NHP,
<< Apparently, SanDisk needed the money quickly. I believe that a secondary offering of 6M+ shares of common stock at $18 or $19 could have accomplished the same thing without incurring interest expense.>>
It isn't necessarily the case that Sandisk needed the money quickly, it may be the case that someone approached them, offering them this deal. There have been quite a few large convertible deals--especially private placements--lately (see SLR, just to take one example, or VECO, for another). This could be the result of wealthy individuals or funds wanting to take equity positions that they believe might pay off in the ripeness of time, but wanting to get some cash flow from the positions while they wait. Or it could be they wanted to get a higher return than the 1-2% currently available in money markets, didn't want to take excessive equity risk, and searched for companies that might want to do a convertible deal that would benefit both the company and the investor. Or, a third possibility, it could be that these deals were actually initiated by investment houses wanting to drum up end of the year business (in case you have noticed, there haven't been too many IPO deals in the past few months), and matching up companies who might be able to use funds with wealthy groups who they knew wanted to get a higher return on their funds without taking excessive risk.
As for your second comment, if they could have sold 6-8m shares at 18, they probably would have done so. The deal isn't structured like that because the buyer wanted cash flow, not simply stock. Who can blame him/her? I wouldn't mind getting 4% while waiting either.
In any case, I wouldn't make the assumption that it was Sandisk that went to the underwriter/investor for this deal, it seems to me at least as plausible that they were approached. The conversion price doesn't bother me so much as the low interest rate offsets it somewhat, and I presume that Sandisk will be able to get a better return on investing the money over the next 5 or 6 years.
Sam |
