Gateway surges; Countrywide slides; Molson up; Intel down; markets languid

By Evan Weinberger

New York, Aug. 27 - Convertibles issued by Gateway Inc. surged Monday on news of its takeover by Taiwanese electronics producer Acer Inc. Countrywide Financial Corp. convertibles slipped after Lehman Brothers cut the company's profit outlook.

In other trading activity, Intel Corp. convertibles sagged a bit, as did Peabody Energy Corp. convertibles. Molson Coors Brewing Corp. and Pinnacle Airlines Corp. convertibles made small climbs.

Overall, trading activity slowed as the market began the last unofficial week of summer languidly.

"There are names that are trading, but not a lot," one analyst said. "You see a lot of match-ups on both sides but not a lot of follow-through."

As has been the norm in recent days, no new issues came to market, which also affected trading. One analyst said the market was "hungry" for new issues to spice up activity.

Equity markets were down on Monday, as a gloomy report on sales of existing homes brought back some fears of pain in the mortgage sector leeching into the overall economy. The National Association of Realtors reported that sales of existing homes were down 0.2% in July from June, the average sale price of existing homes was down 0.6% in July from the same point in 2006 and the stock of existing homes was up 5.1%.

But an uptick in corporate takeover activity appears to have tempered some of the losses. Along with the Acer-Gateway deal, two more takeovers were announced and the markets awaited word on the sale of Home Depot Supply, a unit of Home Depot Inc.

The Dow Jones industrial average slipped 56.74 points, or 0.42%, to 13,322.13 Monday. The Nasdaq handed back 15.44 points, or 0.60%, to close at 2,561.25. And the Standard & Poor's 500 closed at 1,466.79, a slide of 12.58 points, or 0.85%.

Gateway convertibles swell on takeover

Word that Acer, a Taiwanese electronics giant, was buying Irvine, Calif.-based computer maker Gateway for $710 million sent Gateway's stock and convertibles hurtling forward Monday.

The deal, which is expected to close in December, will make Acer the third largest computer seller by volume, following Hewlett-Packard Co. and Dell Inc.

Acer is set to pay $1.90 per share for Gateway stock (NYSE: GTW), which closed at $1.21 Friday.

Investors jumped on Gateway Monday. The company's 1.5% convertible senior notes, tranche A, due Dec. 31, 2009, moved to 96.25 versus a closing stock price of $1.82. They had closed at 83 versus a stock price of $1.21 on Friday.

Gateway's 2% convertible senior notes, tranche B, due Dec. 31, 2011, closed at 95 versus a $1.82 stock price. They finished trading Friday at 74 versus a $1.21 share price.

Gateway stock closed Monday up 61 cents, or 50.41%.

Countrywide slips, but convertibles solid

Calabasas, Calif.-based Countrywide slid Monday after Lehman Brothers downgraded the United States' largest mortgage lender's earnings predictions. The combination of Bank of America's $2 billion investment in Countrywide last week, the recent tapping of an existing $11.5 billion credit facility and problems throughout the mortgage industry all contributed to the Lehman analysis.

"Stop the presses," one analyst said.

Despite all the negative stories swirling around Countrywide, the convertibles continue to be a safe bet, the analyst added.

"There's nothing in their fundamentals that is working in their favor," he said. "When it's time to put the bonds back, the A tranche in 14 months from now and the Bs in 20 months from now, the question is, 'Are we going to get paid?' And the answer is yes."

Countrywide stock (NYSE: CFC) lost $1, or 4.76%, on Monday, and the convertibles also gave ground.

The Libor minus 350 basis points series A convertible senior debentures due April 15, 2037 closed at 91.5 versus a closing stock price of $20. They closed Thursday at 93 versus a $22.02 stock price.

Countrywide's Libor minus 225 bps series B convertible senior debentures due April 15, 2037 closed Monday at 88.75 versus a stock price of $20. They finished trading Thursday at 91.5 versus a $22.02 share price.

Molson up, Intel down

Molson Coors Brewing, the Montreal-based brewer, saw its 2.5% convertible senior notes due July 30, 2013 close at 102.38 versus an $86.50 stock price on Monday. They finished trading Friday at 101.75 versus a stock price of $85.90.

Molson Coors stock (NYSE: TAP) closed up 60 cents, or 0.70%.

Santa Clara, Calif.-based computer chip maker Intel's 2.95% junior subordinated convertible notes due Dec. 15, 2035 closed trading Monday at 100.25 versus a $24.45 stock price. They finished trading Friday at 100.75 versus a share price of $24.79.

Intel stock (Nasdaq: INTC) closed down 34 cents, or 1.34%, on Monday.

Pinnacle Airlines, a Memphis-based regional airline, saw its 3.25% convertible senior notes due Feb. 15, 2025 move to 132 versus a closing stock price of $15.80 on Monday. The convertibles closed Friday at 131.25 versus a stock price of $15.91.

Pinnacle's stock (Nasdaq: PNCL) gave back 11 cents, or 0.69%, on Monday.

Peabody Energy, the St. Louis-based coal mining operation, saw its 4.75% convertible junior subordinated debentures due Dec. 15, 2066 slip to 96.38 versus a closing stock price of $41.43 Monday. They had finished trading Friday at 97.75 versus a stock price of $42.60.

Peabody stock (NYSE: BTU) dropped $1.17, or 2.75%, on Monday.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.