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Morning Commentary: Splunk convertible notes in focus early on buyout by Cisco Systems
By Abigail W. Adams
Portland, Me., Sept. 21 – While activity surrounding recent issues diminished early Thursday, the convertibles secondary space was active with news Cisco Systems Inc. was acquiring Splunk Inc. in an all-cash transaction jumpstarting activity in Splunk’s convertible notes.
Splunk’s convertible notes accounted for almost one-half of the $97 million on the tape early in the session.
While the convertible notes made large outright gains as stock jumped more than 20%, they were mixed on hedge with holders of Splunk’s shorter-duration 1.125% convertible notes due 2025 standing to lose in the takeover while holders of the 1.125% convertible notes due 2027 stood to gain.
The 1.125% convertible notes due 2027 jumped 6 points outright in early trading.
The notes were changing hands at 93.625 versus a stock price of $144.60 early in the session, according to a market source.
There was $23 million in reported volume.
The 1.125% convertible notes due 2025 rose 4 points outright.
They were changing hands at 107.125 versus a stock price of $144.57 early in the session, a source said.
There was $19 million in reported volume.
Splunk’s stock was seen at $144.58, an increase of 20.89%, shortly before 11 a.m. ET.
Stock surged after Cisco announced it would acquire the software company for $157 per share in an all-cash transaction.
The acquisition carries an equity valuation of $28 billion marking Cisco’s largest acquisition to date.
The convertible notes will be taken out in the takeover.
While outright accounts stand to gain, hedge holders of the shorter-duration notes will lose in the takeout matrix while hedge holders of the 2027 notes will gain, a source said.
However, the acquisition is not expected to close for nine months to a year and must gain regulatory approval.
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