SanDisk mixed on takeout chatter; Cepheid contracts after warning; Amyris offering on tap

By Rebecca Melvin

New York, Oct. 14 – SanDisk Corp. traded mixed in active trade on Wednesday amid speculation that the Milpitas, Calif.-based flash memory chip maker is exploring a possible sale of itself. There was focus in other technology convertible issues, but the session overall was trendless, with trades pertaining to company specific issues, market players said.

The SanDisk 1.5% convertibles moved up strongly on an outright basis, and expanded on a swap basis, and the SanDisk 0.5% convertibles, which were seen as underperforming in the event of a takeout, were higher outright but lower on swap.

“There was some speculation in tech about M&A,” a New York-based trader said.

Cepheid Inc.’s convertibles fell on an outright basis and contracted on a dollar-neutral, or hedged, basis after the Sunnyvale, Calif.-based molecular diagnostic tests company warned that its third-quarter results will fall short of estimates. The shares sank 22%.

Cepheid’s 1.25% convertibles due 2021 were seen trading at about 88.625 versus an underlying share price of $32.45 in the early going, a New York-based trader said.

The bonds came in about a point on a dollar-neutral basis after the negative earnings preannouncement, and hedged players were stepping in at about 88.625, the trader said.

Cepheid said that its third-quarter gross margin and revenue will be lower than expected due to lower margin sales and less commercial business as well as manufacturing costs for new virology tests.

The company now expects revenue of $126.5 million for the period. The company also expects to report a loss of 13 cents per share excluding items, compared to a previous expectation for a loss of 6 cents to 8 cents per share.

In the primary market, Amyris Inc. launched an offering of $50 million of 3.5-year convertible senior notes that was expected to price on Thursday via Stifel Nicolaus Weisel as the bookrunner.

Price talk for the offering was not immediately available.

Amyris shares sank 24% to $1.96 per share.

Looking ahead, traders are eyeing the earnings season for convertible issuers beginning in earnest next week. While the earnings news on Wednesday in terms of pre-announcements was mostly negative, led by Wal-Mart Inc., which rattled investors with its profit warning, at least one convertibles player thought the outlook is for many companies exceeding expectations.

“Analysts have been taking down numbers so much that it won’t be hard to beat; and good news is good news right now in the convert market; it never hurt to have positive data,” said the trader, adding that trends are going to be sector-specific.

SanDisk mixed in active trade

SanDisk’s 1.5% convertibles due 2017 surged to about 148 from 136. Shares gained $6.93, or 11%, to $68.70. The 1.5% bond was seen to have expanded about 0.75 point.

SanDisk’s 0.5% convertibles due 2020 traded up to the 104 mark but ended the session around 103.25, compared to about 100.25 previously; and those bonds were seen to have contracted about 0.5 point.

“The moves are reflecting the performance of the bonds on a takeout, a New York-based trader said. “The 1.5% convertibles were seen outperforming in the event of a takeover, and the 0.5% convertibles were seen underperforming.”

“The market is just pricing some of that in right now,” the trader said.

Micron Technology Inc. was among the companies rumored as a potential acquirer of SanDisk. The Micron 3% convertibles due 2043 were seen up a couple of points at 94.4. Western Digital Corp. was also named as a potential acquirer.

Also in the tech space, there was speculation that Fairchild Semiconductor International Inc. is pursuing a potential sale. Fairchild shares jumped 15.6%, but the company is not a convert issuer.

ON Semiconductor Corp., which is a convertibles issuer and a competitor of Fairchild, was named as a logical, potential acquirer of Fairchild. The ON Semi convertibles were not trading, a trader said.

Intel Corp. was trading a bit better on Wednesday after the Santa Clara, Calif.-based chipmaker reported earnings that were better than expected but still lower on flat revenue.

“I thought they did OK actually,” a trader said.

The Intel shares slipped after the report was released late Tuesday and spent a portion of Wednesday’s session in negative territory. But shares ended up 75 cents, or 2.4%, at $32.80.

The Intel 2.95% convertibles were up about a point at 125.6 at the end of the session, according to Trace data.

Intel’s 3.25% convertibles were up about 3 points at 161.125.

Intel reported earnings of $3.1 billion, or 64 cents per share, for its third quarter, compared to $3.3 billion, or 66 cents per share, in the year-earlier period. Analysts had expected earnings of 59 cents per share.

Revenue slipped to $14.5 billion from $14.6 billion in the year-ago period. Analysts had estimated only $14.22 billion in revenue.

Amyris to price $50 million

Amyris launched an offering of $50 million of 3.5-year convertibles that were seen pricing on Thursday. Shares of Amyris tanked on the news, closing down 61 cents, or 23.7%, at $1.96.

The company plans to use a portion of the proceeds from the new deal to repurchase some of the company’s existing 6.5% convertible senior notes due 2019. Those bonds were last seen around 60.

The existing 6.5% convertibles initially priced in May 2014 in a $75 million deal.

Proceeds of the new deal will also be used for general corporate purposes, which may include development of the company’s sales and marketing infrastructure as well as for other strategic transactions and acquisitions.

Emeryville, Calif.-based Amyris is a maker of renewable chemicals and fuels.

Mentioned in this article:

Amyris Inc. Nasdaq: AMRS

Cepheid Inc. Nasdaq: CPHD

Intel Corp. Nasdaq: INTC

Micron Technology Inc. Nasdaq: MU

ON Semiconductor Corp. Nasdaq: ON

SanDisk Corp. Nasdaq: SNDK

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