Red Hat Announces Proposed Offering of Convertible Senior Notes
01 October 2014 - 6:01AM
Business Wire
Red Hat, Inc. (NYSE: RHT) (“Red Hat”) today announced that it
proposes to offer, subject to market conditions and other factors,
$700 million aggregate principal amount of its convertible
senior notes due 2019 (the “notes”). The notes are to be offered
and sold only to “qualified institutional buyers” pursuant to Rule
144A under the Securities Act of 1933, as amended (the “Securities
Act”). In addition, Red Hat will grant the initial purchasers an
option to purchase up to an additional $105 million aggregate
principal amount of notes on the same terms and conditions (the
“additional notes”), exercisable within a 30-day period. Upon
conversion of the notes, holders of the notes will receive cash,
shares of Red Hat’s common stock or a combination of cash and
shares of Red Hat’s common stock, at Red Hat’s option. Interest on
the notes will be payable semi-annually in arrears on April 1 and
October 1 of each year, beginning on April 1, 2015. The notes will
mature on October 1, 2019, unless earlier repurchased or converted
in accordance with their terms prior to such date. The interest
rate, initial conversion rate, offering price and other terms of
the notes will be determined at the time of pricing the offering.
If and when issued, the notes will be senior unsecured obligations
of Red Hat.
Red Hat intends to use a portion of the proceeds to pay the cost
of the convertible note hedge transactions described below (after
such cost is partially offset by the proceeds from the sale of
warrants pursuant to the warrant transactions described below). If
the initial purchasers exercise their option to purchase the
additional notes, Red Hat expects to sell additional warrants to
one or more of the initial purchasers of the notes or their
affiliates or other financial institutions (the “Option
Counterparties”) and use a portion of the proceeds from the sale of
the additional notes, together with the proceeds from the
additional warrant transactions, to enter into additional
convertible note hedge transactions.
Red Hat intends to use up to $400 million of the remaining net
proceeds from the offering to repurchase shares of its common
stock. Such repurchases will be conducted through one or more of
the initial purchasers or their affiliates as Red Hat’s agents in
negotiated transactions with institutional investors concurrently
with or following this offering, as well as under a $375 million
accelerated share repurchase program pursuant to an agreement with
Goldman, Sachs & Co. (the “ASR Agreement”). The effectiveness
of the ASR Agreement is conditioned upon the closing of the
offering. Red Hat expects the purchase price per share of the
common stock repurchased from institutional investors in privately
negotiated transactions to equal the closing price per share of Red
Hat’s common stock on the date of pricing of the offering. The
purchase price per share of the common stock repurchased through
the accelerated share repurchase program will be determined and
adjusted based on a discount to the volume-weighted average price
of Red Hat’s common stock during a period beginning after the
execution of the ASR Agreement. The exact number of shares
repurchased pursuant to the accelerated share repurchase program
will be determined based on such adjusted price.
In connection with the accelerated share repurchase program, Red
Hat has been advised that the counterparty to such transaction or
its affiliate expects to purchase shares of Red Hat’s common stock
in secondary market transactions, and may execute other
transactions in Red Hat’s common stock, or in derivative
transactions relating to Red Hat’s common stock, during the term of
the ASR Agreement. These activities and Red Hat’s repurchases of
shares of Red Hat’s common stock may cause or avoid an increase or
a decrease in the market price of Red Hat’s common stock or the
notes, which could affect the ability of holders to convert the
notes and, to the extent the activity occurs during any observation
period related to a conversion of notes, it could affect the amount
and value of the consideration that holders will receive upon
conversion of the notes. In addition, the share repurchase
transactions that settle concurrently with the closing of the
offering could have the effect of increasing, or limiting a decline
in, the market price of Red Hat’s common stock and could result in
a higher effective conversion price for the notes.
Red Hat intends to use the remaining net proceeds of the
offering for working capital and general corporate purposes, which
may include capital expenditures, potential acquisitions or
strategic transactions.
In connection with the pricing of the notes, Red Hat intends to
enter into convertible note hedge transactions and warrant
transactions with the Option Counterparties. The convertible note
hedge transactions will cover, subject to anti-dilution adjustments
substantially similar to those applicable to the notes, the same
number of shares of common stock that will initially underlie the
notes and are expected generally to reduce the potential dilution
with respect to Red Hat’s common stock upon conversion of the notes
and/or to offset any cash payments Red Hat is required to make in
connection with the conversion of the notes, as the case may be.
The warrants will cover, subject to customary anti-dilution
adjustments, the same number of shares of common stock that will
initially underlie the notes. The warrant transactions could
separately have a dilutive effect with respect to Red Hat’s common
stock to the extent that the market price per share of Red Hat’s
common stock exceeds the strike price of the warrants, unless,
subject to certain conditions, Red Hat elects to settle the
warrants in cash.
In connection with establishing their initial hedge of the
convertible note hedge and warrant transactions, the Option
Counterparties or their respective affiliates expect to purchase
shares of Red Hat’s common stock and/or have entered into or expect
to enter into various derivative transactions with respect to Red
Hat’s 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 Red Hat’s common stock or the
notes at that time. In addition, the Option Counterparties or their
respective affiliates may modify their hedge positions (and are
likely to do so during any observation period related to a
conversion of notes or in connection with any repurchase of notes
by Red Hat on any fundamental change repurchase date or otherwise)
by entering into or unwinding various derivatives with respect to
Red Hat’s common stock and/or purchasing or selling common stock or
other securities of Red Hat in secondary market transactions
following the pricing of the notes and prior to the maturity of the
notes. This activity could also cause or avoid an increase or a
decrease in the market price of Red Hat’s common stock or the
notes, which could affect the ability of holders to convert the
notes and, to the extent the activity occurs during any observation
period related to a conversion of notes, it could affect the amount
and value of the consideration that holders of notes will receive
upon conversion of the notes.
Morgan Stanley, BofA Merrill Lynch, Citigroup, J.P. Morgan,
Barclays, Goldman, Sachs & Co., RBC Capital Markets and Wells
Fargo Securities are acting as joint book-running managers for this
offering.
This press release is neither an offer to sell nor a
solicitation of an offer to buy any of these securities (including
the shares of Red Hat’s common stock, if any, issuable upon
conversion of the notes). Any offer of notes will be made only by
means of a private offering memorandum. The notes and any common
stock issuable upon conversion of the notes have not been and will
not be registered under the Securities Act or any state securities
laws and may not be offered or sold in the United States absent
registration or an applicable exemption from registration
requirements.
Forward-Looking Statements
Certain statements contained in this press release, including
statements with respect to Red Hat’s expectations to complete the
proposed offering of the notes, its use of proceeds from the
offering and the effect of the concurrent stock repurchase and
convertible note hedge and warrant transactions constitute
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements provide current expectations of future events based on
certain assumptions and include any statement that does not
directly relate to any historical or current fact. Actual results
may differ materially from those indicated by such forward-looking
statements as a result of various important factors, including: the
terms of the notes and the offering, risks and uncertainties
related to whether or not Red Hat will consummate the offering, as
well as other factors contained in our most recent Quarterly Report
on Form 10-Q (copies of which may be accessed through the
Securities and Exchange Commission’s website at
http://www.sec.gov), including those found therein under the
captions “Risk Factors” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations.” The
forward-looking statements included in this press release represent
Red Hat’s views as of the date of this press release and these
views could change. However, while Red Hat may elect to update
these forward-looking statements at some point in the future, Red
Hat specifically disclaims any obligation to do so. These
forward-looking statements should not be relied upon as
representing Red Hat’s views as of any date subsequent to the date
of this press release.
Red Hat, Inc.Investor Relations:Tom McCallum,
919-754-4630tmccallum@redhat.comorMedia
Contact:Stephanie Wonderlick, 571-421-8169swonderl@redhat.com
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