Amylin adds on word of Bristol-Myers offer; Actuant down on hedge on call; Synnex mixed

By Rebecca Melvin

New York, March 28 - Amylin Pharmaceuticals Inc. gained in outright trade on Wednesday to 98.25 while the underlying shares of the San Diego-based diabetes drug maker surged more than 50% on a report that the company rejected a takeover bid from Bristol-Myers Squibb Co.

The offer was reported for $3.5 billion, but the companies would not confirm the takeover chatter.

Meanwhile, holders of Actuant Corp.'s 2% convertibles due 2023 lost about 2 points on a dollar-neutral, or hedged, basis on Wednesday after the Butler, Wash.-based maker of industrial products called the issue of $117.6 million

Synnex Corp. dropped sharply outright, but held steady or unchanged on a hedged basis, after the Fremont, Calif.-based business process services company gave a weaker-than-expected forecast for its current, second quarter, citing a transition of certain customer contracts to a fee-for-service arrangement.

Meanwhile, the convertibles of AMR Corp., the holding company of bankrupt air carrier American Airlines, continue to loft higher, with trades of the 6.25% convertibles due 2014 printing at more than 46 on Wednesday. That is up from about 32 earlier this month.

Equities remained weak for a second straight day following a rally on Monday, with the Dow Jones industrial average ending Wednesday down 71.52 points, or 0.54%, at 13,126.21; the S&P 500 stock index slipping another 6.98 points, or 0.49%, to 1,405.54, and the Nasdaq stock index dropping 15.39 points, or 0.49%, to 3.104.96.

Amylin gains on takeout offer

Amylin's 3% convertible due 2014 traded up Wednesday to 98.25 from 96.5.

Amylin shares zoomed up and at the close were higher by $8.38, or 54%, at $23.77. Their previous 52-week high was $18.43.

Amylin reportedly turned down a $3.5 billion, or $22.00 per share, buyout offer from Bristol-Myers.

Neither Bristol-Myers nor Amylin would confirm the buyout offer.

Barclays Capital convertibles analysts said that in the event there is a transaction, and it is an all-cash deal, holders of the Amylin 3% convertibles will have the right but not the obligation to put the bonds back at par.

But given Bristol-Myers' strong credit profile, holders should not put the bonds since a 3% Bristol-Myers bond would be valued above par, the Barclays team, Manoj Shivdasani, Venu Krishna and Piyush Anchliya, wrote in a note.

Amylin, which is dedicated to the development of diabetes drugs, lost almost half of its market value last October when the Food and Drug Administration rejected Bydureon for a second time and asked for more study on its effect on cardiac rhythms.

In January, Amylin shares jumped 19% on FDA approval of its long-acting form of the twice-daily Byetta diabetes shot.

In February, Bristol-Myers bought hepatitis C drugmaker Inhibitex for $2.5 billion.

Actuant comes in on hedge

Actuant's 2% convertible subordinated notes due 2023 closed at 149.007 bid, 150.077 offered versus an underlying share price of $29.46, which was a sub-parity bid, according to a New York-based bank. Another bank put the close at 149.25 versus the $29.46 share price.

The bonds were said to have contracted 2 points on a dollar-neutral, or hedged, basis after the paper was called early Wednesday.

The diversified industrial company is redeeming all of the $117.59 million of principal amount of notes outstanding on April 27. The notes are convertible at any time prior to April 26 at a rate of 50.6554 shares of stock per bond.

The 2% convertibles were issued in 2003, and the company cited its strong financial performance including robust cash flow for wanting to further reduce its debt leverage with no impact to earnings.

"I guess people weren't expecting the call and you are going to lose premium and accrued [interest]," a New York-based convertibles strategist said.

Synnex unchanged on hedge

Synnex's 4% convertibles due 2018 traded down to 136.25 bid, 136.75 offered versus an underlying share price of $38.00 on Wednesday. The bonds had been above 150 at the start of the day.

The convertibles fell into the 130s as shares of the Fremont, Calif.-based business services company slumped $5.46, or 12.5%, to $38.18 in active trade.

Despite the big down move in the stock, the bonds were largely unchanged and didn't open up on a hedged basis, one trader commented.

Most hedgers were on a heavy delta relative to the theoretical model, a New York-based source said.

"Theoretical was probably high 80%, and many arbs were set up in low 90s," the source said.

The trader said he thought the bonds needed a "big move" before they would start to see premium expand, and he suspected that the bonds would begin to expand in terms of premium with further downside in the stock, in other words, a move to the low $30s or so.

"I know this name well," the trader, said, adding that he had tried to get outrights out of the name especially following the guidance of Hewlett-Packard Co., which is a big vendor for Synnex.

He suggested that arbs buy, but the bonds were "never cheap enough, and today's action kind of proved it."

Synnex said that it expects second-quarter earnings of 87 cents to 91 cents per share on revenue of $2.45 billion to $2.55 billion.

Analysts had been expecting earnings of 94 cents per share on revenue of $2.56 billion.

Synnex said the outlook reflects the transition of about $80 million to $100 million of gross revenue to a fee-for-service basis when compared to last year.

The transition will affect year-over-year sales comparisons for the next three quarters, the company said in a statement.

AMR adds to 46

AMR's 6.25% convertibles due 2014 traded a little north of 46 and were also seen right at 46 during the session.

The bond "was up a bit," a Connecticut-based trader said.

The Fort Worth, Texas-based parent of American Airlines, which filed for bankruptcy on Nov. 29, has asked the bankruptcy court to reject nine of its collective bargaining agreements with the pilot, flight attendants and transport workers unions.

The company said that its union labor costs saddle it with the highest costs in the industry and that the pilot agreement limits the fleet it can use and restricts its ability to code-share with other airlines, among other things.

AMR said it must reduce annual costs by $2.1 billion by 2017, with $1.5 billion of those savings to come from reducing employee costs. The cost reduction includes $990 million in annual costs arising from the collective bargaining agreements that the company is looking to reject. An April 10 hearing is scheduled.

Mentioned in this article:

Actuant Corp. NYSE: ATU

Amylin Pharmaceuticals Inc. Nasdaq: AMLN

AMR Corp. NYSE: AMR

Synnex Corp. NYSE: SNX

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