Convertibles little changed: Wyeth steady on Pfizer deal; Amgen active ahead of earnings; AMD gains

By Rebecca Melvin

New York, Jan. 26 - Earnings news drove some activity in the convertible bond market Monday, but, on the whole, trading was quiet. Most names were little changed, including the convertibles of Wyeth after Pfizer Inc. confirmed that it agreed to buy the rival pharmaceutical company for $68 billion.

The Pfizer-Wyeth news confirmed news reports Friday that the two companies were in talks. But the significance of the deal to the convertible paper of Wyeth, which is putable in July before the deal is expected to close, is minimal, sources said.

Amgen Inc. was active and steady to a little higher ahead of its earnings report posted after the close.

After 4 p.m. ET, the biotechnology giant reported net income rose 15%, with earnings per share in line with analysts' estimates. But Amgen's 2009 outlook showed sales falling short of estimates, although earnings were in line. Amgen shares moved lower in after-hours trading.

Advanced Micro Devices Inc. saw its convertibles bounce back a little following selling that hit the name Friday when the Sunnyvale, Calif.-based chipmaker reported earnings.

Among financials, Bank of America Corp. convertible preferred shares traded steady at 465. SLM Corp. was heard in trade at 505 versus a share price of $9.50, and American International Group Inc. was heard in trade at 8.85 versus a share price of $1.27.

Traders agreed that it was a "quiet Monday," and there were "not any real volumes."

"The market felt like it wanted to get better. But for the most part there was no domination of any particular trends," a New York-based sellside trader said.

In economic data, existing home sales rose more than expected to a 4.74 million annual rate in December from a revised 4.45 million pace in November, the National Association of Realtors said.

The 6.5% increase in December compared to an 8.6% drop in November and signaled that buyers moved in to take advantage of discounts in the housing market.

Separately, the composite index of leading indicators rose 0.3% in December to 99.5, according to the Conference Board's preliminary estimates.

The cheery numbers helped boost the Dow Jones Industrial Average, which added 38.47 points, or 0.5%, to 8116.03; the Nasdaq Composite Index, which gained 12.17, or 0.8%, to 1489.46; and the S&P 500, which rose 0.6% to 836.57.

Wyeth little changed

Wyeth's 0.97% floating-rate convertibles due 2024 traded at 99 on Friday, which was little changed compared to Friday, sources said.

On Friday, there were trades a little over par, but they were small lots and inconsequential for an issue of this size, sources said.

The Pfizer deal "is as meaningless as it possibly can be for this paper," a New York-based sellside trader said.

Some will point to a higher rating for Pfizer, compared with the Madison, N.J.-based Wyeth, the sellsider said. But in reality, the Wyeth paper is yielding "so little that it's meaningless."

The Wyeths are yielding 3.15%, another sellsider said, concurring that there was no real uptick in pricing or volume for the Wyeth paper.

Wyeth shares slipped 35 cents, or less than 1%, to $43.39 on Monday.

The acquisition is expected to close late in the third quarter or in the fourth quarter, which is after a holder put on the Wyeth paper on July 15. Wyeth could sweeten the paper to keep it outstanding, a sellsider suggested.

The $68 billion deal translates into roughly $50.19 per share of Wyeth, which marks a 29% premium to where the shares closed before the Wall Street Journal reported the two were in talks.

New York-based Pfizer plans to pay for the deal with a mix of cash, stock and debt. Pfizer also indicated it will also halve its quarterly dividend to $0.16 per share in connection with the transaction.

The merger, which will enable synergies and combine drug pipelines, is said to be aimed at helping replace revenue Pfizer expects to lose when its blockbuster Lipitor drug comes off patent in 2011.

Bolstering new drug development will be key in generating earnings growth. Pfizer posted better-than-expected earnings results for the latest quarter but issued downside guidance. Wyeth fell short of the quarterly consensus earnings-per-share estimate.

Amgen in line to slightly higher

Amgen's 0.125% convertibles due 2011, or the A paper, traded at 93 versus a share price of $53.25 intraday; while the Amgen's 0.375% convertibles due 2013, or the B paper, traded at 91 versus a share price of $53.25.

The B paper was seen settling a little lower at 90.5 by the close.

Shares of the Thousand Oaks, Calif.-based company closed up $1.22, or 2.3%, at $54.41.

"There were some buyers there early in the morning ahead of the earnings to play the vol.," a sellsider said. But "this is a boring piece of paper right now. Medtronic has better yield, and if you don't like Wyeth at 3.15%, then it's unlikely you'll like Amgen."

AMD bounces back

Advanced Micro Devices' 5.75% convertibles due 2012 traded at 30.5 on Monday, compared to a close of 29.75 on Friday.

AMD's 6% convertibles due 2015 traded at 28.5 on Monday, compared to 27 bid, 28 offered on Friday.

Meanwhile, AMD shares settled down 6 cents, or nearly 3%, at $2.01.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Amgen Inc. Nasdaq: AMGN

Wyeth NYSE: WYE

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