Shares of Microchip Technology Incorporated declined approximately 2% to $74.52 during Monday's afternoon session following the company's announcement of a plan to raise $600 million via a convertible senior notes sale. The stock had been down as much as 7.7% earlier in the trading day.
The proposed offering consists of notes maturing in 2030, to be sold privately to qualified institutional buyers. Initial purchasers have a 13-day option to acquire up to an additional $90 million in notes. Microchip stated it intends to use a portion of the proceeds for capped-call transactions, which are hedging instruments designed to limit potential equity dilution. The remaining funds will be allocated to repaying outstanding borrowings under its commercial paper program.
Financial advisor J. Wood Capital Advisors LLC has indicated it plans to purchase up to $25 million of Microchip shares in connection with the offering. The company noted that hedging activity related to the capped calls could influence the stock price around the time of pricing.
In its recent financial update, Microchip reported December-quarter net sales of $1.186 billion and non-GAAP earnings of 44 cents per share, results that exceeded management expectations. The company reduced its net debt by $26 million during the quarter. For the March quarter, management provided guidance for net sales between $1.24 billion and $1.28 billion, with non-GAAP earnings projected in the range of 48 to 52 cents per share. A quarterly dividend of 45.5 cents per share was declared, payable on March 10 to shareholders of record as of February 23.
The move to issue longer-dated convertible notes extends the company's debt maturity profile, replacing short-term commercial paper that requires frequent refinancing. However, the convertible feature introduces potential future equity dilution, which shareholders typically view cautiously.
Market attention is now focused on the upcoming pricing of the notes, particularly the interest rate and conversion premium, which will determine the cost of the debt and the level of dilution risk. The decision on the $90 million over-allotment option and associated hedging flows are seen as near-term catalysts that could influence Microchip's stock price direction.
Other semiconductor stocks showed mixed performance during the session, with Texas Instruments declining about 1%, while Analog Devices gained roughly 0.8% and ON Semiconductor edged higher.
