ImClone slips on board change; Mills gains on offer; United Therapeutics improves; GM slips

By Kenneth Lim

Boston, Oct. 25 - Earnings and related news dominated the convertible bond market on Wednesday, with ImClone Systems Inc. slipping slightly on a dollar-neutral basis after new management said the company was not for sale.

The Mills Corp. gained outright after the company received an offer for a $1.2 billion cash injection in exchange for stock.

United Therapeutics Corp.'s new 0.5% convertible due 2011 improved slightly after the deal arrived near the cheap end of talk.

Meanwhile, Wesco International Inc. and Kemet Corp. announced plans for new offerings expected to price Thursday after the market closes.

In the secondary market, General Motors Corp.'s three convertible series fell with the stock after the company's third-quarter results failed to rally investors.

General Motors' 4.5% convertible due 2032 (NYSE: GXM) and putable in March, slipped 0.16% or 0.04 point to close at 24.93 against the closing stock price of $34.71. Versus the same stock price, its 5.25% convertible due 2032 (NYSE: GBM) retreated 0.92% or 0.19 point to 20.44, while the longest-dated 6.25% convertible due 2033 (NYSE: GPM) eased 2.07% or 0.5 point to close at 23.70. General Motors stock (NYSE: GM) lost 4.09% or $1.48 over the session.

"All of them were lower, although the GXMs aren't really trading to the stock now because of the put," a sellsider said.

General Motors on Wednesday narrowed its third-quarter loss to $115 million, or 20 cents per share, from its year-ago loss of $1.7 billion, or $2.94 per share. The Detroit-based auto maker also narrowed its estimated liability for employee benefits at supplier Delphi, to between $6 billion and $7.5 billion, from the earlier range of $5.5 billion to $12 billion, suggesting significant progress in its labor negotiations.

"I don't think any of this was really a big surprise," the sellsider said. "The stock and the bonds have been improving over the past few months, so I think investors were hoping for more."

Nabors dips

Nabors Industries Ltd.'s 0.94% convertible due 2011 slipped slightly with the stock after the company reported third-quarter earnings that were weaker than expected.

The convertible traded at 96 versus a stock price of $31. Nabors stock (NYSE: NBR) closed at $31.23, down by 0.38% or 12 cents.

Bermuda-headquartered Nabors, a land drilling contractor, reported net income of $292.8 million, or $1.02 per share, against a year-ago profit of $178.9 million, or 55 cents per share.

A buyside convertible analyst said that although management's comments during a conference call suggested that the company expects to meet guidance next year, the latest results were not as strong as the Street was hoping.

"They're not high quality earnings," the analyst said.

The analyst said management also reaffirmed its position that if the company's stock remains low for a long time, the company will definitely consider options to improve shareholders' returns, which could include recapitalizations, buybacks and even selling the company. But the analyst stressed that this is the same stance the company took in the previous quarter.

"I didn't get the sense there there's anything imminent [in selling the company]," the analyst said.

ImClone slips without buyout

ImClone's 1.375% convertible due 2024 was flat outright but slightly weaker on a dollar-neutral basis after the company said it was not for sale and it would continue to focus on its only drug product.

The convertible traded at 89.75 versus a stock price of $29.50, while ImClone stock (Nasdaq: IMCL) closed at $31, a 5.3% or $1.56 gain.

"People were hoping that Icahn would push for a sale of the company, but it seems like they're now saying that they're not looking for any buyers," a buysider said. "So all they have now is Erbitux, their only drug, which is not very encouraging because of all the new competition it's now facing."

Joe Fischer resigned as interim chief executive of ImClone on Wednesday amid pressure from activist investor Carl Icahn, who is now chairman of the drug maker's board. Three board members, whom Icahn had opposed, will also not seek re-election. An Icahn associate, Alex Denner, heads an executive committee tasked with finding a new chief executive.

In a conference call on Wednesday, Denner said the company was not for sale, and reaffirmed efforts to step up marketing and development of the cancer drug Erbitux. The company also said it had no plans to lower the price of Erbitux to match a new drug offered by rival Amgen.

Mills gains on investment offer

The Mills Corp.'s 6.75% convertible preferred improved about five points outright with the stock on Wednesday after an Israel-based company offered to invest up to $1.2 billion in the company.

The convertible traded at 88.17 with the stock at $19.45. Mills stock (NYSE: MLS) closed at $19.35, up by 13.76% or $2.34.

"These don't usually trade much," a sellside convertible bond trader said, noting that the cash-strapped company's suspension of its preferred dividends had been expected. "I would think having $1.2 billion in cash would be good for the credit, especially now that the company isn't paying dividends on its preferreds."

Arlington, Va.-based Mills said Wednesday that Tel Aviv-based Gazit-Globe, a real-estate investment company, offered to invest up to $1.2 billion in exchange for new class B stock at $24.50 per share and a majority of Mills' board seats. Gazit-Globe already has a 9% stake in Mills, a real estate investment trust that runs shopping centers.

The convertible bond trader noted that the offer is far from a done deal.

"I don't think it's clear yet whether this deal will go through, based just on where the market's trading," the trader said. "Mills has been talking about trying to find a buyer, so the company may seek other bids before it decides on this one."

United Therapeutics gains on debut

United Therapeutics' new 0.5% convertible due 2011 made slight gains on its first day of trading after the deal arrived near the cheap end of talk.

The convertible changed hands at 100.5 against a stock price of $62.17. United Therapeutics stock (Nasdaq: UTHR) retreated 1.5% or 93 cents to close at $61.24 on Wednesday.

United Therapeutics' $210 million offering priced near the cheap end of talk Tuesday after the market closed, with a coupon of 0.5% and an initial conversion premium of 21%. The notes were sold at par. Price talk guided for a coupon of 0% to 0.5% and an initial conversion premium of 20% to 24%.

There is an over-allotment option for a further $40 million.

Deutsche Bank was the bookrunner of the Rule 144A offering.

United Therapeutics, a Silver Spring, Md.-based drug maker, said it will use $112 million of the proceeds to concurrently buy back 1.8 million shares of its common stock at $62.17 apiece as part of its 4 million-share repurchase program. It will also use the proceeds to fund convertible note hedge and warrant transactions, and for general purposes.

The deal had been described as a tough investment for outright buyers, with the low coupon as the main stumbling block.

"I know it priced at the cheap end, but it didn't look too appealing to us," a sellside convertible bond trader said. "There's a low coupon and the premium's too high for that."

Wesco, Kemet plan deals

Two deals are expected to price Thursday after the market closes.

Wesco's $250 million offering of 20-year convertible senior debentures is talked at a coupon of 1.625% to 2.125% and an initial conversion premium of 32.5% to 37.5%.

There is an over-allotment option for a further $50 million.

Lehman Brothers is the bookrunner of the Rule 144A offering.

Wesco, a Pittsburgh, Penn.-based distributor of electrical construction products and supplies, said the proceeds of the deal will be used to help finance its previously announced acquisition of Communications Supply Holdings Inc.

Kemet Corp.'s planned $160 million of 20-year convertible senior notes is talked at a coupon of 2.25% to 2.75% and an initial conversion premium of 25% to 30%.

There is an over-allotment option for a further $15 million.

Credit Suisse and Deutsche Bank are the bookrunners of the Rule 144A offering.

Kemet, a Simpsonville, S.C.-based maker of capacitors, said the proceeds of the deal will be used to buy back up to $25 million of its common stock, to fund any future acquisitions and for general purposes.

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