MKS Instruments Announces Closing of Private Offering of $1.4 Billion of 1.25% Convertible Senior Notes, Including Full Exercise of Option to Purchase $200 Million of Additional Notes
MKS Instruments (NASDAQ: MKSI) announced the closing of a $1.4 billion private offering of 1.25% convertible senior notes due 2030. Net proceeds total approximately $1,374.2 million, including the $200 million option exercised by initial purchasers. $167.4 million will cover capped call transactions, and $1,206 million will repay outstanding debt. The notes, offered to qualified institutional buyers, are unsecured and bear semi-annual interest. They mature on June 1, 2030, with a conversion rate initially set at 6.4799 shares per $1,000 principal amount, a 30% premium on the last reported sale price. MKS has also engaged in capped call transactions to mitigate stock dilution.
- Successful closing of $1.4 billion private offering of convertible senior notes.
- Net proceeds of approximately $1,374.2 million.
- Full exercise of the $200 million option by initial purchasers.
- Part of proceeds ($167.4 million) allocated to capped call transactions.
- Remaining proceeds ($1,206 million) used to repay outstanding debt.
- Notes bear a low interest rate of 1.25% per annum.
- Notes have a conversion rate with a 30% premium over last stock price.
- Capped call transactions expected to reduce potential stock dilution.
- Notes are unsecured, posing a higher risk for investors.
- Significant debt repayment indicates high existing leverage.
- Interest payments will be a recurring expense until 2030.
- Potential market price volatility due to derivative transactions.
Insights
The issuance of $1.4 billion in convertible senior notes shows MKS Instruments' strategy to raise capital with relatively low-interest debt while offering potential equity upside to investors. The
Investors should note that repayment of $1.206 billion in existing debt will improve MKS's debt profile, but using $167.4 million for capped call transactions might dilute equity upon conversion. The capped call transactions aim to limit this dilution risk, with a cap price set at
For retail investors, the conversion price of $154.32 per share provides insight into the company's valuation expectations. Given MKS's stock price at
Short-term impact: Lower interest expenses and better debt structure.
Long-term impact: Potential equity dilution if shares rise significantly.
The market sentiment towards MKS Instruments appears positive given the demand for their notes, as indicated by the full exercise of the $200 million option. The ability to raise such a significant amount through a private placement suggests strong institutional investor confidence.
The structure of the notes, with provisions for early conversion subject to certain conditions, is designed to provide liquidity and flexibility. This could be appealing to investors looking for both fixed income and equity exposure. However, market behavior related to derivative transactions by the option counterparties could add volatility to MKS's stock price, affecting investor returns.
For retail investors, understanding these market dynamics is crucial. The premium on conversion and cap prices reflect a strong growth outlook, but also entail thorough scrutiny of market movements and company performance in subsequent quarters.
Short-term impact: Enhanced investor confidence and potential stock price support.
Long-term impact: Increased market volatility and potential equity price fluctuations due to derivative activities.
ANDOVER, Ma., May 16, 2024 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ: MKSI) (“MKS”) today announced the closing of its offering of
MKS used approximately
The notes are unsecured, senior obligations of MKS and bear interest at a rate of
The conversion rate for the notes is initially 6.4799 shares of MKS common stock per
Upon conversion, MKS will pay cash up to the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at MKS’s election, in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of the notes being converted. Prior to March 1, 2030, noteholders may convert all or any portion of their notes only upon the occurrence of certain events and during certain periods, and thereafter, at any time until the second scheduled trading day immediately preceding the maturity date.
If MKS undergoes a fundamental change (as defined in the indenture governing the notes) prior to the maturity date of the notes, holders may require MKS to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to
In connection with the pricing of the notes, and in connection with the exercise in full by the initial purchasers of their option to purchase additional notes, MKS has entered into privately negotiated capped call transactions with certain of the initial purchasers or their respective affiliates and other financial institutions (the “option counterparties”). The capped call transactions are expected generally to reduce the potential dilution to MKS common stock upon conversion of any notes and/or offset any cash payments that MKS is required to make in excess of the principal amount of any converted notes, as the case may be, with such reduction and/or offset subject to a cap. The cap price of the capped call transactions is initially
MKS has been advised that, in connection with establishing their initial hedges of the capped call transactions, the option counterparties and/or their respective affiliates expect to enter into various derivative transactions with respect to MKS common stock and/or purchase shares of MKS common stock concurrently with or shortly after the pricing of the notes. This activity could increase (or reduce the size of any decrease in) the market price of MKS common stock or the notes at that time.
In addition, MKS expects the option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to MKS common stock and/or purchasing or selling MKS common stock or other securities of MKS in secondary market transactions following the pricing of the notes and prior to the maturity of the notes (and are likely to do so (x) during any observation period related to a conversion of notes or following any optional redemption or repurchase of notes by MKS in connection with any fundamental change and (y) following any repurchase of notes by MKS other than in connection with an optional redemption or fundamental change if MKS elects to unwind a corresponding portion of the capped call transactions in connection with any such repurchase). This activity could cause or avoid an increase or a decrease in the market price of MKS common stock or the notes, which could affect noteholders’ ability to convert the notes and, to the extent the activity occurs following conversion or during any observation period related to a conversion of notes, it could affect the amount and value of the consideration that noteholders will receive upon conversion of such notes.
The notes were offered and sold to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act. The offer and sale of the notes and the shares of MKS common stock issuable upon conversion of the notes, if any, have not been and will not be registered under the Securities Act or any state securities laws and, unless so registered, such securities may not be offered or sold in the United States absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and other applicable securities laws.
This press release shall not constitute an offer to sell, or a solicitation of an offer to buy any securities, nor shall there be any sale of, any securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful under the securities laws of any such state or jurisdiction.
Safe Harbor for Forward Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, including regarding the use of proceeds from the offering and the potential effects of entering into the capped call transactions. These statements are only predictions based on current assumptions and expectations. Any statements that are not statements of historical fact (including statements containing the words “will,” “projects,” “intends,” “believes,” “plans,” “anticipates,” “expects,” “estimates,” “forecasts,” “continues” and similar expressions) should be considered to be forward-looking statements. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties, many of which are beyond MKS’ control. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, market risks and uncertainties, the completion of the offering on the anticipated terms or at all, and other important risks and factors described in MKS’ Annual Report on Form 10-K for the year ended December 31, 2023, any subsequent Quarterly Reports on Form 10-Q, the final offering memorandum related to the offering and in subsequent filings made by MKS with the U.S. Securities and Exchange Commission. Forward-looking statements speak only as of the date hereof, and, except as required by law, MKS undertakes no obligation to update or revise these forward-looking statements.
MKS Investor Relations Contact:
David Ryzhik
Vice President, Investor Relations
Telephone: (978) 557-5180
Email: david.ryzhik@mksinst.com
Press Relations Contacts:
Bill Casey
Senior Director, Marketing Communications
Telephone: (630) 995-6384
Email: press@mksinst.com
Kerry Kelly, Partner
Kekst CNC
Email: kerry.kelly@kekstcnc.com
FAQ
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