Omnicare converts plunge on raid news; new DRS issue slows down; GMAC bids lift GM

By Kenneth Lim and Ronda Fears

Boston, Jan. 30 - Omnicare Inc. convertibles dropped with its stock amid a probe at the pharmaceutical care provider's Michigan offices, while the new issue from DRS Technologies Inc. opened Monday on a positive footing only to slide back later in the day.

"It kept us busy all day," said a trader of the Omnicare developments.

Elsewhere, a wave of profit taking washed down gains on the convertibles of CV Therapeutics Inc. and Nektar Therapeutics despite recent positive news on the drug approval front for both of the biotech companies. But First Horizon Pharmaceutical Corp.'s convertibles did better as investors bought ahead of the drug company's 2005 results.

General Motors Corp.'s (NYSE: GM) three convertibles also rose, following the stock on news that banks including Citigroup and Wachovia Corp. are bidding for control of the company's General Motors Acceptance Corp. financial services unit.

The 4.5% convertibles, which mature in 2032, gained half a point or 2.2% to close at 23.20 against a stock price that climbed $0.54, or 2.27%, for a $24.34 close. The Detroit-based auto maker's 5.25% convertibles, which mature in 2032, stepped up 0.23 point or 1.43% to end at 16.64, while the 6.25% bonds due 2033, finished at 18.25, up 0.39 point or 2.18%.

A buy-side analyst said that while the bidding news was the driving force behind the rally, investors also bought on speculation ahead of General Motors' expected dividend announcement on Wednesday.

The 3.375% convertibles of Eastman Kodak Co. (NYSE: EK) retreated on Monday along with the stock after the Rochester, N.Y.-based photography company revealed its fifth straight loss-making quarter. The convertible traded around 102 on Monday, under the 103-to-104 range from the previous session, against a stock price of about $25.75, according to sell-side sources. By the end of the day, the stock had slid 0.62 points or 2.35% to $25.75.

In other developments, the convertibles research group from Barclays Bank has issued an alert on the stock price of Paris-based Technip as it approaches the level that will allow the oil and gas engineering company to call its convertibles. The 1% Oceane convertible bonds, which mature in 2007, could be called if the stock opens at €54.30 or higher in Euronext trading on Tuesday.

The Barclays analysts believe that Technip is likely to exercise its call option if it can. That would then give investors at least a month to convert their bonds. Technip's American Depository Receipts (NYSE: TKP) closed on Monday up a half point, or 0.72%, at $69.47.

India pipeline fills

Also, new convertible offerings from Indian issuers continue to appear, the latest being Matrix Laboratories Ltd.

The Secunderabad, India, manufacturer of active pharmaceutical ingredients said on Monday that its board has approved an issue of up to $200 million of foreign currency convertible bonds, Global Depository Receipts, American Depository Receipts, preferred shares or a combination of the securities. Matrix shareholders will vote on the issue at a March 1 meeting, but Matrix Labs shares took a dive in Bombay on Monday, dropping Rs. 11.55 or 4.22% to Rs. 262.15. Matrix intends to use proceeds to repay its bridge loan and/or term loan as well as for growth.

Matrix's possible offer comes after Mumbai-based Bajaj Hindusthani priced $120 million worth of zero-coupon convertibles.

A buy-side source also said Videocon Industries Ltd., a Chitegaon, India, conglomerate, is expected to announce a deal soon.

Omnicare takes hit from investigations

News from Friday that the Michigan attorney general had raided the offices of Covington, Ky.-based Omnicare (NYSE: OCR), which provides pharmaceutical services for the elderly, prompted a sell-off of its stock and convertibles.

A sell-side source said Omnicare's 4% preferred convertible bonds came in on an outright basis, closing down 7.85, or 10.89%, at 64.25. The stock fell $6.09 or 11.06% to $48.96, on Monday. On a hedged basis, the convertible was "out a little," according to the source.

"This should be interesting," the source added.

Omnicare said it aims to "comply with all laws and regulations" and added that it has a policy of cooperating with government inquiries.

"As part of the normal course of business in this highly regulated business, we and our industry peers deal with government reviews and inquiries on a regular basis," the company said in a statement. "Unless disclosure is otherwise required, we do not comment on - or confirm - government reviews or inquiries."

Reuters quoted analysts as saying that Omnicare had told them that the investigation wouldn't be material.

DRS issue starts strong, loses some steam

Defense company DRS (NYSE: DRS) priced $300 million of 20-year convertible bonds to yield 2% at an initial conversion premium of 20% early Monday, but the new issue lost some of its early steam.

Analysts were unexcited about the terms.

A buy-side source said the convertibles started around a quarter to a half point above par, but the gain had shrunk to about an eighth by late morning. In the afternoon, the convertible changed hands at about 99¾ against a stock price of $49.23, according to another source.

DRS' stock ended the day down $0.35 or 0.70% at $49.40.

An analyst said that even though he liked the Parisppany, N.J.-based company's credit and management, the bonds were "just fair in terms of valuation."

"I would have liked to see a higher coupon on it, but...it's fair," the analyst said.

Another buy-side analyst said the lack of excitement over the issue was due to the low carry from having a low coupon and low volatility in the stock.

"If you're comparing 5% money markets to convertibles, a 2% convertible with almost no volatility is not going to help you compete with indexes," the analyst said.

Still, the deal priced at the middle of talk. Guidance was for a yield of 1.75% to 2.25% with a conversion premium of 17.5% to 22.5%. There is also a $45 million greenshoe.

Bear, Stearns & Co. Inc. was the bookrunner for the deal, which sold under Rule 144A. Wachovia Capital Markets, LLC was joint lead manager.

CV Therapeutics sees profits taken

CV Therapeutics (Nasdaq: CVTX) traded actively but ended off its highs after some profit takers shifted out of the situation to look for greener pastures.

The company on Friday got Food and Drug Administration approval for the chronic angina drug Ranexa, its first to hit commercialization, and in response the stock shot up in Friday.

On Monday convertible traders said the action in the Palo Alto, Calif., company's convertible bonds mimicked that of the stock.

"There was a lot of activity in these bonds today, a lot," said a sell-side convertible trader. "It was a lot like what happened with the stock, though.

"The [converts] opened a lot higher, like at 120, and they went out Friday at 118.5, then traded up to 121.625 early on. After noon they hit the skids, though, and the last I saw, around 2:30 [p.m. ET] or so, the bonds were at 119 with the stock at $26.22."

The CV Therapeutics 3.25% convert due 2013 closed at 115.5 bid, 116 offered, according to another sell-side shop.

The source there said he thought a lot of the sellers saw little upside now that Ranexa has been approved. He pointed to reports that with about 25% of the estimated 6.4 million Americans with chronic angina targeted for the drug because they are resistant to existing drugs, Ranexa sales are projected at $40 million to $60 million this year.

Nektar reverses, piques buying

Nektar's convertibles were weaker Monday along with the stock, traders said, but both found strong buying interest during the afternoon.

The Nektar 3.25% convertible due 2012 still ended the day easier by about 0.375 point on an outright basis, one convertible trader said, but he added that buying dominated action in the bonds during the afternoon whereas selling prevailed in the morning. He also noted heavy activity in the bonds.

Shares of Nektar (Nasdaq: NKTR), a San Carlos, Calif., drug delivery solutions provider, on Monday fell back 86 cents on the day, or 4.14%, to $19.89.

Nektar got a boost on Friday as news got out that Pfizer Inc.'s diabetes drug Exubera, which uses Nektar technology, was approved by the Food and Drug Administration. The drug is a powdered form of insulin that can be inhaled.

First Horizon build up seen

First Horizon Pharmaceutical Corp. shares (Nasdaq: FHRX) gained 40 cents, or 2.64%, to settle at $15.56 and convertible players - hedge funds mostly - were tapping into the story as well.

"We moved them up over 1 point today on swap," said a convertible market source at a sell-side shop. "It's a good name to own going into the quarter." Later, he added, in regard to the day's rise that the bonds have "got a lot more room to go."

Atlanta-based First Horizon is a specialty pharmaceutical company that engages in the marketing and sale of prescription products for the treatment of cardiovascular, obstetrical and gynecological, and pediatric and gastroenterological conditions and disorders.

First Horizon will release its results for the fourth quarter and year ended Dec. 31, 2005, on Feb. 23.

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