Tyson adds tangible equity units to deal pipeline; Herbalife earnings below expectations

By Stephanie N. Rotondo

Phoenix, July 28 – Tyson Foods Inc. announced plans to sell up to $1.5 billion of tangible equity units on Monday, adding a new deal to the convertible pipeline.

Morgan Stanley & Co. LLC, RBC Capital Markets and J.P. Morgan Securities LLC are running the books.

The units will consist of a prepaid stock purchase contract and a senior amortizing note. The contract will settle July 15, 2017 – the same day the final installment payment on the notes is also due.

A trader noted that the food producer had put out earnings early in the day, showing a 4.4% increase in quarterly profit and announcing a sale of its Mexican and Brazilian units to JBS SA.

Proceeds from the units sale will be used to fund a merger with Hillshire Brands Inc.

Tyson’s stock ended up $1.02, or 2.58%, at $40.56.

The new deal did not price by Monday’s close.

Meanwhile, a trader said that Herbalife Ltd.’s equity had been moving higher ahead of the company’s earnings release late Monday.

However, he noted that there was “not a lot of movement in the converts.”

The company’s 2% convertible notes due 2019 traded with a 94 to 95 handle on Friday. Come Monday, the issue improved to 96.125, as investors expected the company to report its 22nd consecutive above-estimates profit.

The stock underlying the convertible debt was up $1.42, or 2.15%, at $67.48 on Monday.

However, the stock fell as much as 7% in after-market dealings as earnings came in a penny below analysts’ expectations.

The company posted earnings of $1.55 per share on revenue of $1.31 billion. Analysts polled by Thomson Reuters had forecast earnings of $1.56 per share on revenue of $1.36 billion.

Despite missing estimates, the company raised its full-year guidance to $6.17 to $6.32 per share. Still, analysts were projecting $6.30 per share at the low end.

Herbalife has recently been in the news, as investor Bill Ackman has decried the company as a pyramid scheme, holding a presentation last week in an effort to push the company out of business.

Ackman is short the stock, a bet totaling about $1 billion.

Right after the call, investors seemed to take Ackman’s allegations to heart, sending the stock downward. But the equity soon recovered and some investors – including Carl Icahn – have defended the company against Ackman’s claims.

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