Yahoo! convertibles higher on swap; convertibles overall thinly traded after holiday

By Rebecca Melvin

New York, March 28 – Yahoo! Inc.’s convertibles improved in active trade on Monday as headlines swirled around the Sunnyvale, Calif.-based company about potential investors in its core internet business, including Microsoft Corp.

Microsoft did not comment on whether it is contemplating a bid, but Reuters reported that the software giant has talked with private equity firms at their request about helping finance a deal.

Trading of Yahoo! convertibles was the most notable aspect of an otherwise thinly traded U.S. convertibles market on the day after Easter, market players said. Financial markets were closed for the Good Friday holiday.

The Yahoo! convertibles expanded about 0.25 point to 0.75 point, a New York-based trader said, even though “nothing really changed today” regarding the prospects for the internet company, which put itself on the auction block in February.

Social media company Pandora Media Inc. was also in the headlines after it announced management changes, including founder Tim Westergren taking the helm of the internet music company as chief executive officer effective immediately.

Pandora’s common shares subsequently plunged 12% presumably on the expectation that the management changes now preclude a potential takeout of the company, a trader said.

Pandora convertible bonds were mostly quiet, although the trades that did occur were lower by 5.5 points to 6 points on the day.

Elsewhere, investors were watching the energy space, which pared early losses but still ended lower on the day.

Whiting Petroleum Corp.’s convertibles were off about 0.5 point to about 57 or 58 as common shares pared early gains to end lower by only 2.6% after an early 7% decline. Stone Energy Corp. was a notable loser, and those convertibles dropped about 6 points to about 37.50 to 38.00.

Overall, the convertibles space was quiet, a trader said, as vacations overlapped the work week and thinned convertibles trading desks and as Europe’s financial markets remained closed for Easter Monday.

After a mixed open, the U.S. equity markets wavered in and out of negative territory. The Dow Jones industrial average ended up 19.66 points, or 0.1%, to 17,535.39. The S&P 500 stock index ended just about flat, or up 1.11 points to 2,037.05, and the Nasdaq composite stock index shed 6.72 points, or 0.1%, to 4,766.79.

Yahoo! expands on swap

Yahoo!’s 0% convertibles due 2018 were better on swap by about 0.25 point to 0.75 point in active trade, and closed at about 97.5 to 98, a New York-based trader said.

Shares of the internet company closed up 37 cents, or 1%, at $35.23 in below-average volume.

“There appear to be some hedge fund lifts,” a second New York-based trader said of the convertibles, but he noted that there seemed to be no material change in the company’s situation despite the Microsoft headlines.

“The Starboard activist investor situation still exists,” the trader said.

Yahoo! activist investor Starboard Value sent the web company a letter last week stating that it intended to try to remove Yahoo!’s entire board of directors and replace it with nine new members.

Starboard holds a 1.7% stake in Yahoo! and said that it was “extremely disappointed with Yahoo’s dismal financial performance, poor management execution, egregious compensation and hiring practices, and general lack of accountability and oversight by the board.”

A convertibles trader said on Monday, “It was more of the same. This was expected to eventually happen.”

Part of the reason that the Yahoo! bonds were trading so actively is that there was no other focus in the market, traders said.

“There was nothing else going on. Europe was out, and it was one of the only things going on,” one trader said.

According to a Reuters report, Microsoft and private equity firms have held talks about purchasing Yahoo!’s core internet business.

Pandora drops

Pandora’s 1.75% convertible bonds due 2020, of which $345 million priced in December, traded down on Monday to about 89 from 94.5.

But it was not a big focus, a trader said. Very few bonds traded.

Pandora shares fell $1.33, or 12%, to $9.60 in heavy volume.

“The stock moved quite a bit, as the news removed the takeout potential,” the trader said.

The Oakland, Calif.-based internet radio company announced that effective immediately Westergren, who is a musician and forged the Pandora vision since the beginning, was chief executive officer, replacing Brian McAndrews, who is leaving the company.

Mentioned in this article:

Pandora Media Inc. NYSE P

Whiting Petroleum Corp. NYSE: WLL

Stone Energy Corp. NYSE: SGY

Yahoo! Inc. Nasdaq: YHOO

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