CV Therapeutics higher, Gilead slips on merger news; Johnson Controls convertibles move upward

By Rebecca Melvin

New York, March 12 - CV Therapeutics Inc. was a major focus of trade Thursday, with the convertibles moving higher after news that the Palo Alto, Calif., biopharma signed a definitive agreement to be acquired by Gilead Sciences Inc., another California biopharma.

Gilead, also a convertibles issuer, saw its convertible paper slip.

Meanwhile, the new Johnson Controls Inc. convertible paper gained, with the 11.5% mandatories reversing losses notched on their debut Wednesday to push back over par.

"A lot of times flippers get caught owning these, but this deal actually worked out well for them," a New York-based sellsider said of Johnson Controls.

Smithfield Foods Inc.'s convertibles weren't heard in trade, but they were indicated little changed despite a surge in their underlying shares after the largest U.S. pork producer reported results that swung to a loss but were better than expected.

Otherwise trading was pretty quiet, sources said. Allergan Inc.'s convertibles, which traded up about a point on Wednesday, weren't coaxed into trade Thursday despite its higher stock price, which was boosted by coverage initiated on the Irvine, Calif. medical device company by Piper Jaffray at "buy."

"The move yesterday was astounding, but I haven't seen them today," a New York-based sellsider said, suggesting that Allergan itself may have been the buyer that prompted Wednesday's move.

The mixed convertibles market was a contrast to equities, which rallied again for a third consecutive gain. The Dow Jones Industrial Average ending up 239.66 points, or 3.5%, at 7,170.06. Both the S&P 500 index and the Nasdaq Stock Market increased by 4%, with the S&P adding 29 points to 750.74 and the Nasdaq climbing 54.5 points to 1.426.10.

There are "good signs," a West Coast-based sellsider said of the fact that credit is getting better along with stocks and that a second new issue was well-received.

"But we're not out of the woods by any stretch," the sellsider said. He observed that it was interesting that the rating agencies are being more proactive about downgrades, citing General Electric Co.'s downgrade and Moody's Investors Service's "Bottom Rung" list.

"They are staying in front of and downgrading credits. There will be blow-ups in credit; at the risk of stating the obvious, the trick will be to avoid them," the trader said.

CV Therapeutics trade on Gilead deal

CV Therapeutics' bonds were moving on Gilead's $20-per-share, or $1.4 billion, tender offer and second-step merger.

The deal was a 25% premium over CV Therapeutics' closing stock price Wednesday and was 25% higher than Astellas Pharma's lower bid for $16-a-share, or $1 billion, offer that came in January.

At that time, the Astellas bid represented a 41% premium over the previous day's close for the CV Therapeutics common stock.

CV Therapeutics' 2.75% convertible senior subordinated notes due May 2012, of which there was $103 million left outstanding after buybacks, jumped to 117 versus a stock price of $20.75, which was above parity.

"Parity is at 20 where the deal is. So the 2.75s are over par," a sellsider said. "Those will be converted."

The other two convertible issues were seen being put back to the company at par.

The CV Therapeutics 3.25% senior subordinated convertible notes due August 2013, of which there were about $149.5 million outstanding, moved up to near par from 98. And the CV Therapeutics 2% convertible senior subordinated debentures due June 2023 were seen moving to par from 96 bid, 97 offered when last traded.

Gilead, which is buying CV Therapeutics to boost its cardiovascular products portfolio, saw its convertibles and stock weaker most of the session as the deal will be dilutive to earnings initially.

But shares of the Foster City, Calif.-based biopharma edged back into the green by the close, settling at $44.43, which was up 39 cents, or nearly 1%.

The Gilead 0.5% convertible senior notes due May 2011, or A paper, slipped to 122 to 122.50. That was down from a trade at 129 versus a stock price of $47.25 on Jan 21.

The Gilead 0.625% convertible senior notes due May 2013, or B paper, traded at about 119 on Thursday from 124.95 on Wednesday. On Jan. 21, the B paper traded at 130 versus a share price of $47.25.

Johnson Controls gains

Johnson Controls gained along with its common stock, which jumped on a recommendation by Deutsche Bank to "buy" from "hold."

Deutsche Bank cited valuation and the company's ability to restructure.

"We have grown increasingly comfortable with Johnson Controls' ability to restructure and mitigate downside in its auto segments and believe that Johnson Controls' building efficiency and power solutions businesses are somewhat less cyclical than implied by current valuation," Deutsche Bank said.

Johnson Controls' 11.5% mandatory preferred shares, with a par value of 50, were up to 50.75 versus a stock price of $9.30, from 48.50 and 48.875 at the close Wednesday.

The Johnson Controls 6.5% bonds due September 2012 were indicated higher having traded up to 101 on Wednesday.

Shares of the Milwaukee-based company gained 74 cents, or 8.5%, to $9.42.

Smithfield lags shares

Smithfield Foods' 4% convertibles due 2013 were seen trading around 55, which was flat on previous levels and lagging its underlying shares, which surged $2.02, or 34%, to $7.97.

The Smithfield, Va.-based company said that it would be able to turn its business around and that it would meet restructured debt covenants even as it posted a loss of $103.1 million, or 72 cents a share, in the fiscal third quarter, compared to net income of $54.5 million, or 41 cents a share, a year ago.

The pork producer said sales rose to $3.35 billion from $3.12 billion.

The results include a restructuring charge related to Smithfield's announcement in February that it was closing six plants, cutting 1,800 jobs and reducing the number of its independent operating companies to three from seven.

Mentioned in this article:

Allergan Inc. NYSE: AGN

CV Therapeutics Inc. Nasdaq: CVTX

Gilead Sciences Inc. Nasdaq: GILD

Johnson Controls Inc. NYSE: JCI

Smithfield Foods Inc. NYSE: SFD

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