AIG, Wachovia reverse losses; Transocean adds; SanDisk climbs on M&A chatter; Sciele Pharma trades

By Rebecca Melvin

New York, Sept. 5 - Convertibles players traded financial names Friday as the sector's early weakness gave way to a rally midmorning that helped spark an overall market move to the upside, sources said.

"Financials were considerably weaker, with strong sellside interest from accounts. But they seem to be very fickle, and as the market rallied, we saw people buying," a New York-based sellside trader said.

American International Group Inc. traded down early about 0.33 point after Morgan Stanley cut the insurance and financial services giant to "equal weight" from "underweight," citing escalating liquidity concerns. Later, though, the mandatory convertibles followed their underlying stocks in a turnaround to finish the day with a strong gain.

The same happened to Lehman Brothers Holdings Inc. and Wachovia Corp., market players said.

Wachovia's convertible preferreds were down by about 0.5 point early in the session, but they reversed course and climbed to 0.5 point higher, a sellside trader said.

"The jobs report and Merrill news pulled everything down, but the market seems to be very resilient," the trader said.

The Labor Department reported that payrolls shrank more than predicted last month and the unemployment rate reached a five-year high at 6.1%. In addition, Merrill Lynch and Co. was downgraded by Goldman Sachs to "sell," based on the expectation of further write-downs from the brokerage.

Energy names were also in play Friday, with Transocean Inc. finding strong buy interest and adding about 0.25 point by midsession.

SanDisk Corp. was boosted by chatter that Samsung Electronics Co. is looking to purchase the Milpitas, Calif.-based flash memory chip maker.

And in health care, Sciele Pharma Inc. continued to trade in good volume as further clarity developed around the arbitrage strategy following the company's accepted buyout bid from Japanese drug maker Shionogo and Co.

Financials regain footing

AIG's 8.5% mandatory equity units due May 2011 were down 0.33 point to 49.27 as its shares sank 4% in early trading after Morgan Stanley downgraded the name. One sellsider called the downgrade "no big deal," however.

"Morgan liked this stock two times higher; [I'm] not sure that their call really amounts to any value added," the trader said.

Indeed, the mandatories ended higher, with an indicated value at the close of 51.2 versus a share price of $22.34, compared to 49.60 versus a share price of $21.22 at the end of Thursday.

Shares of the New York-based financial services and insurance company (NYSE: AIG) closed up $1.12, or 5.3% higher, to $22.34.

The Morgan Stanley analyst said in a note to clients that AIG may need to raise $10 billion to $15 billion in capital due to potential further losses related to bad mortgages and the weak housing market.

Wachovia's 7.5% series L convertible perpetual preferred traded early in the session lower by 0.5 point, according to a sellside trader, but toward the end of the session they were quoted at 818.3 versus a share price of $16.34, which was about 0.5 point better than where they had been on Thursday.

Shares of the Charlotte, N.C.-based bank (NYSE: WB) ended up $1.22, or nearly 8%, at $16.75.

New York-based Merrill Lynch's 0% Exchange Liquid Yield Option Notes due 2032 were quoted higher on the day at 95.77 versus a share price of $26.73 on Friday, compared to 95.65 versus a share price of $26.21 on Thursday.

Merrill Lynch common stock (NYSE: MER) rose 52 cents, or nearly 2%.

"This morning with the economic news, credit really blew out. The market is surprisingly resilient, though, and credit held," a New York-based sellside trader said. "Financials led the market."

Transocean adds

Energy names seemed to have a bid with the volatility, with high quality names in play, convertibles players said.

Transocean sank early Friday but came back by midmorning to end the session higher.

Transocean's 1.625% convertible due 2037 were quoted as high as 104.25 bid, 104.75 offered versus a share price of $121.50 on Friday, according to one source.

But another source closed the Transocean 1.625s at 102.379 versus a share price of $122.27, compared to 102 versus a share price of $121.12 on Thursday.

The Transocean series B 1.5% convertibles due 2037 were seen closing at 101.6 compared to 101.3, while the Transocean series C 1.5% convertibles due 2037 were seen closing flat at about 101.8.

Transocean common stock (NYSE: RIG) closed at $122.27, up by 1% or $1.28.

"The RIGs got better midway through. But there was a bid for all three," a sellside trader said referring to all three issues.

SanDisk jumps on M&A chatter

SanDisk 1% convertible senior notes due 2013 traded at 77.25 early versus a share price of $16.65, which was up 2.75 points on a dollar neutral basis compared to the previous day's 66.48 versus a share price of $13.46.

"I imagine this would be better for SanDisk since Samsung is in a better situation," a Connecticut-based sellside analyst said of the possibility of a buyout by the South Korean chip maker. It was obviously good news for the shareholders, "but it's outstanding news for the credit as well."

SanDisk stock (Nasdaq: SNDK) surged $4.18, or 31%, to $17.64 on Friday.

Samsung confirmed that it is looking at SanDisk, but a deal for the flash-memory device maker was by no means in the bag as Samsung made the announcement that it is considering a SanDisk purchase in a statement to regulators, and said it is exploring all options including buyout and alliance.

Caris & Co. upgraded SanDisk to "average" from "below average."

Sciele better to buy

Sciele Pharma's 2.625% convertibles due 2027 continued to be mentioned in trade on Friday, quoted at about the same level as they were, but better to buy, traders said at 116 versus a share price of $30.70.

Shares of Sciele (Nasdaq: SCRX) ended little changed in heavy volume, up 7 cents, or less than 0.23%, at $30.73.

"People didn't understand the dynamics of the takeover initially," a sellsider said.

There were a few sellers on Thursday, but we have been better buyers the whole time."

When the news hit the market Tuesday, the bonds expanded 3 to 5 points depending on the delta being used.

Shionogi and Sciele announced the deal Monday. Upon completion of the acquisition, Sciele will become a wholly owned subsidiary of Shionogi and will continue operations in Atlanta as a stand-alone business unit.

The deal is still subject to clearance under the Hart-Scott-Rodino Antitrust Improvement Act and other customary conditions.

© 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.