Morgan, Merrill launch two-part $700 million convertibles exchangeable into Nuveen

By Ronda Fears

Nashville, March 28 - Morgan Stanley & Co. and Merrill Lynch & Co. launched a two-part issue of exchangeables, convertible into Nuveen Investments Inc., at $350 million each for next week's business.

Tranche 1 for 2.5-year notes is talked to yield 6.25% to 6.75%. Tranche 2 for 3.5-year notes is talked to yield 5.75% to 6.25%. Both tranches carry a premium of 20%.

Morgan and Merrill are joint bookrunners of the registered deals, which are slated to price the week of April 4.

Tranche 1 will be issued by Merrill Lynch and Merrill will be on the left as bookrunner. Tranche 2 will be issued by Morgan Stanley and it will on listed on the left as bookrunner.

The notes are non-callable and both carry dividend protection. The issues are expected to be rated Aa3 by Moody's Investors Service and A+ by Standard & Poor's.

The offerings are part of The St. Paul Travelers Cos. Inc.'s divestiture of its stake in the money manager Nuveen as the property and casualty insurer tries to free up cash for other uses. St. Paul announced a three-pronged plan Friday to sell its 78% equity stake, or roughly 73.4 million shares, in Nuveen.

Nuveen shares closed Friday at $38, which would mean the transactions could raise almost $2.8 billion for St. Paul. But Nuveen shares were coming under heavy pressure Monday on the launch of the convertible.

St. Paul is selling 39.6 million Nuveen shares in a secondary public offering. In addition, Nuveen is repurchasing $600 million of stock from St. Paul. Then, St. Paul is selling its remaining Nuveen stake, about 13.5 million shares, in forward sale agreements to Merrill and Morgan, which is the source of the stock underlying the exchangeable.

As part of the secondary public offering, Nuveen announced guidance Friday for the first quarter. Based on assets under management of $119 billion at the end of February, Nuveen forecast first-quarter revenues of about $135 million and earnings of between 42 cents and 44 cents per share.

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