WebMD convertibles jump on KKR purchase news; Arconic results beat as bonds wane; Novavax up

By Stephanie N. Rotondo

Seattle, July 24 – WebMD Health Corp.’s convertibles dominated Monday trading in the convertible bond market after it was announced private equity firm KKR & Co. was buying the company.

A trader said volume among WebMD’s three convertible issues took up at least half of the day’s total volume.

“It’s all one name,” he said. “If it’s not WebMD, then nothing is going on.”

Arconic Inc.’s paper was meantime weaker after the company reported second-quarter results – even though the earnings beat expectations.

Investors were also keeping an eye on Novavax Inc. The novel vaccine creator held a conference call after the close on Monday to discuss topline results of a phase 2 safety and immunogenicity study on a vaccine for respiratory syncytial virus. Leading up to the call, the company’s 3.75% convertible notes due 2023 ticked up 1 to 1.5 points.

The stock was also marginally better.

“We might get some action off of that,” a trader said, referring to expectations that the name might be active come Tuesday.

“There’s no question they’ve got good news this time around,” he added.

After the session’s close, Team Inc. announced a $175 million Rule 144A offering of six-year convertible notes.

Price talk is for a 4.75% to 5.25% yield and an initial conversion premium of 37.5% to 42.5%.

The company’s shares closed at $23.80 on Monday.

J.P. Morgan Securities LLC and BofA Merrill Lynch are the joint bookrunners.

There is a $26.25 million over-allotment option.

Conversions will be settled in cash, common stock, or a combination of the two, at the company’s option.

The convertibles become redeemable on Aug. 5, 2021, under certain circumstances.

Proceeds will be used to repay all outstanding borrowings under the term loan portion of a banking credit facility and for general corporate purposes.

Team is a Sugar Land, Texas-based provider of specialty industrial services, including inspection and assessment, required in maintaining and installing high-temperature and high-pressure piping systems and vessels that are utilized extensively in the refining, petrochemical, power, pipeline and other heavy industries.

WebMD adds on KKR buyout

WebMD’s convertibles got a boost on Monday on news KKR was taking over the online medical information provider.

A trader saw the 2.625% convertible notes due 2023 trading with a 99 handle, while the 1.5% convertible notes due 2020 were pegged just north of 138.

He also saw the 2.5% convertible notes due 2018 trading near 105.5.

The trader noted that “there’s takeover protection involved.”

Another market source placed the 2.625% convertibles in a 99 to par context, which compared to 97.5 previously. The 1.5% convertibles were around 138, versus previous levels around 123.

And, the 2.5% convertibles were placed in a 105.5 to 106 range, up from 101.75.

A third source deemed the 2.625% convertibles up about 2.5 points, trading just south of par. The 1.5% convertibles were seen just north of 138, a gain of over 16 points.

And, the 2.5% convertibles were pegged at 106, up 4.5 points.

As for the underlying equity, it was up $10.91, or 19.77%, to $66.10.

KKR is paying $66.50 a share for WebMD, bringing the total purchase price to about $2.8 billion.

On a per-share basis, the price represented a 20.5% premium over Friday’s closing share price.

Just five months ago, WebMD said it was considering its strategic options, as advertising revenue dwindled.

KKR plans to fold WebMD and its various websites into its Internet Brands unit.

Also on Monday, WebMD announced financial guidance for the second quarter.

Revenue is expected to be about $176 million, a gain of 5% year over year.

The company had previously forecast revenue of $170 million to $173 million.

Net income is meantime being projected at $18.9 million, up 6% from the previous year. That compared to previous guidance of $16.9 million to $18.5 million.

Net income for the quarter includes an after-tax expense of $1.3 million, as well as a modest after-tax gain.

As for adjusted EBITDA, it is expected to be about $54 million, up 8% from the second quarter of 2016.

That’s better than the previous guidance of $49 million to $51 million.

Arconic falls post-earnings

Arconic’s 5.375% class B series 1 mandatory convertible preferred stock (NYSE: ARNCPrB) lost ground in Monday trading, even as the company reported better-than-expected quarterly results.

The convertible preferreds fell 67 cents, or 1.68%, to $39.15.

The company’s shares were also weaker, slipping 4 cents to $25.17.

For the second quarter, Arconic posted earnings of $212 million, or 43 cents per share. That was up $135 million, or 27 cents a share, the year before.

On an adjusted basis, EPS came to 32 cents, which was just below year-ago EPS of 33 cents.

Revenue increased to $3.26 billion.

Analysts had expected EPS of 26 cents on revenue of $3.18 billion.

The company also upped its full-year guidance. Sales are now expected to be $12.3 billion to $12.7 billion, up from $11.8 billion to $12.4 billion.

Adjusted EPS was increased by a nickel on the low end to $1.15 to $1.20 a share.

Novavax trades higher

Novavax’s 3.75% convertible notes were climbing higher on Monday ahead of an after-hours conference call to discuss the latest results of its RSV F vaccine.

A market source saw the convertibles in a 49.5 to 49.75 context, up 1 to 1.5 points.

The company’s equity ticked up 3 cents, or 2.03%, to $1.51.

The phase 2 results from a study of 300 older adults – that group being one of the most susceptible to RSV infections, as well as infants – indicated that the use of adjuvants helped improve the efficacy of the vaccine.

The results also showed that a double dose helped improve efficacy.

The company is also hoping that it can start a phase 2 efficacy study on the vaccine as a way to treat chronic obstructive pulmonary disease.

Ahead of the call, a trader speculated that the much-hyped call would bring “good news.” He noted the company had held a similar call in September, but those results were not so great. As such, the company’s stock – then trading around $8.00 a share – dropped all the way to $1.00.

“[If the stock] gets a good move up, these bonds are going to move a lot,” the trader said.

Mentioned in this article:

Arconic Inc. NYSE: ARNC

Novavax Inc. Nasdaq: NVAX

Team Inc. NYSE: TISI

WebMD Health Corp. Nasdaq: WBMD

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