Morning Commentary: Danaher’s mandatory convertible preferreds eyed; Nio gains outright

By Abigail W. Adams

Portland, Me., Feb. 26 – The largest mandatory convertible preferred stock deal of the year is set to price after the market close on Tuesday.

Danaher Corp. plans to price $1.35 billion of par of $1,000 three-year series A mandatory convertible preferred stock with price talk for a dividend of 5.25% to 5.75% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

Using assumptions of 100 basis points over Libor and a 23% vol., the deal modeled 3.75 points cheap at the midpoint of talk, a market source said.

The deal is good quality paper from an investment-grade name, a market source said. The equity holder list is also full of crossover investors.

With Welltower, Inc.’s 6.5% series I cumulative convertible perpetual preferred stock to be converted on Feb. 28, accounts will have plenty of space for the new paper, a market source said.

Demand for the mandatory convertible preferred stock is expected to be strong.

The mandatory convertible preferred stock is pricing concurrently with a $1.35 billion offering of common stock.

The timing of the deal was interesting, one market source noted.

While proceeds from the convertible preferred stock offering will go toward funding Danaher’s high-profile acquisition of GE’s biopharmaceutical division, the acquisition is not expected to close until December.

Meanwhile, the secondary space was active early Tuesday with $111 million on the tape.

Nio Inc.’s 4.5% convertible notes due 2024 were active with the notes continuing to make gains on an outright basis with stock again jumping early Tuesday.

The notes jumped to 105 early Tuesday after closing Monday at 101.

However, with no borrow on the stock, the notes were contracting on a dollar-neutral basis as stock climbed, a market source said.

When Nio priced the 4.5% convertible notes on Jan. 31, the premium on the notes was 27.5% with stock at $7.46.

The notes were trading with a premium of 8.5% with stock trading around $8.75 on Monday, a market source said.

Nio stock again jumped to $9.92, an increase of 10.22%, shortly before 11 a.m. ET on Tuesday.

Stock has been on an upward trajectory since a 60 Minutes segment on the Shanghai-based electric car manufacturer on Sunday.

Stock was also up over 9% on Monday.

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