UPDATE 5-Lucent raises $1.75 bln from preferred stock sale
(Adds details)
By Jonathan Stempel
NEW YORK, Aug 1 (Reuters) - Raising cash that analysts and
investors said it desperately needed, Lucent Technologies
Inc. said on Wednesday evening it sold $1.75 billion of
convertible preferred stock.
Buoyed by what it called "substantial interest," the Murray
Hill, New Jersey-based telecommunications equipment supplier
increased the size of the sale 75 percent from $1 billion, made
the terms less generous to investors, and sped up the sale from
Thursday morning.
Lucent's share price slid 57 cents, or 8.5 percent, to
$6.13 in Wednesday trading on the New York Stock Exchange. The
shares have fallen 86 percent in the last year. Trading volume
topped 110 million shares, accounting for more than 8 percent
of all shares traded on the Big Board.
A spokeswoman for Lucent, Michelle Davidson, declined to
discuss the private sale, whose terms first became known
shortly after markets closed.
Lucent is struggling amid slumping demand for its products.
The weak outlook for the telecom equipment industry led Moody's
Investors Service to downgrade Lucent's debt ratings on
Wednesday, one day after Standard & Poor's did the same.
"The turnaround doesn't appear to be at hand, but neither
is an imminent demise of the company" said Jay Ritter, a stock
analyst for Morningstar Inc. in Chicago. "What's out of their
control is how quickly telecommunications capital spending
comes back."
Still, a successful offering was considered a sign of
investor confidence that Lucent can regain its footing.
"Demand is very strong, from both hedge funds as well as
outright convertible investors like myself," said Ted Everett,
who was seeking to add Lucent's stock to his $800 million
Oppenheimer Convertible Securities Fund. "Lucent showed it can
still raise money. This gives it more breathing room."
'QUITE INEXPENSIVE'
The preferred stock carried an 8 percent dividend, and is
convertible into Lucent common shares at $7.48, a 22 percent
premium over the shares' Wednesday closing price. Investors had
expected an 8 to 8.5 percent dividend, down from 8.5 to 9
percent, and 20 to 22 percent premium, up from 16 to 20
percent. Lucent may sell $350 million more stock if there is
enough demand.
"From the investor standpoint, the original terms were
perhaps the cheapest security to ever hit our market," said
Jeff Seidel, director of global convertible research at Credit
Suisse First Boston, before the sale.
The new terms, he said, are "quite inexpensive, but not the
giveaway it was previously."
Morgan Stanley and Salomon Smith Barney arranged the sale.
Lucent may call away the stock after five years and
stockholders may "put," or return, the stock to Lucent after
three, six, nine and 15 years.
Convertible securities are stock-bond hybrids. A
convertible preferred stock offering is less dilutive than a
plain stock offering, and preferred shareholders generally
enjoy greater protections than common stockholders.
Many investors sell "short" the underlying stock when a
company sells convertibles. That may have accounted for some of
Wednesday's trading volume. The 90-day average trading volume
for Lucent shares, before Wednesday, was 16.65 million.
COULD BE 'HOME RUN'
Lucent needs to raise $2 billion in nonoperating cash by
the end of September to spin off its Agere Systems Inc.
optical components unit, a spinoff that Lucent said
last month it may delay by up to six months.
The company is trying to save $4 billion a year. It is
cutting nearly half of the 106,000 employees with whom it
started the year and is selling its fiber-optic unit for $2.75
billion to Furukawa Electric Co. <5801.T> and Corning Inc.
. It is also selling or leasing two plants to Celestica
Inc. for about $600 million.
Lucent also said last week it plans to take a $7 billion to
$9 billion restructuring charge. But it needs approval from its
banks, whose $4 billion of credit lines, from which Lucent said
it has drawn $2.3 billion, permit Lucent to take only a $4
billion charge.
"I've heard a lot of people today liken this situation to
Citicorp in the early 1990s when it did a big convertible
financing to plug a hole in its balance sheet, when its stock
was low," said Everett. "The risks are still pretty high for
Lucent, but if Lucent is able to get itself together, this
could be a huge home run for investors."
Late Wednesday, Moody's cut Lucent's long-term debt ratings
two notches to "Ba3," its third-highest junk grade, from "Ba1,"
its highest, affecting $5.9 billion of debt.
That matched a similar cut by S&P on Tuesday to "BB-minus,"
its third highest junk grade. That cut boosted Lucent's
borrowing costs on its credit lines by about $13.6 million a
year. S&P on Wednesday rated the preferred stock "B-minus," its
sixth highest junk grade.
Both agencies this week kept their ratings on review for
more cuts. S&P said if Lucent were to amend the credit lines,
it planned to affirm its ratings with a stable outlook. Moody's
said if Lucent were to amend the lines and sell the stock, it
planned to affirm its ratings with a negative outlook.
REUTERS
Rtr 20:20 08-01-01 |
