Volcano jumps on Philips takeout; MGM Resorts trades with lower shares; Energy XXI bounces

By Rebecca Melvin

New York, Dec. 17 – Convertibles players were mostly focused on Volcano Corp. on Wednesday, which was the centerpiece of trade after news the San Diego-based medical-device maker has agreed to be bought by Royal Philips of the Netherlands for $18.00 per share, or $1 billion in equity. The transaction is expected to close in the first quarter.

The Volcano bonds immediately shot up to just under par after the news from the upper 80s previously.

Energy names were also in focus as oil prices rose and energy stocks rallied.

Cobalt International Energy Inc. and Energy XXI Ltd. were mentioned as names that were trading. Energy XXI traded actively and off its lows as its shares surged 63 cents, or 24%, to $3.23.

Despite the surge, the stock and bonds of the Hamilton, Bermuda-based independent oil and natural gas E&P company remain well below where they were trading before a plunge in the second half of November. This is also the case with other energy companies, including Penn Virginia Corp.

Penn Virginia’s convertibles were also indicated higher on Wednesday in tandem with a 15% surge in the underlying shares of the Bristol, Va.-based energy company. But the convertibles of Penn Virginia and others like Chesapeake Energy Corp. were not as hard hit as some of the other energy names in the space and don’t have as far to claw back.

“They got hit, but not destroyed,” a New York-based trader said.

The price of West Texas Intermediate crude oil rose 6 cents, or 0.1%, to $57.22 per barrel.

Otherwise MGM Resorts International’s convertibles were active as sharply lower shares of the Las Vega-based casino operator pulled the convertibles into trade. The MGM 4.25% convertibles due 2015 were down more than 4 points on an outright basis at 105.28, according to Trace data.

There was still overall weakness but not as pronounced as on Tuesday.

Tesla Motors Inc. was “pretty weak,” for example, as market players continue to “throw in the towel,” a New York-based trader said.

“It was pretty straight forward. Volcano and MGM traded in volume and guys are still playing around with energy names,” a second New York-based trader said.

In the broader markets, equities rallied, Treasuries were lower and crude oil closed higher. The Federal Reserve’s policy statement released Wednesday afternoon pointed to no shift in the central bank’s current monetary policy stance. And many believe that it is on track to raise interest rates sometime in the second half of 2015.

The news release from the Federal Open Market Committee pointed to recent strong jobs reports. It did not mention the latest market turmoil related to cratering oil prices and the Russian ruble crash. But it did say that it can be patient in beginning to normalize policy.

Also in headlines on Wednesday was a surprise announcement from the Obama administration that the U.S. is restoring diplomatic ties with Cuba, a switch in international policy after more than 50 years. The thaw in relations will include opening an embassy in Havana. The deal also included freeing Alan P. Gross, an American government contractor, who spent the last five years in a Cuban prison.

The Nasdaq stock market surged 96.48 points, or 2.1%, to $4,644.31; the S&P 500 stock index climbed 40.15 points, or 2%, to 2,012.89 and the Dow Jones industrial average jumped 288.00 points, or 1.7%, to 17,356.87.

Volcano adds on merger

Volcano’s 1.75% convertibles due 2017 were quoted at 99.125 bid, 99.375 offered at late morning. That was up from about 87 previously.

The Philips takeover offer represented a 57% premium to Volcano’s closing share price of $11.49 on Tuesday. Volcano shares surged 6.35%, or 55% to $17.84 on Wednesday.

“Volcano is up outright, and MGM is better,” a trader said.

Volcano’s catheter-based imaging and measurement business advances Philips’ strategy in image guided therapy, according to a news release.

Philips expects the transaction to accelerate sales growth as a combined business as it “optimally positions it to address unmet needs in the €4 billion image-guided therapy market.”

It will be accretive to Philips' earnings per share by 2017.

Energy XXI bounces

Energy XXI’s 3% convertibles due 2018 traded up to about 27 from 24, a New York-based trader said. Meanwhile Energy XXI shares jumped 24% to $3.23.

On swap, the Cobalt convertibles were seen unchanged to up a point or two, depending on delta.

“Guys are still playing around with some of the energy names,” a trader said.

A second trader said that “guys were chasing, without a lot of offers” the Cobalt, Energy XXI and Stone Energy Corp. convertibles.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Cobalt International Energy Inc. NYSE: CIE

Energy XXI Ltd. Nasdaq: EXXI

MGM Resorts International NYSE: MGM

Penn Virginia Corp. NYSE: PVA

Stone Energy Corp. NYSE: SGY

Tesla Motors Inc. Nasdaq: TSLA

Volcano Corp. Nasdaq: VOLC

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