Sirius gains on new product; Level 3 higher on rumors; Goodrich plans deal; Acquicor seen as outright deal

By Kenneth Lim

Boston, Nov. 30 - Merger and acquisition speculation surrounding Sirius Satellite Radio Inc. and Level 3 Communications Inc. made the rounds on Thursday, providing some action in an otherwise languid market.

Sirius Satellite gained in the afternoon after the company guided for a strong year-end and outlined plans to offer a live television service. Speculation was also rife about the possibility of a merger with rival XM Satellite Radio Holdings Inc.

Level 3 also gained with its stock amid renewed speculation from earlier in the week about its potential as a takeover target.

In the primary market, Goodrich Petroleum Corp. launched an overnight $125 million offering of 20-year convertibles, making it the first deal to price in December. Acquicor Technology Inc.'s planned $100 million offering was seen as likely to end up with outright investors. Meanwhile, the final tally of new convertible deals showed that issuance grew at a brisk clip in November.

Sirius back in spotlight

Sirius' 2.5% convertible due 2009 rose about two points outright on Thursday amid remarks the company made at a conference and speculation about merger possibilities.

The convertible was marked at 113 bid, 113.5 offered against a stock price of $4.27 on Thursday. Sirius stock (Nasdaq: SIRI) closed at $4.26, up by 2.65% or 11 cents.

"There were a few trades near the close, but that's it," a sellside convertible bond trader said. "The CEO was talking about some new product, I suppose some people thought it was promising. There were also some reports earlier about the possibility of a merger between Sirius and XM, but that's been going around for some time."

New York-based Sirius said Thursday that it is expecting a strong December, and it is planning a live television service by late 2007, which would be targeted at vehicle passengers. The satellite radio service provider also said deals with content providers may be made by January. Sirius chief executive Mel Karmazin also told media earlier in the week that he was open to a merger with rival XM, renewing speculation about the possibility.

"There was an interview this past weekend when Karmazin said something about that," a buyside convertible bond analyst said. "That rumor's been going around for quite some time. I don't think he's really denied it, but the issue is more from a regulatory perspective, is the FCC going to allow it? It does make sense, though, because both companies would save money if they merged."

The sellside trader noted that Sirius is expected to present at a couple of conferences next week, and investors may be hoping for more volatility if the merger issue comes up again.

"This is a pretty volatile name to begin with," the trader said. "It doesn't take much to move the stock."

Level 3 gains on rumors

Level 3's 3.5% convertible due 2012 rose about 2 points outright on Thursday, as an old rumor about a possible takeover by Google resurfaced.

The convertible was marked at 117.75 bid, 118.25 offered versus a stock price of $5.40. Level 3 stock (Nasdaq: LVLT) rose 5.74% or 29 cents to close at $5.34.

"I don't know why the stock's trading so high today, I haven't heard any news specifically," a buysider said.

"There was some speculation a couple of days ago that Google will buy them. I don't know how likely that is - I don't think it is."

Level 3 is a Broomfield, Colo.-based Internet backbone operator.

A sellside convertible bond analyst said the rumor about a Google takeover has actually been around for about a month. But the analyst dismissed the speculation as unlikely.

"We were just talking about this," the analyst said. "The thing is, there's excess [internet backbone] capacity. Why wouldn't Google just get a 30-year renewable contract? Everyone at Level 3 would be very happy if they did that. Google can accomplish what they want without buying Level 3. Do you think they want to be running internet backbone services for other companies?...It's not like we're having a shortage of backbone. If they [Google] want to make sure that they have enough capacity, they can just get a contract to secure it. The backbone companies will be lining up at the door to get that contract."

But the analyst quipped that anything was possible.

"Who knows? Maybe tomorrow they'll announce something," the analyst said. "Anything can happen."

Goodrich plans deal

Goodrich Petroleum launched a $125 million offering of 20-year convertible senior unsecured notes expected to price Friday. Price talk guides for a coupon of 2.75% to 3.25% and an initial conversion premium of 50% to 55%.

The convertibles will be offered at par.

There is an over-allotment option for a further $50 million.

Bear Stearns and Deutsche Bank are the bookrunners of the overnight Rule 144A offering.

Goodrich, a Houston-based oil and gas exploration company, said it will use the proceeds of the deal to repay a $50 million term loan and pay part of an outstanding senior debt.

Goodrich stock (NYSE: GDP) slipped 3.09% or $1.36 in after-market trading to $42.60 after the offering was announced.

Acquicor deal likely for outrights

Acquicor's planned $100 million offering of five-year convertible senior notes continues to be quiet in the gray market, with the deal described as likely to end up with outright investors amid a lack of stock to borrow.

The deal is talked at a coupon of 8% to 8.5% and an initial conversion premium of 25% to 30%. There is an over-allotment option for a further $15 million.

CRT Capital Group is the bookrunner for the Rule 144A offering.

Acquicor is a Newport Beach, Calif.-based blank-check company formed to acquire technology businesses. It is buying specialty wafer maker Jazz Semiconductor for $260 million, and will use the proceeds of the offering to help fund the acquisition. The proceeds will be placed in an escrow account pending approval by shareholders. If the merger is not approved by May 31, 2007, the notes will be redeemed at par.

"There's no borrow," a sellside convertible bond analyst said, explaining that without a borrow hedge investors were likely to stay out. Outright investors would have to believe in the potential of specialty analog semiconductor manufacturing to be interested in the offering.

"You do have some technically capable people running the company," the analyst said, pointing out that Apple Computer co-founder Steve Wozniak is behind Acquicor.

Strong issuance in November

Convertible issuance picked up in November, with 22 new deals raising $8.74 billion in proceeds, 34.3% more than a year ago and more than the $8.34 billion total from September and October.

Citigroup remained at the top of the convertible league tables year-to-date, helping raise 17.1% of the $58.08 billion in proceeds since the start of the year. But Banc of America led the pack in November, getting a boost as sole bookrunner for Vornado Realty Trust's $1 billion offering of 20-year convertible senior debentures.

A buyside convertible trader welcomed the strong issuance numbers.

"It's always nice to see new paper enter the market," the trader said. "The third quarter was kind of slow, so it's good to see the deals pick up again."

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