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CHANDLER, Ariz. - Microchip Technology Incorporated (NASDAQ: MCHP), a key player in smart, connected, and secure embedded control solutions, with a current market capitalization of $27.43 billion, has announced the pricing of a substantial $1.35 billion public offering. The announcement comes as the company’s stock trades near its 52-week low of $50.21, having declined about 33% over the past six months. According to InvestingPro analysis, the stock appears slightly overvalued at current levels. This offering comprises depositary shares, each representing a 1/20th interest in a share of 7.50% Series A Mandatory Convertible Preferred Stock, with each depositary share priced at $50.00. The offering is slated to close on March 25, 2025, contingent on standard closing conditions.
The anticipated net proceeds from this offering are roughly $1.32 billion, after accounting for underwriting discounts and estimated offering expenses, provided the underwriters do not exercise their over-allotment option. Microchip has disclosed plans to allocate approximately $50.1 million of the net proceeds to finance capped call transactions, which are intended to minimize the potential dilution from the conversion of the preferred stock. The remaining proceeds are earmarked for debt repayment, including obligations under its commercial paper program.
J.P. Morgan, BofA Securities, and BNP Paribas are serving as the lead joint bookrunning managers, with J. Wood Capital Advisors acting as the financial advisor for the transaction. The depositary shares, which have been applied to list on The Nasdaq Global Select Market under the ticker MCHPP, entitle holders to a proportional fractional interest in the rights of the preferred stock, including dividends, conversion, liquidation, and voting rights.
Dividends on the preferred stock are set at an annual rate of 7.50% of the liquidation preference, payable quarterly starting June 15, 2025, and ending March 15, 2028. This offering adds to Microchip’s strong dividend profile, with InvestingPro data showing the company has raised its dividend for 13 consecutive years and maintained payments for 24 years. Currently, the stock offers a dividend yield of 3.57%. The preferred stock will automatically convert on or around March 15, 2028, into a range of common stock shares, with the exact amount based on the volume-weighted average price of the common stock.
In conjunction with the offering, Microchip has entered into capped call transactions with certain financial institutions. These transactions are expected to reduce the potential dilution effect on the common stock upon conversion of the preferred stock. The option counterparties or their affiliates may engage in various derivative transactions and secondary market activities that could affect the market prices of the common stock and depositary shares.
This announcement is based on a press release statement and is not an offer to sell or a solicitation to buy securities. The offering is subject to market conditions, and there can be no assurance as to whether or when the offering may be completed. InvestingPro subscribers can access comprehensive financial health metrics, showing Microchip maintains a healthy current ratio of 2.25 and an Altman Z-Score of 4.56, indicating strong financial stability. For detailed analysis and 15 additional exclusive ProTips about Microchip, investors can access the full Pro Research Report.
In other recent news, Microchip Technology has announced a series of strategic financial and operational moves. The company plans to issue approximately $1.35 billion in mandatory convertible preferred stock, with proceeds aimed at repaying outstanding commercial paper and reducing financial leverage. This move is part of a broader effort to improve liquidity and financial stability, despite Moody’s downgrading Microchip’s senior unsecured rating from Baa1 to Baa2 due to a decline in earnings. In an additional effort to streamline operations, Microchip is selling its Tempe, Arizona-based wafer fabrication facility, known as Fab 2, as part of its restructuring plan to enhance efficiency and profitability.
Macquarie Group has been appointed to manage the sale process of this facility. On the product development front, Microchip has introduced the PIC32A family of microcontrollers, designed for high-performance applications across various sectors, enhancing their portfolio with advanced features for embedded control systems. Meanwhile, TD Cowen has raised Microchip’s stock target to $60, maintaining a Hold rating, following a business update from the company’s CEO that outlined strategies to navigate ongoing challenges. These developments reflect Microchip’s ongoing efforts to adapt to market conditions and improve its financial and operational standing.
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