Endo Health jumps on Paladin deal; General Cable, BroadSoft slide outright; deals emerge

By Rebecca Melvin

New York, Nov. 5 - Endo Health Solutions Inc.'s convertibles surged outright and added on a hedged basis in active trade on Tuesday as the underlying shares also surged on word that the Malvern, Pa.-based specialty health care company is buying Canada's Paladin Labs Inc. for about $1.6 billion. The company also posted strong earnings.

"Looks like you did well on this gap higher," a New York-based trader said regarding the bond's performance for hedged players. He also said Endo Health was the name of the day.

General Cable Corp.'s convertibles were lower outright but held in on a dollar-neutral basis or even expanded slightly after the Highland Heights, Ky.-based diversified industrial company reported earnings and revenue that missed estimates and guided second-quarter and full-year results lower.

BroadSoft Inc. fell on an outright basis by more than 10 points to under par after the Gaithersburg, Md.-based telecom software maker reported third-quarter earnings and revenue that missed estimates and guided fourth-quarter earnings and revenue below estimates.

MannKind Corp.'s convertibles were eyed in early action after the Valencia, Calif.-based biopharmaceutical company posted weak results and updated the market on its partnership plans. The MannKind 5.75% convertibles traded at 97.375 bid, 97.875 offered in early action.

In the primary market, Layne Christensen Co. was expected to price $75 million of five-year convertible bonds after the market close Tuesday to yield 3.75% to 4.5% with an initial conversion premium of 27.5% to 32.5%.

Shares of the Mission Woods, Kan.-based provider of drilling, water treatment and construction services tanked on Tuesday after the deal was launched late Monday, ending the session down $2.26, or 11%, to $17.64.

After the market close, a flurry of new issues was launched with pricing seen after the market close on Wednesday for all three.

ServiceNow Inc. said it planned to price $500 million of five-year convertible senior notes. That deal was seen pricing after the market close on Wednesday and talked at a 0% to 0.5% coupon and 32.5% to 37.5% initial conversion premium.

Seacor Holdings Inc. said it planned to price $200 million of 15-year convertibles senior notes. That deal was also seen pricing after the market close Wednesday and was talked to yield 3.25% to 3.75% with an initial conversion premium of 32.5% to 37.5%.

And InvenSense Inc. said it planned to price $125 million of five-year convertibles senior notes. That deal was also seen pricing after the market close on Wednesday and was talked to yield 2% to 2.25% with an initial conversion premium of 32.5% to 37.5%.

Endo Health expands

Endo Health's 1.75% convertibles due 2015 surged more than 40 points on an outright basis and added 0.5 point to 2 points on a dollar-neutral, or hedged, basis. They were quoted at 193.607 versus an underlying share price of $55.86, and they were seen changing hands after that at 194.22, according to Trace data. That was up from a close of 152.875 bid, 153.625 offered versus an underlying share price of $43.64 on Monday.

One trader, who moved the convertibles on a 94% delta, said that the bonds expanded 1 point to 1.5 points on a dollar-neutral basis.

The Endo Health 1.75% convertible due 2015 "is the name of the day," a New York-based trader said. The bonds traded last at 193.607 versus an underlying share price of $55.86, trading on about a 95% to 96% delta.

A second trader said the bonds expanded about 2 points if they had been trading on a 91% delta prior to the news. A third source said he thought the expansion was about 0.5 point.

"Expansion depends on your hedge. It's hard to really say what guys made as they were changing their delta on the way up," a New York-based trader said.

Shares of the Malvern, Pa.-based specialty drug maker surged, ending the day up $12.75, or 29%, to $56.39.

The company announced that it has reached a definitive agreement to acquire Canadian specialty pharmaceutical company Paladin Labs Inc. in a stock and cash deal of about $1.6 billion.

Paladin has more than 60 drugs, including therapies for ADHD, urology and allergy. The acquisition was billed as an accelerator of Endo's strategic transformation to a global specialty health care company, creating a platform for future growth in North America and internationally.

The deal represented a 20% premium to Paladin Labs' share price of $63.91 on Monday and was expected to be immediately accretive to Endo's 2014 adjusted earnings per share.

The deal may involve early repurchase of the convertible bonds, which are due in April 2015.

"The repurchase of the convertible notes would be subject to market conditions. The changes to the capital structure related to the transaction are not expected to have a material impact on the overall leverage profile of Endo. Deutsche Bank and RBC Capital Markets have agreed to provide committed financing to Endo as part of this transaction," the company said in a release.

In addition to the acquisition, Endo posted an earnings beat for its third quarter. Sales for the quarter were $715 million, or lower by 5% from the year-earlier period, but $19 million above analysts' estimates. Excluding items, earnings were $1.34 a share, which was up 5% year over year and 23 cents better than estimates.

The company also raised its full-year sales guidance but it was still in line with estimates at $2.8 billion. The new earnings per share range was $4.60 to $4.75, which was higher than expected but still lower from 2012.

The company lost an important patent earlier this year for its Lidoderm pain patch and Opana ER.

General Cable drops outright

General Cable's 4.5% convertibles due 2029 were seen down nearly 14 points outright to 104.724, according to Trace data. One trader said that on a delta hedge of 87%, the General Cable bonds expanded about 0.25 point.

No other color on how the bonds did on a hedged basis was forthcoming from market sources.

General Cable's 0.875% convertibles, which are due this month on Nov. 15, were not heard.

General Cable shares plunged $5.95, or 17%, to $28.46.

The company reported late Monday disappointing preliminary third-quarter results and gave a weak fourth-quarter view.

The company said net income for the three months ended Sept. 27 totaled $15.6 million, or 31 cents per share. Excluding one-time items, earnings totaled 45 cents per share. Revenue was $1.56 billion.

Analysts expected net income of 55 cents per share on revenue of $1.64 billion.

Year-earlier figures were not provided due to a restatement.

In the fourth quarter, the company expects net income of 25 cents to 35 cents per share on revenue of $1.55 billion to $1.6 billion.

Analysts had expected profit of 51 cents per share on revenue of $1.65 billion.

BroadSoft down outright

BroadSoft's 1.5% convertibles due 2018 traded down more than 10 points on an outright basis to 99.75 bid, 100.25 offered versus an underlying share price of $27.00 and then later at 99.75 versus a share price of $25.64.

BroadSoft shares fell $7.96, or 24%, to $25.18.

No color on how the bonds did on a hedged basis was forthcoming from market sources.

The company missed earnings estimates by a penny for its third quarter and also missed revenue estimates, while guiding fourth-quarter revenue and earnings per share below estimates.

The company was downgraded by Pacific Crest to "sector perform" from "outperform."

BroadSoft reported third-quarter earnings excluding items of 29 cents a share on revenue that rose 7% to $42.9 million. But that was below the estimate for revenue of $45.2 million.

Fourth-quarter adjusted earnings are expected to be 34 cents to 49 cents on revenue of $47 million to $53 million, which is below estimates for 51 cents of profit on $54.8 million revenue.

Three deals on for Wednesday

ServiceNow, a San Diego, Calif.-based cloud-based IT services company, plans to price $500 million of five-year notes plus a $75 million greenshoe. The Rule 144A deal is being sold via Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC, BofA Merrill Lynch, RBC Capital Markets and Wells Fargo Securities LLC and is coming with a call spread.

The talked 0% to 0.5% coupon indicated that the company is a stronger credit, and a syndicate source said that Workday Inc. is a fair comparable for ServiceNow.

Seacor, the Fort Lauderdale, Fla.-based offshore oil, gas and marine equipment company, is bringing $200 million of 15-year convertibles that were talked to yield 3.25% to 3.75% with an initial conversion premium of 32.5% to 37.5%.

The private deal has a $30 million over-allotment option and was being sold via Goldman Sachs & Co. and Deutsche Bank Securities Inc.

The notes are non-callable for five years and putable in years seven and 10.

Proceeds are for general corporate purposes and to pay the net cost of a call spread, including convertible note hedge and warrant transactions.

Finally, InvenSense, a San Jose, Calif.-based maker of motion tracking devices in consumer electronics, planned to price $125 million of five-year convertible senior notes that were talked to yield 2% to 2.25% with an initial conversion premium of 32.5% to 37.5%.

The Rule 144A offering has an over-allotment option for up to an additional $18.75 million and was being sold by Goldman Sachs as bookrunner.

The bonds are non-callable.

Proceeds are intended for general corporate purposes, including capital expenditures and working capital, and also to pay for the cost of convertible note hedge transactions as part of a call spread that is intended to raise the initial conversion premium from the issuer's perspective.

Mentioned in this article:

BroadSoft Inc. Nasdaq: BSFT

Endo Health Health Solutions Inc. Nasdaq: ENDP

General Cable Corp. NYSE: BGC

InvenSense Inc. Nasdaq: INVN

Layne Christensen Co. Nasdaq: LAYN

MannKind Corp. Nasdaq: MNKD

Seacor Holdings Inc. NYSE: CKH

ServiceNow Inc. NYSE: NOW

Tesla Motors Inc. Nasdaq: TSLA

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