Millicom bonds dive as takeover talks flop; GM extends Kerkorian-influenced gains

By Paul Deckelman and Paul A. Harris

New York, July 3 - Bonds of Millicom International Cellular SA fell sharply in Monday's generally restrained pre-holiday high-yield market in tandem with a plunge in the Luxembourg-based wireless telecommunications provider's shares after talks with a potential acquirer ended with no deal having been reached.

Elsewhere, traders said that activity in the abbreviated session - which officially closed at 2 p.m. ET ahead of Tuesday's Independence Day holiday - was so light that "it was a complete waste of time," as one of them succinctly put it.

One of the few features seen outside of Millicom, was a strengthening in General Motors Corp. bonds, extending the gains notched Friday after billionaire GM investor Kirk Kerkorian urged GM to consider linking up with an existing international alliance consisting of Japanese carmaker Nissan Motor Co. and French manufacturer Renault SA. Each of those companies said Monday that they would be willing to talk over such a combination with the struggling GM.

GM's bonds continued their upside ride, though modestly, even as the latest monthly car sales figures showed the Detroit giant and arch-rival Ford Motor Co. having lagged badly in June compared with the incentive-boosted year-ago levels.

New-deal activity, meantime, was essentially non-existent on the first actual trading day of the year's second half.

The slide in Millicom's 10% senior notes due 2013 "was the only thing that we saw all day," said a trader who quoted those bonds at 105.5 bid, 106.5 offered - well down, he said, from 112.25 bid previously. "The stock was getting killed because they were supposed to have been taken over, [but] they terminated the call," causing the bonds to also plunge. "Those bonds were to have been taken out."

At another desk, a trader saw Millicom's bonds at that same 105.5 bid level, which he estimated was 5 point loss on the day, but said that he really "saw no markets in it." Given the news of the collapse of the acquisition talks, "it doesn't surprise me" that the bonds were down so much, he said.

Millipore's bonds retreated in line with a severe downturn in its Nasdaq Global Select-traded shares, which plummeted $12.10 (26.63%), to $33.33. Volume of 10.2 million shares was nearly 13 times the usual daily turnover.

The bonds and shares fell after the company announced that it had completed its strategic review, which had been announced on Jan. 19, and had decided to terminate all discussions concerning a potential sale of the whole company. Millicom said that since May it had been in prolonged discussions and due diligence with one potential purchaser - "but has now concluded that this purchaser will not be in a position within an acceptable timeframe to make a binding offer that is suitably attractive, given the current strong performance of the business, or sufficiently certain of closing."

The statement added that the Millicom's board of directors "remains confident in the independent future of the Company." Millicom is controlled by Investment AB Kinnevik, a Swedish investment firm which owns about 40% of its stock, and which supported the decision to end the takeover talks.

Although the statement did not identify the potential buyer, Monday's editions of The Wall Street Journal did, saying that the company - which provides low-cost pre-paid cellular phone service in 16 emerging market nations in Asia, Africa and Latin America - had been in exclusive talks with China Mobile, that country's largest mobile carrier by number of subscribers, on a $5.3 billion takeover deal that would have represented its first major overseas purchase.

The newspaper quoted unidentified sources as saying that China Mobile and Millicom could not agree on a final price. Neither company confirmed the Journal's account.

Market mostly quiet

Apart from that, traders said, there was little real excitement - or even mundane activity - in Monday's shortened session.

"It's so dead, that I'm getting out of here," one trader said around noontime, several hours before the ostensible close. He said that he had seen nothing happening other than the Millicom meltdown.

"I didn't see a price on anything," another trader declared. He opined that "it felt like the market was a little bit firmer - but there's really no basis for it. Stocks were up a little bit, and they were expecting Treasuries to open lower, but they were only off a touch. But it's really hard to tell, because there were very few people in [in the junk market], and almost no activity."

He added that "the couple of guys we spoke to were their first, or only call they'd gotten."

The trader at yet another desk who had termed the session a waste of time added "nothing's going on, is right. The market's probably a little bit better, up a quarter-point, looking at these indexes - but I don't think there's enough trading to tell what's going on."

GM helped again by Kerkorian

Auto sales, he noted, were weaker, causing "reverberations" in the stock of GM and Ford, each of which were lower, while he "really hadn't seen any big changes in the bonds" of either company.

However, at another shop, a trader was quoting the GM benchmark issue, the 8 3/8% notes due 2033 about a point higher at 81 bid, 82 offered.

Another trader said that GM was "up a little, at 81 for those bonds, and at 96" for the General Motors Acceptance Corp. 8% notes due 2031. He noted that the move in GM paper had started Friday on the news that billionaire investor Kerkorian, whose Tracinda Corp, holds 9.9% of GM's stock, making him one of its largest single shareholders, had urged in a Securities and Exchange Commission filing that GM seek admittance to the current strategic alliance between Renault and Nissan, each of which owns a substantial stake in the other. Carlos Ghosen is the chief executive officer of both companies.

Kerkorian's filing said that partnership has created "tremendous engineering, manufacturing and marketing synergies, resulting in substantial benefits and cost savings" to both companies. Kerkorian also said that the two carmakers would be prepared to take a substantial minority ownership stake in GM.

Besides urging GM to reach out to the other two carmakers to inquire about being included in their deal, he also contacted Ghosn, in a letter touting the benefits of bringing GM into their partnership. GM said that it would take Kerkorian's suggestion under advisement.

On Monday, the boards of both Renault and Nissan each said that they would be willing to open preliminary talks with GM on a possible link up, if GM was of a mind to so.

Should such a combination materialize, the three-way deal would create a huge auto alliance with annual output exceeding 15 million vehicles and commanding nearly one-quarter of the global market share.

The news that Renault and Nissan might be willing to buy a big stake in GM and incorporate it into their alliance proved to be more potent than the June sales figures - which, as expected, showed a sharp drop-off from year-ago levels for GM, which at this time last year was for the first time offering ordinary customers the same kind of "employee discount" deals its own workers enjoy. That incentive shot GM's June 2005 sales figures up substantially from their year-earlier levels, although it didn't translate to much in the way of added profits, since the vehicles were so heavily discounted.

GM is not doing that promotion again this year - and with high gasoline prices discouraging potential buyers of its big SUVs, one of its most important product segments, total June vehicle sales plunged 25.7% from June 2005 levels, almost totally due to a 37% falloff from a year earlier in the SUV/light truck category. Conventional car sales were about flat. The numbers came as no real shock to the market, since GM had predicted some days earlier that June sales could fall as much as 30% from last year's comparable levels.

Ford firm

Ford - which a year ago had not yet ramped up its incentives program to match GM's, on Monday reported a 6.8% sales decline from a year earlier, paced by a 14.6% drop-off in sales of SUVs and light trucks partly offset by an 8.6% gain in regular car sales, the latter advance mostly due to good customer demand for the Number-Two domestic carmaker's new Ford Fusion, Mercury Milan and Lincoln Zephyr mid-sized sedans.

Ford's flagship bonds, the 7.45% notes due 2031, were seen having bounced around at levels as high as 74 bid on Monday, well up from their late Friday close around 71. However, by the end of the day, they had gradually come down from their peak levels to end up about ¾ point at 71.75.

Casinos steady amid N.J. troubles

Traders saw no real movement in the bonds of several gaming companies with exposure to the Atlantic City market - even as New Jersey officials continued to warn of a state budget crisis that could shut those casinos down on Wednesday morning due to a lack of funds for, among other agencies, the state's Casino Control Commission, which posts on-site regulators at the premises of each of the city's 12 seaside gambling palaces.

Boyd Gaming Corp., which along with MGM Mirage, runs the glitzy Borgata, the city's biggest and most profitable casino resort, was seen little changed, its 8¾% notes due 2012 up 1/8 point at 105 bid, while its 7 1/8% notes due 2016 were a quarter-point better at 97.5. MGM Mirage's 5 7/8% notes due 2014 were a quarter-point better at 90.75.

The budget crisis had not been resolved as of late Monday, although governor Jon Corzine summoned state lawmakers to a special Independence Day legislative session to deal with the situation.

A trader said that shutting the doors of the casinos because of the lack of regulators "sounds a little heavy handed to me. It would be very bad for Jersey and for the gaming industry." He was of the opinion that whether because the legislators would be able to get a handle on the budget crisis over the holiday period, or because the casino operators, who've legally challenged the Casino Control Commission closure order would "have their day in court, I don't think they're going to shut down the gaming industry."

Granite gains on financing

Elsewhere, the bonds of Granite Broadcasting Corp. were seen by a market source to have moved a little higher on the news that the troubled New York-based television station ownership group has lined up new financing and plans to use a portion of the proceeds to pay the overdue interest on its 9¾% notes due 2010 .Those bonds were seen having firmed a point to 92 bid, while its 8 7/8% notes due 2008 were half a point better at 91.75.

Granite's nearly worthless OTC Bulletin Board-traded shares rose 1½ cents (8.82%) to 18.5 cents, although volume of 7,500 shares was only about one-sixth of the usual daily handle.

Granite announced that it had reached agreement in principle on a new senior credit facility totaling $70 million - a $40 million tranche A term loan and a $30 million tranche B convertible term loan. The facility is expected to close and fund this week, with about $19.9 million of the proceeds slated to pay the interest on the 9¾% notes that was originally due on June 1. Granite at that time invoked the standard 30-day grace period.

A trader was not much impressed with the company's coup. He said that "they're operating on borrowed time. This doesn't change anything. They've sold any asset worth anything" - primarily, their only two major-market stations, in Detroit and San Francisco, the sale of which has not closed yet.

"If they get this deal done," he said, "they get to live for another six months, till their next coupon payment" on those bonds, which is due Dec. 1. Before that, they have a coupon due on the 8 7/8s on Nov. 15. "After that," he said ominously, "who knows? Ultimately, the business doesn't make any money."

He also noted that the company included a warning in the announcement of the new funding that if for any reason the deal could not get done - and it is conditioned upon the execution of definitive documents and reaching agreement with the indenture trustee for the 9¾% notes - it might be forced to seek Chapter 11 protection "in the immediate future."

"This gives them a little bit of a boost," he said, "but I think at the end of the day - take your coupon payment and hit the bid - it's the last one you're going to get."

Primary quiet

With nearly all of the U.S. high yield market in the midst of a four-day Independence Day holiday, syndicate sources who could be reached on Monday reported there was no primary market news.

When primary market activity resumes on Wednesday sources expect at least two deals - the only two presently thought to be in the market - to price before the Friday close.

Headwaters Inc. a Utah-based provider of energy and construction related products, remains in the market with a $150 million offering of 10-year senior subordinated notes (B3/B), a debt refinancing deal via Morgan Stanley.

And Toronto-based mining, exploration and development company Coalcorp Mining Inc. continues to market its dollar-denominated notes and warrants units offering.

GMP Securities is leading that deal.

An informed source, corresponding by email on Monday, said that the Coalcorp deal remains in the market but no deal size has been set.

Encore Medical plans $215 million

News emerged Monday in an 8-K document filed with the Securities and Exchange Commission that Austin, Tex., orthopedic device company Encore Medical Corp. is planning to sell $215 million of senior subordinated notes and to put in place a senior credit facility of up to $325 million to help fund its leveraged buyout by Blackstone Capital Partners V LP.

Bank of America and Credit Suisse are the lead banks on the debt financing transactions.

As a back-up for the bonds, the company has received a commitment from the two lead banks for a bridge loan.

Other LBO financing will include a commitment from Blackstone to provide up to $335 million in equity.

The total transaction is valued at approximately $870 million.

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