a profit of 24 cents per share. For the fourth quarter, Chandler, Ariz.-based Amkor is forecasting earnings of 20 to 24 cents per share, although it expects revenue to be lower. Amkor is a semiconductor test and assembly services provider.

"Some of it may have been overdone," the analyst said of the stock rally. "They're beating estimates, but the fact is it looks like the fourth quarter is still going to be weaker."

The results and guidance may be slightly positive for Amkor's credit, which could explain the gains in the 5% convertible, the analyst said.

"The risk of them not being able to pay when the 5s come due is lower," the analyst said.

General Cable gains in gray

General Cable's planned $315 million offering of seven-year convertible senior notes was bid higher by 0.5 point in the gray market on Thursday, as people in the market said it looked to be the cheaper of the two deals pricing after the close.

"I probably like the General Cables a little better," a sellside convertible analyst said.

General Cable's deal was talked at a coupon of 0.75% to 1.25% and an initial conversion premium of 22.5% to 27.5%. The notes are being offered at par, and there is a greenshoe option for a further $45 million. General Cable stock (NYSE: BGC) slid 4.77% or $1.98 to close at $39.50 on Thursday.

Merrill Lynch and Credit Suisse are the bookrunners of the registered off-the-shelf offering.

General Cable, a Highland Heights, Ky.-based maker of electrical and electronic wires and cables, said about $61.4 million of the proceeds will be used to repay outstanding senior secured debt that matures in 2010. It will also use the proceeds to fund convertible note hedge and warrant transactions.

A convertible bond trader thought the low coupon on the deal may affect interest in the offering.

"I'm a little annoyed with all the low coupons and high premiums we've been getting these days," the trader said. "It just does not sound interesting to me, although they do model out cheap."

The sellside analyst acknowledged that the coupon appeared on the low end, but noted that the convertible looked just over a point cheap at the midpoint of price talk.

"I can see why people might not like it, it's 1% for seven years," the sellsider said. "But it's a 25% premium as opposed to the 30-plus we've seen. And at that combination it still models out somewhat cheap."

Another convertible bond analyst said the deal modeled as just under 3% cheap at the midpoint of talk.

"It looks like it could be interesting for some outright guys," the analyst said.

Millennium seen as rich

Millennium's planned $200 million offering of five-year convertible senior notes were quiet in the gray market on Thursday as investors described price talk as too aggressive.

The deal, which was also expected to price after the market closed, was talked at a coupon of 4.125% to 4.625% and an initial conversion premium of 15% to 20%. Millennium stock (Nasdaq: MLNM) closed at $11.25 on Thursday, down by 6.02% or 72 cents after the deal was announced.

The convertibles were offered at par and there is an over-allotment option for a further $30 million.

Morgan Stanley and JP Morgan were the bookrunners of the registered off-the-shelf offering.

Millennium, a Cambridge, Mass.-based drug maker, said the proceeds of the deal will be used to acquire other drugs and for general purposes.

"It doesn't look that interesting," a convertible bond analyst said. "Maybe it'll come at the cheaps."

Another convertible bond analyst said the deal only modeled fair at the midpoint of price talk. The analyst also noted that most equity analysts only gave the stock a neutral or underweight rating.

"The average target price is around $13, the stock was around $12, now it's down further," the analyst said. "But it's a solid credit, they have a lot of cash...and their burn is way, way down. They've got great partners and decent products. It may reprice or come at the cheap end, and then it could be attractive."

A sellsider, who also had the deal modeling fair at the midpoint of talk, said the premium on the deal also appeared to be too high.

"The thing about this one is that the premium's kind of high," the sellsider said. "It looks like maybe issuers are trying to push the premiums back up. It seems aggressive."

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