Teradyne (TER) Plans $400M Offering of Senior Convertible Notes, Approves $500M Common Stock Buyback
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Teradyne, Inc. (“Teradyne”) (NYSE: TER) announced that it intends to offer, subject to market and other conditions, $400 million aggregate principal amount of Senior Convertible Notes due 2023 (the “Notes”) in a private offering. The Notes will be offered only to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Act”). Teradyne also expects to grant to the initial purchasers of the Notes a 30-day option to purchase up to an additional $60 million aggregate principal amount of Notes, solely to cover over-allotments, if any.
The Notes will pay interest semi-annually in cash on June 15 and December 15 and will mature on December 15, 2023. Conversions of the Notes will be settled in cash, shares of Teradyne’s common stock or a combination thereof, at Teradyne’s election. The interest rate, the conversion rate of the Notes and certain other terms of the Notes will be determined by negotiations between Teradyne and the initial purchasers of the Notes.
In connection with the pricing of the Notes, Teradyne expects to enter into one or more privately negotiated convertible note hedge transactions with one or more of the initial purchasers of the Notes or their affiliates (the “hedge counterparties”). The convertible note hedge transactions collectively are expected to cover, subject to customary anti-dilution adjustments, the aggregate number of shares of Teradyne common stock that will initially underlie the Notes. Teradyne also expects to enter into one or more privately negotiated warrant transactions with the hedge counterparties whereby Teradyne will sell to the hedge counterparties warrants relating to the same number of shares of Teradyne common stock, with such number of shares subject to customary anti-dilution adjustments. In addition, if the initial purchasers exercise their over-allotment option to purchase additional Notes, Teradyne expects to enter into one or more additional warrant transactions and to use a portion of the proceeds from the sale of the additional Notes and warrant transactions to enter into additional convertible note hedge transactions. The convertible note hedge transactions are expected to reduce the potential dilution with respect to Teradyne common stock and/or offset any potential cash payments Teradyne is required to make in excess of the principal amount of converted Notes, as the case may be, upon any conversion of the Notes in the event that the market price per share of Teradyne common stock exceeds the strike price of the convertible note hedge transactions. However, the warrant transactions could have a dilutive effect to the extent that the market price per share of Teradyne common stock exceeds the applicable strike price of the warrants on any expiration date of the warrants.
In connection with establishing their initial hedge of the convertible note hedge transactions and warrant transactions and concurrently with, or shortly after, the pricing of the Notes, the hedge counterparties and/or their affiliates expect to purchase Teradyne common stock in open market transactions and/or privately negotiated transactions and/or enter into various cash-settled derivative transactions with respect to Teradyne common stock. In addition, the hedge counterparties and/or their affiliates may modify their hedge positions following the pricing of the Notes by entering into or unwinding various derivative transactions with respect to Teradyne common stock and/or by purchasing or selling Teradyne common stock in open market transactions and/or privately negotiated transactions following the pricing of the Notes from time to time (and are likely to do so during any conversion period related to a conversion of Notes). Any of these hedging activities could also increase, decrease or prevent a decline in, the market price of Teradyne common stock or the Notes.
Teradyne estimates that the net proceeds from the offering will be approximately $392.0 million (or approximately $450.8 million if the underwriters exercise in full their option to purchase additional Notes), after deducting discounts, commissions and estimated offering expenses. Teradyne intends to use a portion of the net proceeds from this offering to pay the cost of the convertible note hedge transactions (after such cost is partially offset by the proceeds to Teradyne of the warrant transactions). Teradyne also intends to use a portion of the net proceeds to repurchase up to $80 million of shares of its common stock under its existing share repurchase authorization from purchasers of Notes in this offering in privately negotiated transactions effected through one or more of the initial purchasers or their affiliates, concurrently with the pricing of this offering. The remaining net proceeds will be used for general corporate purposes, including to repurchase additional shares of Teradyne’s common stock.
In connection with the offering, Teradyne’s Board of Directors has approved a new $500 million share repurchase authorization to commence on January 1, 2017. The $500 million authorization replaces Teradyne’s existing share repurchase authorization, which will terminate on December 31, 2016.
The Notes and the shares of Teradyne common stock issuable upon conversion, if any, have not been registered under the Act or applicable state securities laws and may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the Act and applicable state securities laws.
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