Livongo Health, Teladoc convertible notes in focus on merger; Square hits new heights

By Abigail W. Adams

Portland, Me., Aug. 5 – The convertibles primary market remained dormant on Wednesday with the first week of August shaping up to be another deal-free week.

The silence from the primary market was surprising to some sources given the amount of companies that had exited their earnings season blackout and the whispers of an active pipeline.

However, other sources were expecting a lull of activity until mid-August given the rapid-fire pace of new issuance in the second quarter.

“People needed a break,” a source previously said.

Meanwhile, the lack of new paper has turned the secondary space into a seller’s market, a source said.

The market continued to be bid up as buyers pick over outstanding issues, credit holds and volatility remains good, the source said.

While volume remained relatively light on Wednesday with holders of notes reluctant to sell, there were some large movements in the space following company news and earnings reports.

Teladoc Inc.’s and Livongo Health Inc.’s convertible notes were in focus and trading off following news the companies would merge.

Square Inc.’s convertible notes hit new heights as stock continued to break out following earnings.

The merger

Teladoc’s and Livongo’s recently priced convertible notes were in focus on Wednesday with both issues trading down following news the virtual health care companies would merge in a deal valued at $18.5 billion.

Teladoc’s 1.25% convertible notes due 2027 were down 9 points outright to trade at 122.875 with stock off more than 17% early in the session.

The notes saw a slight rebound and were changing hands around 124.625 in the late afternoon.

One source saw the notes contracted about 5 points dollar-neutral early in the session.

However, another source saw the 1.25% notes moving in line in the late afternoon.

While down outright, Teladoc’s 3% convertible notes due 2022 and 1.375% convertible notes due 2025 are deep-in-the-money and were moving in line with stock, a source said.

Teladoc stock traded to a high of $239.00 and a low of $199.46 before closing the day at $202.01, a decrease of 19.01%.

Livongo’s 0.875% convertible notes due 2025 sank more than 22 points outright with stock off more than 8%.

The notes, which had topped double par, were changing hands at 180.5 early in the session.

They rebounded as stock pared its losses in intraday activity and were seen trading as high as 196. However, they again dropped to 181 in the late afternoon.

Sources pegged the notes contracted 2 to 5 points dollar-neutral.

Livongo stock traded to a high of $150.00 and a low of $124.13 before closing the day at $128.06, a decrease of 11.4%.

Livongo shareholders will receive 0.592 of a share of Teladoc stock in addition to $11.33 cash for each share in the transaction.

The convertible notes will remain outstanding in the merger.

The change-of-control clause was not triggered because the cash portion of the deal is only 7% and the threshold for a fundamental change is 10%, a market source said.

Teladoc priced a $1 billion issue of the 1.25% notes in May.

Livongo priced a $500 million issue of the 0.875% notes in early June.

Square’s new heights

Square’s convertible notes saw heavy volume and were trading at fresh heights as the mobile payment company’s stock continued its upward movement post-earnings.

Square’s 0.5% convertible notes due 2023 topped double par in active trading.

They reached as high as 204 before coming in to trade around 198.5 in the late afternoon, according to Trace data.

The 0.125% convertible notes due 2025 traded up to 146 in the late afternoon.

They were the highest outright levels for the notes since both issues priced.

Stock continued its upward momentum after a large earnings beat, again setting a new 52-week high, which it has consistently broken throughout July.

Square stock traded as high as $158.43 and as low as $146.20 before closing the day at $146.55, an increase of 7.10%.

In a report that was released early due to a press leak, the company announced earnings per share of 18 cents versus analyst expectations for earnings of 5 cents.

Revenue of $1.92 billion trumped expectations for revenue of $1.13 billion.

Square priced a $1 billion issue of the 0.125% notes in early March.

The notes initially sold off amid the chaos in markets, trading as low as 77 in late March, as the Covid-19 pandemic shuttered the U.S. economy.

However, stock has been on fire throughout the past two months as cash-free payment methods have risen in popularity.

Mentioned in this article:

Livongo Health Inc. Nasdaq: LVGO

Square Inc. NYSE: SQ

Teladoc Inc. NYSE: TDOC

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