Priceline issue up in gray market; Take-Two expands; Amylin mostly steady after downgrade

By Rebecca Melvin

New York, March 4 - Priceline.com Inc.'s $500 million convertible bond offering launched Thursday ahead of the market open was about 0.5 point higher in the gray market ahead of final pricing, sources said, although several sellsiders saw the paper cheaper - by as much as 4% cheap - based on valuations.

The sheer size of the Priceline deal was seen as attracting interest, but limited gamma was seen as a hindrance to hedged involvement.

Salesforce.com's 0.75% convertibles, which priced in January and to which the Priceline deal was compared, traded at 101.5 versus a share price of $7.90 on Thursday, according to a sellside source.

Both deals were a good size and had small coupons. But the premium for the Priceline deal was better than that of Salesforce.

Take-Two Interactive Inc. expanded by about 0.5 point in trade after the video game publisher reported first-quarter results and a profit forecast that was better than expected.

Amylin Pharmaceuticals Inc. was little changed to slightly lower after a downgrade took a toll on its underlying shares.

Amylin shares were downgraded to "underperform" by BMO Capital Markets analysts Jason Zhang and Alex Arfaei, who said they believe expectations for the approval of exenatide LAR are too optimistic.

Priceline strengthens

Priceline's $500 million of five-year convertible notes early Thursday were 100.25 bid, 101 offered in the gray market ahead of final pricing, according to a Connecticut-based sellside trader.

Later a sellsider said that the gray market was plus 0.5 point.

Valuations on the deal were even higher.

One New York-based sellside convertible analyst said the paper was 2% to 3% cheap at the midpoint of price talk, using a credit spread of 250 basis points over Libor with a 33% to 33% vol.

A second sellsider said he saw the paper 4% cheap using a higher vol. of 40% and a credit spread of 300 bps over Libor.

"I was pretty aggressive on the vol.," the sellsider said.

The Rule 144A deal, which was sold via joint bookrunners J.P. Morgan Securities Inc. and Bank of America Merrill Lynch, was talked to yield 1% to 1.5% with a 27.5% to 32.5% initial conversion premium.

Sources eyed the low coupon but said the consolation was that the premium was higher than the last deal of this type to price, namely Salesforce.com, which priced a large new issue in January with a 0.75% coupon and a 25% premium.

"Obviously, it's got a pretty low coupon; but that's where the last two [Priceline] issues came, with very low coupons. One had a 0.5% coupon and the other had a 0.75% coupon. I think you're going to see more and more bonds with low coupons as issuers take advantage of the current market," one bond analyst said.

He noted that the name has vol. and good stock borrow.

Nevertheless, another sellsider said that the deal wouldn't really appeal to hedge players because of the low gamma, which means it's difficult to set up positions for high returns.

With a closing stock price of $233.12 for the priceline.com common on Thursday, the offering was great for the issuer, given that its stock has surged from just $75 since last March; but the high stock price wasn't so good for hedgies.

Stock availability eyed

"It's functionally dysfunctional. If you split it 10 for one, then you would have much more to work with," a New York-based sellsider said of the common stock. "There just isn't a lot to trade. If you buy a $million of bonds you have just 3,300 shares."

In contrast, high gamma implies that the slope of delta will change rapidly with stock movements. In these issues, typically premium expands on downside and is retained on upside.

The Norwalk, Conn.-based online travel agency plans to use proceeds to repurchase up to $100 million of its outstanding common stock in privately negotiated, off-market transactions, which may be effected through one or more of the initial purchasers of the notes or their respective affiliates, concurrently with the offering.

Proceeds will also be used for general corporate purposes, which may include repurchasing shares in the open market or in privately negotiated transactions from time to time, repaying outstanding debt and corporate acquisitions.

In connection with the offering, Priceline.com's board authorized the repurchase of up to $500 million of Priceline.com common stock, including up to $100 million of common stock to be repurchased concurrently with the offering.

Take-Two expands

Take-Two's 4.375% convertible senior notes due 2014 traded at 115 versus a share price of $9.60, according to a New York-based sellside desk analyst.

The Take-Two convertibles "are pretty illiquid, but they have expanded about 0.5 point," a West Coast-based sellsider said near the end of the session.

Shares of the New York-based maker of Xbox and other video games closed up 99 cents, or 11%, to $10.02 on Thursday.

The New York-based company beat analysts' estimates on earnings and revenue for its fiscal first quarter and guided second-quarter earnings above consensus with revenue in line.

In addition, the company forecast that full-year 2010 earnings and revenue will be in line.

When it posted the report after the close Wednesday, Take-Two said it expects to post adjusted earnings of 20 cents to 30 cents per share on sales of $250 million to $300 million for the second quarter.

Analysts expect a profit of 7 cents per share on sales of $267.4 million.

Its net loss from continuing operations for the first quarter was $33.8 million, or $0.43 per share, compared to a net loss from continuing operations of $53.8 million, or $0.71 per share, in the first quarter of fiscal 2009.

Non-GAAP net loss from continuing operations was $24.4 million, or $0.31 per share, in the first quarter, compared to non-GAAP net loss from continuing operations of $42.8 million, or $0.56 per share, in the first quarter of 2009.

Amylin steady to lower

Amylin's 2.5% convertibles due 2011 traded at 99.25 versus a share price of $19.75 early Thursday, according to a sellside source. And according to Trace data, the paper was lower at 98.5 at the end of the session.

Shares of the San Diego, Calif.-based biopharmaceutical company closed down 98 cents, or 5%, at $18.74 on Thursday.

The shares were falling after the company suffered a downgrade from BMO Capital Markets.

According to the BMO Capital analysts, approval of exenatide LAR could be delayed until mid or late 2011 because the Food and Drug Administration is likely to request more clinical data (baseline and long-term calcitonin levels in patients treated with LAR and comparators) and pre-clinical data (to explore the impact of the difference in PK exposure of LAR compared to Byetta).

Such a delay in LAR's approval "would significantly affect peak sales, because it would give Victoza (Novo Nordisk) more time to establish itself in the market and take Byetta share, making fewer patients available for LAR," the analysts Zhang and Arfaei wrote in their report.

"A delay would also shorten the lead LAR has over another competitor, taspoglutide (Roche), a drug that is probably as effective as LAR but seemingly more convenient. With sustainable peak U.S. sales of about $1 billion, a very generous assumption in our view, the cumulative value of LAR's profits to AMLN is about $960 million or $6/share," they wrote.

"Given the Street's high expectations for both the timing of LAR's approval (March 12, 2010) and the drug's value for Amylin, we believe the stock will underperform the peers," they wrote.

Mentioned in this article:

Amylin Pharmaceuticals Inc. Nasdaq: AMLN

Human Genome Sciences Inc. Nasdaq: HGSI

Priceline.com Inc. Nasdaq: PCLN

Salesforce.com NYSE: CRM

Take Two Interactive Inc. Nasdaq: TTWO

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