NEW YORK (GenomeWeb News) – Cepheid said after the close of the market on Tuesday it has increased the amount of convertible senior notes it is offering and has priced them.
Cepheid raised the offering to $300 million from $250 million announced earlier this week and has granted the initial purchasers an option to purchase an additional $45 million of notes to cover any overallotments. Morgan Stanley and Jefferies are the initial purchasers of the notes.
Net proceeds from the offering are expected to be about $291.9 million, or $335.8 million if the overallotment option is exercised. Cepheid said about $21.8 million will be used to pay the cost of capped call transactions, which the company entered into with one or more of the initial purchasers of the notes. A capped call is a type of security that places a limit on the holder's profit.
Remaining net proceeds will go toward general corporate purposes, including acquisitions and strategic transactions. If the overallotment option is exercised, Cepheid plans to use the additional net proceeds to pay for the cost of entering into additional capped call transactions with the counterparties, as well as for general corporate purposes, it said.
The notes will be unsecured senior obligations of Cepheid. Interest is payable semiannually in cash at a rate of 1.25 percent per annum on each Feb. 1 and Aug. 1 starting on Aug. 1, 2014. The notes mature on Feb. 1, 2021.
Prior to the close of the business day on Aug. 1, 2020, they will be convertible at the option of holders during certain periods. Afterwards, the notes will be convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.
When converted, the notes may be settled in shares of Cepheid's common stock, cash, or a combination of the two at Cepheid's discretion.
The notes will have an initial conversion rate of 15.3616 shares of Cepheid common stock per $1,000 principal amount of notes, representing an initial effective conversion price of about $65.10 per share.
"While we are not fans of unnecessary dilution or leveraged balance sheets for a company that is still trying to establish consistent free cash flow, we see this as something that has minimal interest expense, has some form of dilution protection, and gives the company a stronger negotiating position for the acquisition targets or strategic deals it is clearly contemplating right now," William Blair analyst Brian Weinstein said in a note published this morning. "We are curious to see what this cash will bring to the company since it has never been very acquisitive in the past and has never really commented on the criteria for acquisitions in terms of size, areas of interest, willingness for dilution, etc."