To All: Regarding that titantic volume, can we consider it market capitulation in the face of doubt? Who knows, but here's some interesting news:
dailynews.yahoo.com
Lucent Ups Preferred Stock Sale
By Jonathan Stempel
NEW YORK (Reuters) - Raising cash that analysts and investors said it desperately needed, Lucent Technologies Inc. (NYSE:LU - news) on Wednesday sold $1.75 billion of convertible preferred stock, a source close to the sale said.
Buoyed by strong demand, 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 (news - web sites). Trading volume topped 106 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 became known 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.
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.''
NEW TERMS 'QUITE INEXPENSIVE'
The stock carried an 8 percent dividend, and is convertible into Lucent common shares at about $7.48, a 22 percent premium over the shares' Wednesday closing price. 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, had been expected. Morgan Stanley and Salomon Smith Barney arranged the sale.
``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.''
Shares of Lucent, which may sell $350 million more convertible preferred stock if there is enough demand, have fallen 86 percent in the last year. The 90-day average trading volume for Lucent shares, before Wednesday, was 16.65 million.
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.
Lucent needs to raise $2 billion in nonoperating cash by the end of September to spin off its Agere Systems Inc. (NYSE:AGRa - news) 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 in costs annually. 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. (NYSE:GLW - news), though it may not receive proceeds this quarter. It is also selling or leasing two plants to Celestica Inc. (NYSE:CLS - news) for about $600 million.
COULD BE 'HOME RUN' FOR INVESTORS
Lucent also said last week it plans to take a $7 billion to $9 billion restructuring charge, but needs approval from its banks, whose $4 billion of credit lines 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 S&P's cut on Tuesday of its equivalent ratings to ``BB-minus.'' 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 further downgrades. S&P said if Lucent amends the credit lines, it plans to affirm its current ratings, with a stable outlook. Moody's said if Lucent amends the lines, and sells the stock, it will affirm its ratings, with a negative outlook.
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Bottom line? I think LU's looking mighty interesting from a long term (2+ year) perspective. Once the dust clears a bit me thinks I'll be rebuilding a position in them....
John~ |
