Microchip Technology Announces Launch of Offering of Depositary Shares Representing Interests in Series A Mandatory Convertible Preferred Stock

Rhea-AI Summary

Microchip Technology (NASDAQ: MCHP) has announced a $1.35 billion public offering of depositary shares, each representing a 1/20th interest in Series A Mandatory Convertible Preferred Stock. The underwriters have a 13-day option to purchase an additional $135 million in depositary shares.

The preferred stock will have a $1,000 per share liquidation preference and will automatically convert into common stock on March 15, 2028. The company plans to list the depositary shares on Nasdaq under the symbol 'MCHPP'.

The proceeds will be used to:

• Fund capped call transactions to reduce potential dilution
• Repay existing debt, including commercial paper notes

J.P. Morgan, BofA Securities, and BNP Paribas are leading the offering as joint bookrunning managers, with J. Wood Capital Advisors serving as financial advisor.

Positive

• Substantial $1.35 billion capital raise strengthens financial position
• Implementation of capped call transactions reduces potential shareholder dilution
• Debt reduction initiative through repayment of existing obligations

Negative

• Potential dilution of existing shareholders upon conversion in 2028
• Additional preferred dividend obligations
• Increased complexity in capital structure

Insights

Financial Analyst

Microchip Technology's announcement of a $1.35 billion depositary shares offering representing interests in mandatory convertible preferred stock is a significant capital markets transaction with multiple strategic financial implications.

The offering structure is complex but purposeful - these mandatory convertible preferred shares will automatically convert to common stock in March 2028 (approximately 3 years from now), providing Microchip with substantial upfront capital while deferring potential dilution. The implementation of capped call transactions alongside the offering is a critical defensive mechanism that should mitigate much of the dilutive impact when conversion occurs.

Most importantly, management has clearly communicated their capital allocation priorities by earmarking the proceeds primarily for debt reduction, including outstanding commercial paper. This suggests a deliberate balance sheet strengthening initiative rather than funding operational needs or acquisitions.

The mandatory conversion feature provides investors certainty on timing while allowing Microchip financial flexibility in the near term. The variable conversion rate (details to be determined at pricing) will likely include a conversion premium that effectively prices the new equity above current market levels.

For existing shareholders, while there's potential long-term dilution despite the capped call protection, the debt reduction focus should improve financial metrics and potentially reduce interest expense, which could offset dilution impacts over time. The successful execution of this offering will demonstrate continued capital markets access for Microchip despite current semiconductor industry challenges.

CHANDLER, Ariz., March 19, 2025 (GLOBE NEWSWIRE) -- (NASDAQ: MCHP) Microchip Technology Incorporated (“Microchip” or the “Company”), a leading provider of smart, connected, and secure embedded control solutions, today announced the launch of an underwritten public offering (the “offering”) of $1.35 billion of depositary shares (“depositary shares”), each representing a 1/20th interest in a share of newly issued Series A Mandatory Convertible Preferred Stock, par value $0.001 per share (“preferred stock”), of the Company. Microchip expects to grant the underwriters of the offering a 13-day option to purchase up to an additional $135 million of depositary shares, solely to cover over-allotments, if any. Microchip intends to use a portion of the net proceeds from the offering to pay the cost of the capped call transactions described below. If the underwriters exercise their option to purchase additional depositary shares, Microchip expects to use a portion of the net proceeds from the sale of such additional depositary shares to enter into additional capped call transactions. Microchip intends to use the remaining net proceeds to repay existing debt, including notes outstanding under its commercial paper program.

J.P. Morgan, BofA Securities and BNP Paribas are acting as lead joint bookrunning managers for the offering. J. Wood Capital Advisors is acting as Microchip’s financial advisor for the offering.

Holders of the depositary shares will be entitled to a proportional fractional interest in the rights and preferences of the preferred stock, including conversion, dividend, liquidation and voting rights, subject to the provisions of a deposit agreement. The preferred stock is expected to have a liquidation preference of $1,000 per share. Unless earlier converted, each share of preferred stock will automatically convert, for settlement on or about March 15, 2028, into a variable number of shares of the Company’s common stock, par value $0.001 per share (the “common stock”), based on the applicable conversion rate, and each depositary share will automatically convert into a number of shares of common stock equal to a proportionate fractional interest in such shares of common stock. The dividend rate, conversion terms and other terms of the preferred stock will be determined at the time of pricing of the offering of the depositary shares. Currently, there is no public market for the depositary shares or the preferred stock. Microchip intends to apply to list the depositary shares on The Nasdaq Global Select Market under the symbol “MCHPP.”

In connection with the pricing of the depositary shares, Microchip expects to enter into privately negotiated capped call transactions with one or more of the underwriters or their respective affiliates and/or other financial institutions (the “option counterparties”). The capped call transactions will cover, subject to customary anti-dilution adjustments, the number of shares of common stock underlying the preferred stock sold in the offering, based on the minimum conversion rate of the preferred stock. The capped call transactions are generally expected to reduce or offset potential dilution to the common stock upon conversion of the preferred stock, with such reduction subject to a cap. If the underwriters exercise their option to purchase additional depositary shares, Microchip expects to enter into additional capped call transactions with the option counterparties.

Microchip has been advised that, in connection with establishing their initial hedges of the capped call transactions, the option counterparties or their respective affiliates expect to enter into various derivative transactions with respect to the common stock concurrently with or shortly after the pricing of the depositary shares. These activities could increase (or reduce the size of any decrease in) the market price of the common stock or the depositary shares at that time. In addition, Microchip has been advised that the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to the common stock and/or purchasing or selling the common stock or other securities of Microchip in secondary market transactions following the pricing of the depositary shares and prior to the mandatory conversion date of the preferred stock (and are likely to do so during the final averaging period relating to the mandatory conversion of the preferred stock and, to the extent Microchip unwinds a corresponding portion of the capped call transactions, following any early conversion of the preferred stock or repurchase of the depositary shares). This activity could also cause or avoid an increase or a decrease in the market price of the common stock or the depositary shares and could affect the value of the shares of common stock that holders will receive upon conversion of the preferred stock and, to the extent the activity occurs during the final averaging period relating to the mandatory conversion of the preferred stock, it could also affect the number of shares of common stock that holders will receive upon conversion.

A registration statement on Form S-3 relating to these securities has been filed with the Securities and Exchange Commission (the “SEC”) and has become effective. The offering may be made only by means of a prospectus supplement and accompanying prospectus. Copies of the preliminary prospectus supplement and accompanying prospectus can be obtained by visiting the SEC’s website at http://www.sec.gov or by contacting J.P. Morgan Securities LLC, c/o Broadridge Financial Solutions, 1155 Long Island Avenue, Edgewood, NY 11717 or by email at prospectus-eq_fi@jpmchase.com and postsalemanualrequests@broadridge.com, BofA Securities, Inc, NC1-022-02-25, 201 North Tryon Street, Charlotte, NC 28255-0001, Attention: Prospectus Department, by email at: dg.prospectus_requests@bofa.com, or by telephone at 1-800-294-1322, or BNP Paribas Securities Corp., 787 7th Avenue, New York, New York 10019 or by calling toll-free at 1-800-854-5674.

This announcement is neither an offer to sell nor a solicitation of an offer to buy any of these securities and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale is unlawful.

The Microchip logo and name are registered trademarks of Microchip Technology Incorporated.

Cautionary Statement:

The statements contained in this press release relating to the proposed offering including the expected terms of the offering, use of proceeds, listing of the depositary shares and the capped call transactions are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially, including, but not limited to: uncertainties related to equity and debt market conditions; our balance of cash and investments and the level of cash flow from our business; our available borrowings under our credit agreement; our debt leverage ratios; our ability to successfully execute on our business recovery plan; the costs and outcome of any current or future litigation, audit or investigation and general economic, industry or political conditions in the United States or internationally.  For a detailed discussion of these and other risk factors, please refer to Microchip’s recent filings on Form 10-K and Form 10-Q. You can obtain copies of our Form 10-Ks, Form 10-Qs and other relevant documents for free at Microchip’s website (www.microchip.com) or the SEC’s website (www.sec.gov) or from commercial document retrieval services. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date such statements are made.  Microchip does not undertake any obligation to publicly update any forward-looking statements to reflect events, circumstances or new information after the date of this press release, or to reflect the occurrence of unanticipated events.

INVESTOR RELATIONS CONTACTS:

Eric Bjornholt – CFO … (480) 792-7804
Sajid Daudi -- Head of investor Relations … (480) 792-7385

FAQ

What is the size of Microchip's (MCHP) Series A Mandatory Convertible Preferred Stock offering?

The offering is $1.35 billion in depositary shares, with an additional $135 million over-allotment option for underwriters.

When will Microchip's (MCHP) preferred stock convert to common shares?

The preferred stock will automatically convert into common stock on or about March 15, 2028, unless converted earlier.

What is the trading symbol for Microchip's (MCHP) new depositary shares?

The depositary shares will be listed on Nasdaq under the symbol 'MCHPP'.

How will Microchip (MCHP) use the proceeds from the preferred stock offering?

Proceeds will fund capped call transactions and repay existing debt, including commercial paper notes.

What is the liquidation preference of Microchip's (MCHP) new preferred stock?

The preferred stock will have a liquidation preference of $1,000 per share.