Should Bulls Stampede Back to Hologic?
Product delay could actually benefit bondholders.
For holders of the company’s 2% convertible bonds, though, this might actually turn out to be good news.
Some bulls on Hologic -- including one for whom I have great respect -- think the stock is worth at least somewhere in the mid-to-high 20s, and possibly more. Now, the bond’s conversion price is about $38. But with the stock now down around $12, a potential acquirer stands a much better chance of buying the company in, say, the mid-to-high teens than it would have had yesterday.
In the case of a cash deal, the convertible bonds become putable at par (100). They’re currently trading around 68.
For the sake of argument, let’s say Hologic is taken over at $16. This would be a 33% increase from the current stock price. But the bonds would go up nearly 50% when putable.
Because the conversion price is so much higher than any foreseeable stock move is likely to reach, bondholders would not participate in the lion’s share of a big stock jump. If, for instance, the stock is at 35 when the bonds become regularly putable in 2013, the bonds would still only be worth 100.
So the bonds now, arguably, have a greater chance of an accelerated put while being less likely to miss out on the bulk of a big run in the stock.
Another case for convertibles.
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