Amazon issues convert's. Who would have thunk it :o)
WSJ: "Amazon.com launched a $1.25 billion convertible-bond offering and found strong demand among bond buyers seeking Internet investments."
Amazon.com Launches Convertible-Bond Issue
By GREGORY ZUCKERMAN and GEORGE ANDERS
Staff Reporters of THE WALL STREET JOURNAL
The Internet craze is starting to spill over to other markets.
Champing at the bit to get their hands on the kinds of Internet investments
that have created such wealth for stock investors, convertible and bond
buyers joined equity investors in eagerly scooping up a $1.25 billion
convertible-bond offering from Amazon.com Inc., the largest U.S.
convertible-bond offering ever.
As the day began, Amazon.com was slated to sell $500 million of the
convertible bonds. But strong investor demand led the Seattle company's
underwriter, Morgan Stanley Dean Witter & Co, to boost the private
offering to the $1.25 billion level.
The Amazon.com subordinated notes, due 2009, were priced at a 4.75%
yield. The notes will be convertible into common shares at $156.05 a
share, representing a conversion premium of 27% of Thursday's closing
price. In other words, investors are willing to accept a slim 4.75% yield for
the option of buying Amazon.com shares at $156.05.
On the Nasdaq Stock Market yesterday,
shares of Amazon.com closed at $122.875,
down $2.75, or 2.2%, on composite volume
of 11.9 million shares.
Like any other convertible bond, the notes will be converted into
Amazon.com shares at the investor's choosing. The company can redeem
the bonds at any time in the first three years if the stock trades above
$234, or 50% above the conversion price. After three years, the bond can
be called at any time.
"It's a great deal if Amazon keeps going up, but 4.75% isn't much to be
paid for a crummy credit," said Steve Seefeld, the president of
Convertbond.com, an online analysis service.
Amazon.com declined to say how it plans to use proceeds from the
offering. Earlier this week, the company told investors that it plans to
spend heavily this year on marketing and improved distribution facilities.
The retailer is building an automated warehouse in Fernley, Nev., to
handle books and other goods it sells online.
But those internal projects aren't likely to consume the bulk of the money
raised Thursday, said Fritz Linkler, an investment manager at Husic
Capital Management Co., San Francisco, which is a major Amazon.com
shareholder. Instead, Mr. Linkler said, he believes that the bond offering
"will give Amazon flexibility to buy a wider range of companies."
Some potential sellers may want cash instead of Amazon's surging but
volatile stock, he noted. The money raised in the bond offering will make it
easier for Amazon.com to pay whatever blend of stock and cash target
companies might want. Amazon.com also could use the money to build
warehouses abroad, where it is expanding rapidly, Mr. Linkler said.
The company has yet to turn a profit, but its balance sheet remains highly
liquid, thanks to a zero-coupon bond offering last May that raised $325
million. As of Dec. 31, Amazon.com had $373 million in cash and
marketable securities.
Amazon.com's latest bond offering is a record-setter in terms of proceeds
raised for a U.S. convertible-bond deal, eclipsing $1 billion offerings by
Home Depot Inc. in 1996 and Loews Corp. in 1997. But several other
convertible-bond offerings, involving deeply discounted securities, have
involved larger amounts due at maturity. The biggest of those, according to
Securities Data Co., was a $3.2 billion offering by Eastman Kodak Co. in
1991. |
