VeriSign Chairman Resigns To Run Qwest, So Why Is The Stock Higher?

There are several things happening with VeriSign (VRSN), and it is not entirely clear to me how they fit together. Feel free to explain it to me.

For starters, VeriSign Wednesday morning announced that it had priced $1.1 billion 3.25% junior subordinated convertible debentures. The conversion price is roughly $34.37, a 20% premium to Tuesday’s closing price of $28.64.

None of that is especially surprising; the company announced plans for a convert deal on Monday, and a quick read of some of the Street’s research on the news from Tuesday suggests terms were about as expected (Merrill Lynch’s Edward Maguire, for instance, wrote Tuesday that he expected the deal to carry a coupon of 2.75%-3.25%, with a conversion premium of 20%-22.5%).

VeriSign has said that it was going to use the proceeds of the deal to buy back stock; most analysts agreed that at the end of the day the convert would be accretive to earnings; Maguire’s analysis was that it would boost EPS by 2-3 cents this year, 13-16 cents next year and 17-19 cents in 2009.

Maguire also wrote that the stock might come under some selling pressure initially as convert buyers hedge their positions by shorting the stock. So that’s the interesting thing: what happened to the selling pressure? We sure weren't seeing it Wednesday. Volume has spiked; Verisign was the most actively traded non-ETF on the Nasdaq Thursday. Is the company buying back shares?

Meanwhile, the company also disclosed in an 8-K filing with the SEC that it “understands” that its chairman, Edward Mueller, intends to resign. Mueller was just named the new CEO of Qwest (Q), so I can’t imagine this comes as a big surprise.

The point of all this is the stock action: VeriSign Wednesday was up $1.59, or 5.5%, at $30.23, on volume of 28.9 million shares, already more than five times its average daily volume.

VRSN 1-yr chart: