Strong demand for the convertible senior notes offered by Internet company Wix (Nasdaq: WIX) resulted in the company raising more money than it had planned and on easier terms. Wix announced late last week a $385 million private placement of convertible notes, which is likely to increase to $443 million, assuming that the note purchasers exercise their options to buy additional notes within 13 days.
The notes issue bear 0% interest and are repayable in July 2023. Wix will not have to pay interest on the bonds every six months, as originally planned, making the offering more like an equity deal - like an option for future conversion to shares (but with protection against a downside because if the share price does not rise beyond the conversion price, the bondholders will receive repayment of the debt at the end of the period).
Leading underwriters for the issue were JP Morgan and Bank of America, together with additional banks as secondary underwriters. The final repayment date for the notes is July 1, 2023 unless they are converted into shares before that date according to the note terms. The conversion rate is set at $142.63, a 35% premium on Wix's share price on that date and a 39.9% premium on Friday's closing price.
In order to effectively increase the conversion price, thereby reducing the dilution for Wix's existing shareholders, Wix carried out capped call deals with some of the offering purchasers that include a call option in effect raising the conversion price. The conversion price following the transactions rises to $211.30, representing a 100% premium on the share price at the time of the offering.
Wix did not report the cost of these deals, but such deals usually amount to 10-11% of the amount of the offering, so it can be estimated that the costs for Wix are around $40 million by 2023.
"The most successful offering since 2014"
Wix, co-founded and managed by CEO Avishai Abrahami, provides a platform that enables customers to set up and manage websites. At the end of the first quarter, Wix had $266 million in cash after generating a $24.8 million positive cash flow from current activity in the first quarter. A 3.5% drop in Wix's share price on Friday (but a 77% rise this year) left Wix's market cap at $4.8 billion.
"This was the most successful bond offering in the US since 2014, said Wix CFO Lior Shemesh. "Demand was very strong - over $1.6 billion, and because of that we managed to get the best terms for the offering: 0% interest and a 35% premium on the conversion price."
According to Shemesh, participants in the issue included "very large US investment institutions, such as Fidelity, Wellington, Lord Abbett Investment, and many more institutions. They look at the company's potential and are less interested in the interest rate - they're more interested in a future rise in the share price. On the one hand, they have protection for the principal; on the other hand, the share's performance is excellent and the company believes in itself, so the company took out a kind of insurance that de facto raises the conversion premium to 100%. Actually, it's like a future offering at $211 a share. Another way of looking at it, and this is amazing: five years ago, Wix held its IPO at $16.50 per share, and now the offering is as if the price were $211."
"Globes": With demand like that, why didn't you increase the amount of the offering?
Shemesh: "We increased the amount by 10%, but we could have increased it much more. We chose not to do so because while the opportunity was an excellent one, we don't really have a use for the money right now. The money raised is insurance in case we need it in the future and the market conditions make it impossible to raise money. It's not that I'm planning to buy a company now; had that been the case, I would have raised more. The board of directors gave us a mandate to increase the offering by up to 10%."
Shemesh says that the combination of a convertible note issue and a capped call instrument has never been done in Israel (he says that NICE Systems Ltd. (Nasdaq: NICE; TASE: NICE) did it, but through a subsidiary in the US). He adds that the entire maneuver "in effect reinforces everything we have always said about Wix - that our intention is to grow as an Israeli company and enhance value for the shareholders, while creating a company that won't be sold quickly - a company that grows and become a larger company. The offering enables us to continue growing through the correct strategy."
Published by Globes [online], Israel business news - www.globes-online.com - on June 25, 2018
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