SanDisk lower on swap after takeout news; Micron lower outright; Horizon slumps on swap

By Rebecca Melvin

New York, Oct. 21 – SanDisk Corp.’s convertibles, which have been a focus of trade for more than a week, were in the crosshairs again on Wednesday after news that the company is being acquired by Western Digital Corp. for $19 billion in cash and stock, or $86.50 per share, representing a premium of about 15% to SanDisk’s closing share price on Tuesday.

The news was expected, and the SanDisk convertibles, which were mostly mixed in previous sessions, were both lower by a point on swap, a New York-based trader said.

Lam Research Corp.’s 2.625% convertible issues were also trading actively, but better, after news that the Fremont, Calif.-based semiconductor-equipment company has agreed to buy KLA-Tencor Corp. for $10.6 billion. The Lam bonds traded up 0.75 point on swap on the news, a New York-based convertibles analyst said.

Lam shares ended up 76 cents, or 1%, at $70.79, although the shares were trading higher intraday.

Further consolidation in the chip space is anticipated, and convertibles in focus also included Micron Technology Inc.

Micron’s 3% convertibles were lower by about 2 points intraday but were holding in OK on a swap basis, a trader said.

In the health care space, growing concern related to drug pricing and the use of specialty pharmacies torpedoed a few names.

Horizon Pharma plc’s 2.25% convertibles were “swinging all over the place,” but ultimately ended down a point or two points on swap, traders said. Horizon shares also fell but recovered some ground by the close after Valeant Pharmaceuticals International Inc. refuted allegations about business practices associated with its specialty pharmacies.

The Horizon move extended outright losses on Tuesday – although the paper was seen moving down in line, or flat, on a hedged basis in that session. That drop was precipitated by a New York Times article critical of pricing of its Duexis pain reliever drug and Prescriptions Made Easy program.

On Wednesday, a short seller’s critical report on Valeant was to blame for losses, traders said. But share losses were pared after Valeant refuted the Citron Research allegations. Horizon also put out a release on its distribution practices late Wednesday, but its shares were fractionally lower in after-hours action.

The Irish pharmaceutical company was under fire for its drug pricing and PME program, which has doctors send prescriptions directly to a mail-order specialty pharmacy outlets affiliated with Horizon rather than to retail pharmacies.

Elsewhere, the convertibles of Proofpoint Inc. and Citrix Systems Inc. were quiet ahead of earnings reports due out for those companies.

Proofpoint’s 0.75% convertible due 2020, of which $200 million priced in June, was “pretty quiet” and quoted at 101 bid, 105 offered. It also has an older 1.25% convertible due 2018, which trades sporadically. On Tuesday, it changed hands at 154.125.

The Citrix 0.5% convertible due 2019 was also quiet and seen at about 107ish.

Citrix has a 0.5% convertible due 2019 that traded actively on Tuesday at 108 to 109, according to Trace data.

Shares of Proofpoint, the Sunnyvale, Calif.-based internet security-service company, and Citrix, the Fort Lauderdale, Fla.-based cloud computing company, were down 4% and 5%, respectively.

In after-hours trading action, the Proofpoint shares surged 13% and the Citrix shares gained 7%.

SanDisk convertibles contract

The SanDisk-Western Digital deal was widely expected. Western Digital will pay $85.10 per share in cash and 0.0176 of a share of Western Digital common stock per share of SanDisk stock, and if the Unisplendour transaction has not closed or is terminated, $67.50 in cash and 0.2387 of a share of Western Digital stock per SanDisk share, according to the companies’ release.

SanDisk also reported third-quarter results that topped estimates.

But SanDisk’s 0.5% convertibles, which traded outright at about 107, were down a point on swap in active trade, a New York-based trader said.

Shares of the Milpitas, Calif.-based chip storage company were up on the day, ending up $1.59, or 2%, at $76.78.

The SanDisk 1.5% convertibles were back up over the 160 mark from 156.5 last on Tuesday, but also called down a point on swap.

Micron ‘doing well’

Micron’s 3% convertibles due 2043 traded down another 2 to 3 points to about 90 but were seen to have traded favorably against lower shares.

Micron shares ended down 66 cents, or nearly 4%, to $16.43.

“They are doing well. People are buying them down here,” a trader said.

Micron, a Boise, Idaho-based chipmaker, had been a potential suitor of SanDisk.

Mentioned in this article:

Citrix Systems Inc. Nasdaq; CTXS

Horizon Pharma plc Nasdaq; HZNP

Lam Research Corp. Nasdaq: LRCX

Micron Technology Inc. NYSE: MU

Proofpoint Inc. Nasdaq: PFPT

SanDisk Corp. Nasdaq: SNDK

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