MKS Instruments Announces Pricing of Upsized Private Offering of $1.2 Billion of 1.25% Convertible Senior Notes
MKS Instruments announced the pricing of an upsized private offering of $1.2 billion in 1.25% convertible senior notes due 2030. The notes are being offered to qualified institutional buyers under Rule 144A. The offering, which was increased from the initially planned $1 billion, is expected to close on May 16, 2024. Net proceeds are estimated at $1,177.7 million, to be used for repaying $1,034.1 million in outstanding borrowings and other corporate purposes. MKS also entered into capped call transactions to reduce potential stock dilution, with the cap price set at $237.42 per share. The notes mature on June 1, 2030, and are convertible under specific conditions, with an initial conversion rate equivalent to $154.32 per share, a 30% premium over the current stock price.
- Upsized offering from $1 billion to $1.2 billion, indicating strong demand.
- Net proceeds estimated at $1,177.7 million, providing significant liquidity.
- Funds primarily used to repay $1,034.1 million in existing debt, improving financial leverage.
- Capped call transactions to reduce potential stock dilution, with a cap price set at $237.42 per share, 100% above the current stock price.
- Interest rate of 1.25% per annum is relatively low, reducing interest expense.
- Convertible feature could lead to dilution of existing shares if converted.
- Significant portion of proceeds used to cover existing debt rather than new growth initiatives.
- Unsecured notes could be riskier in the event of financial instability.
- Dependency on market conditions for conversion could lead to volatility.
Insights
MKS Instruments' issuance of $1.2 billion in convertible senior notes is a notable strategic move that offers several insights into their financial health and strategic priorities. Convertible notes provide the company with access to capital at favorable terms, given the low interest rate of 1.25%. This is particularly advantageous in a rising rate environment, as it allows MKS to lock in lower-cost borrowing.
The conversion premium set at 30% above the current stock price suggests management's confidence in the future appreciation of their stock. However, investors should be aware that the dilution effect of these notes could impact share value if converted. The capped call transactions mitigate some dilution risk, which is a positive.
In the near term, the use of proceeds to repay $1.034 billion in existing debt will strengthen the balance sheet by reducing leverage, which could improve the company's credit rating and lower future borrowing costs. The reduced debt liability and interest expense will enhance net income margins. Long-term, the company's ability to sustain growth and meet the conversion terms will be important for maintaining investor confidence.
Conversion features, particularly the cash settlement option, provide flexibility but also add complexity to the valuation of these notes. The capped call structure, effectively a call option with a cap, is intended to limit dilution, which is generally positive for equity holders.
From a market perspective, the upsizing of the offering from $1 billion to $1.2 billion reflects strong institutional demand, indicating robust confidence in MKS Instruments' financial outlook. Convertible notes are often favored by institutional investors as they offer exposure to equity upside while providing bond-like security.
The retail investor should note that such transactions can lead to increased stock volatility due to derivative hedging activities by the option counterparties. While the capped call transactions and potential stock purchases can support the stock price, they can also introduce volatile trading patterns.
Additionally, the redemption feature at 130% of the conversion price from 2027 onwards provides some upside potential but also places a ceiling on the stock price appreciation if the company opts for early redemption.
The planned usage of proceeds for debt repayment and general corporate purposes signals a focus on balancing growth initiatives with a more conservative approach to leveraging, which can be seen as a prudent financial strategy in uncertain economic conditions.
ANDOVER, Mass., May 13, 2024 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ: MKSI) (“MKS”) today announced the pricing of its offering of
MKS estimates that the net proceeds from the offering will be approximately
MKS intends to use approximately
The notes will be unsecured, senior obligations of MKS and will bear interest at a rate of
The conversion rate for the notes will initially be 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, MKS has entered into privately negotiated capped call transactions with 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 are being 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. The offering is being made only by means of a private offering memorandum.
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 timing and completion of the offering, the use of proceeds from the offering, the terms of the notes and related capped call transactions and the potential effects of entering into the capped call transactions in connection with the pricing of the notes. 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 preliminary 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
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