NXP drops outright, on hedge after Qualcomm merger nixed; Citrix active; primary quiet

By Rebecca Melvin

New York, July 26 – NXP Semiconductors NV’s 1% convertible notes due 2019 fell on both an outright and hedged basis on Thursday after news that its proposed tie up with Qualcomm Inc. has been scrapped because China withheld regulatory approval for the deal that originates from 2016.

The bond was “trashed” on a hedged basis, a New York-based trader said, citing a 1.375 point drop. The bond closed at about 109.5 versus an underlying share price of $92.81. The stock fell $5.56, or 5.7%, and the bonds were down from 112.25 to 113.25 on Wednesday.

The canceled deal prompted the outright move, while on a hedged basis, “listed vol. came for sale in a big way. People expected listed vol. to be well bid to justify the higher valuation. And there was not enough long-only demand. Numerous funds lost a lot of money,” the trader said.

Going into the day, most market players were on a delta hedge of 45% to 50%, and the delta didn’t change much, standing at 45% at the end of the day.

As of Wednesday, there was still some hope that the companies would get the deal done despite what the stock price moves were saying, but after the market close that hope evaporated quickly. Now investors will try to determine what NXP looks like going forward and what the fundamentals are.

“The management team completely dropped the ball because earnings weren’t that great, the trader said.

Moody’s Investors Service confirmed its ratings of NXP BV and NXP Semiconductors NV and said the outlook was stable followed the announcement that Qualcomm’s acquisition agreement with NXP has been terminated, saying the action concluded a review for upgrade initiated upon Qualcomm’s announcement that it would acquire NXP for $110.00 per share in cash. That was increased in February to $127.50 per share in cash.

The China commerce ministry has been silent on the deal after letting the July 25 deadline for approval pass without a word. But it has said in the past that the matter was an anti-monopoly issue and not related to U.S.-China trade.

The NXP 1% convertibles dropped to 109.5 by late morning after ending Wednesday at 112.35 and trading at 115-116 early in the week, according to Trace data.

Citrix on the move

Elsewhere Citrix Systems Inc.’s 0.5% convertibles due 2019 were trading actively and higher in line with the underlying shares at about 156. The equity-sensitive issue was trading at around 150 on Wednesday.

Citrix shares were up $3.67, or 3.4%, at $112.91 after the company reported second-quarter earnings and revenue that was better than expected and raised its 2018 outlook.

SAExploration active

Meanwhile, Houston-based oilfield services company SAExploration Holdings Inc. said it plans to price a $50 million convertible secured note with a five-year duration, 6% coupon and 10% initial conversion premium.

The Rule 144A notes will be convertible into shares of SAE’s common stock at an initial conversion price based on an equity valuation of $55.5 million, subject to typical anti-dilution adjustments, the company said.

It was not known whether there are bookrunners for the deal. One source said that it may be looking to do the deal without bookrunners.

Otherwise the new issue market was quiet again, marking a sudden departure from a convertible primary that had been surprisingly active in the last six weeks.

“We need to get through a little more of earnings. It’s still the quiet period. Earnings have been good except for Netflix and Facebook. We’ll definitely be seeing some more deals,” a trader said.

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