Dawg,
A convertible note is basically a bond-like instrument that can be converted into stock of the company (and therefore potentially dilute the existing shares' value). Think of it as giving somebody their choice of stock options or a low interest rate in exchange for them giving you a loan.
The carrot (for ADI) is that it allows a company to raise money at a substantially lower interest rate than it otherwise could. This is especially attractive for companies past the start up phase but not in the "established company" mode, and who need lots of capital to grow.
Probably the most notable example in the past couple of years is Amazon ..... they were in need of $$$ to build warehouses, yet they were not profitable and had no established track record so no bank or bondholder would simply loan them the money at an attractive interest rate. Without cash flow there was no way of telling whether they could pay it back. So instead Amazon issued convertible bonds. Because the stock was perceived (then) as having strong potential long-term, bondholders were willing to loan Amazon over a billion dollars at under 5 percent in exchange for the right to convert the bond into AMZN stock at a set price.
ADI is doing the same thing. Here are the details:
NORWOOD, Mass., Sep 26, 2000 /PRNewswire via COMTEX/ -- Analog Devices, Inc. (NYSE: ADI chart, msgs) today announced that the Company has offered and priced a new issue of $1 billion of Convertible Subordinated Notes due 2005 (the "Notes"). The Notes will have an annual interest rate of 4.75% and will be convertible into common stock at $129.78 per share. The Company may also issue up to an additional $200 million of Notes pursuant to an option granted to the initial purchaser of the Notes.
The Company intends to use the net proceeds of the offering for acquisitions of complementary businesses, products or technologies and for capital expenditures and working capital. The Company is currently engaged in acquisition discussions with several companies which, if acquired by the company, could require the use of a substantial portion or all of the net proceeds. However, currently there are no agreements in effect regarding any such acquisitions, and no assurance can be given that any such acquisitions will be made. Pending such uses, the net proceeds of the offering will be invested in investment grade, interest-bearing instruments.
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