Textron climbs on takeover talk; Alcoa benefits from tender hopes; Amgen, Genco active, flat

By Kenneth Lim

Boston, Sept. 16 - Textron Inc. dominated an otherwise quiet convertible market on Friday, rising amid speculation that the company was a potential takeover target.

Textron's recent tender offer for its convertibles also spurred speculative buying in Alcoa, Inc. which is seen as a top candidate for a tender offer, although Alcoa has not announced any offers.

The convertible market in general had another positive session as a function of a strong week for equities. But trading volumes were thin because of ongoing uncertainties about the European debt crisis and the coming Federal Open Market Committee meeting.

Investors expect the Fed to announce plans to purchase Treasuries in the longer end of the yield curve, although there is no consensus on what the details would look like.

"I think most people will be reasonably neutral heading into the weekend," one sellsider said. "Outrights remain somewhat quiet, hedged guys are just trading around a few names."

Most of the day's trading centered on the usual high-grade, high liquidity suspects.

Amgen Inc.'s 0.375% notes due 2013 were mostly flat, trading at 98 bid, 98.5 offered outright. Amgen common stock nudged higher by 0.80% or $0.45 to close at $56.71.

Amgen is a Thousand Oaks, Calif.-based drugmaker.

"People are just parking some cash," the sellsider said.

Genco Shipping and Trading Ltd.'s 5% convertibles due 2015 were flat outright despite a sharp drop in the stock, trading at 73 versus a common stock price of $8.

Shares of the New York-based drybulk shipping company fell 6.21% or $0.52 on Friday to close at $7.86.

Genco's shares have been up and down over the past week, shooting up by about 16% on Tuesday to a $9.51 close before falling steadily over the week to pre-spike levels.

"The stock has been all over the place," one analyst said. "The company gave a presentation in the city a few days ago, and the stock really rallied going into the presentation. Then it sold off afterwards...now they've basically given back the entire gains from Tuesday."

Textron rises on bid rumors

Textron's 4.5% convertible due 2013 rose about 7 points outright amid speculation that it could be a possible takeover target for United Technologies Corp.

The notes traded at 159 against a common stock price of $19 during the day, although the stock eased back later in the day.

Textron common stock jumped 6.76% or $1.18 on Friday to close at $18.63.

The move came amid a tender offer by Textron to buy all the convertibles for between $1,075.93 and $1,790.22 per note, depending on the stock price. The payment for convertible holders increases with the stock, up to a share price of $22.50.

"The stock...has pulled back a little today, but it's trading at parity to the tender offer," an analyst said.

Shares of Textron, a Providence, R.I.-based diversified manufacturer, jumped Friday after reports that United Technologies was seeking $10 billion to $20 billion of financing to make an acquisition.

A new report after the market closed speculated that the target was actually Goodrich Corp., another aerospace and defense supplier.

One trader said it was not clear that Textron was what United Technologies was eyeing, even if the companies could be a good fit.

"The one question is this: UTX is trying to raise $10 billion to $20 billion, which is a lot of money to raise for a $5 billion market cap company," the trader said. "But it's still an intriguing possibility. Even if UTX buys another company, that might trigger even more consolidation in the industry, so Textron could still be in play."

Alcoa gets tender treatment

Alcoa's 5.25% convertible due 2014 traded at 195.75 versus a common stock price of $11.89, up by about 10 points outright from Sept. 13 levels, before Textron's tender offer was announced.

Alcoa, a Pittsburgh-based aluminum producer, saw its stock close at $11.97 on Thursday, up by 0.08% or $0.01.

"Alcoa's probably active only because of Textron's recent offer," one sellsider said. "Alcoa has been rumored to be a flush-out candidate for some time. Will they ever want to do something similar to Textron? I don't know."

One analyst noted that Alcoa's convertibles, which are convertible at $6.43 per share, are so far in the money that the company could be better off paying off note holders at a slight premium right now and saving some coupon payments.

The only problem is that those conditions have been around for around two years, but the company has resisted making a tender offer all this while.

"This particular bond's looked that way for two years," the analyst said. "Textron's news comes out, and the first thing every banker and capital market guy in converts is calling Alcoa and saying, hey, look what Textron's doing."

Mentioned in this article:

Textron Inc. NYSE: TXT

Alcoa, Inc. NYSE: AA

Amgen Inc. Nasdaq: AMGN

Genco Shipping and Trading Ltd. NYSE: GNK

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