DealerTrack, homebuilder merger plans in focus; planned Restoration Hardware looks rich

By Rebecca Melvin

New York, June 15 – Merger news on Monday pulled some convertibles into focus but didn’t spur as much activity as expected, market sources said.

DealerTrack Technologies Inc.’s convertibles surged 48 points on an outright basis in active trade after news that Cox Automotive Inc. has offered to acquire the Lake Success, N.Y.-based auto-retail-software services company for $4 billion, or $63.25 per share.

DealerTrack shares surged 58% to $62.98, and the DealerTrack 1.5% convertibles were the most actively traded issue in the convertibles space, according to Trace data.

Elsewhere, the convertibles of Standard Pacific Corp. and the Ryland Group Inc. weren’t heard in active trade after the two homebuilders, both based in Southern California, announced a merger of equals to create a single company that would have an equity market capitalization of about $5.2 billion, or an enterprise value of about $8.2 billion.

In the primary arena, Restoration Hardware Holdings Inc.’s planned $250 million of five-year convertibles, launched ahead of the market open on Monday, looked rich at the midpoint of talked terms, assuming a credit spread of Libor plus 300 basis points and a vol. of 30%, a Connecticut-based trader said.

Using those inputs at the midpoint of talk, the deal looked to be worth fair value of 98.2. At the cheap end of deal talk, the deal valued at 100.2, the trader said.

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