RALEIGH, N.C.--(BUSINESS WIRE)--
Red Hat, Inc. (NYSE: RHT) ("Red Hat") today announced that it proposes
to offer, subject to market conditions and other factors, $700 million
aggregate principal amount of its convertible senior notes due 2019 (the
"notes"). The notes are to be offered and sold only to "qualified
institutional buyers" pursuant to Rule 144A under the Securities Act of
1933, as amended (the "Securities Act"). In addition, Red Hat will grant
the initial purchasers an option to purchase up to an additional $105
million aggregate principal amount of notes on the same terms and
conditions (the "additional notes"), exercisable within a 30-day period.
Upon conversion of the notes, holders of the notes will receive cash,
shares of Red Hat's common stock or a combination of cash and shares of
Red Hat's common stock, at Red Hat's option. Interest on the notes will
be payable semi-annually in arrears on April 1 and October 1 of each
year, beginning on April 1, 2015. The notes will mature on October 1,
2019, unless earlier repurchased or converted in accordance with their
terms prior to such date. The interest rate, initial conversion rate,
offering price and other terms of the notes will be determined at the
time of pricing the offering. If and when issued, the notes will be
senior unsecured obligations of Red Hat.
Red Hat intends to use a portion of the proceeds to pay the cost of the
convertible note hedge transactions described below (after such cost is
partially offset by the proceeds from the sale of warrants pursuant to
the warrant transactions described below). If the initial purchasers
exercise their option to purchase the additional notes, Red Hat expects
to sell additional warrants to one or more of the initial purchasers of
the notes or their affiliates or other financial institutions (the
"Option Counterparties") and use a portion of the proceeds from the sale
of the additional notes, together with the proceeds from the additional
warrant transactions, to enter into additional convertible note hedge
transactions.
Red Hat intends to use up to $400 million of the remaining net proceeds
from the offering to repurchase shares of its common stock. Such
repurchases will be conducted through one or more of the initial
purchasers or their affiliates as Red Hat's agents in negotiated
transactions with institutional investors concurrently with or following
this offering, as well as under a $375 million accelerated share
repurchase program pursuant to an agreement with Goldman, Sachs & Co.
(the "ASR Agreement"). The effectiveness of the ASR Agreement is
conditioned upon the closing of the offering. Red Hat expects the
purchase price per share of the common stock repurchased from
institutional investors in privately negotiated transactions to equal
the closing price per share of Red Hat's common stock on the date of
pricing of the offering. The purchase price per share of the common
stock repurchased through the accelerated share repurchase program will
be determined and adjusted based on a discount to the volume-weighted
average price of Red Hat's common stock during a period beginning after
the execution of the ASR Agreement. The exact number of shares
repurchased pursuant to the accelerated share repurchase program will be
determined based on such adjusted price.
In connection with the accelerated share repurchase program, Red Hat has
been advised that the counterparty to such transaction or its affiliate
expects to purchase shares of Red Hat's common stock in secondary market
transactions, and may execute other transactions in Red Hat's common
stock, or in derivative transactions relating to Red Hat's common stock,
during the term of the ASR Agreement. These activities and Red Hat's
repurchases of shares of Red Hat's common stock may cause or avoid an
increase or a decrease in the market price of Red Hat's common stock or
the notes, which could affect the ability of holders to convert the
notes and, to the extent the activity occurs during any observation
period related to a conversion of notes, it could affect the amount and
value of the consideration that holders will receive upon conversion of
the notes. In addition, the share repurchase transactions that settle
concurrently with the closing of the offering could have the effect of
increasing, or limiting a decline in, the market price of Red Hat's
common stock and could result in a higher effective conversion price for
the notes.
Red Hat intends to use the remaining net proceeds of the offering for
working capital and general corporate purposes, which may include
capital expenditures, potential acquisitions or strategic transactions.
In connection with the pricing of the notes, Red Hat intends to enter
into convertible note hedge transactions and warrant transactions with
the Option Counterparties. The convertible note hedge transactions will
cover, subject to anti-dilution adjustments substantially similar to
those applicable to the notes, the same number of shares of common stock
that will initially underlie the notes and are expected generally to
reduce the potential dilution with respect to Red Hat's common stock
upon conversion of the notes and/or to offset any cash payments Red Hat
is required to make in connection with the conversion of the notes, as
the case may be. The warrants will cover, subject to customary
anti-dilution adjustments, the same number of shares of common stock
that will initially underlie the notes. The warrant transactions could
separately have a dilutive effect with respect to Red Hat's common stock
to the extent that the market price per share of Red Hat's common stock
exceeds the strike price of the warrants, unless, subject to certain
conditions, Red Hat elects to settle the warrants in cash.
In connection with establishing their initial hedge of the convertible
note hedge and warrant transactions, the Option Counterparties or their
respective affiliates expect to purchase shares of Red Hat's common
stock and/or have entered into or expect to enter into various
derivative transactions with respect to Red Hat's common stock
concurrently with or shortly after the pricing of the notes. This
activity could increase (or reduce the size of any decrease in) the
market price of Red Hat's common stock or the notes at that time. In
addition, the Option Counterparties or their respective affiliates may
modify their hedge positions (and are likely to do so during any
observation period related to a conversion of notes or in connection
with any repurchase of notes by Red Hat on any fundamental change
repurchase date or otherwise) by entering into or unwinding various
derivatives with respect to Red Hat's common stock and/or purchasing or
selling common stock or other securities of Red Hat in secondary market
transactions following the pricing of the notes and prior to the
maturity of the notes. This activity could also cause or avoid an
increase or a decrease in the market price of Red Hat's common stock or
the notes, which could affect the ability of holders to convert the
notes and, to the extent the activity occurs during any observation
period related to a conversion of notes, it could affect the amount and
value of the consideration that holders of notes will receive upon
conversion of the notes.
Morgan Stanley, BofA Merrill Lynch, Citigroup, J.P. Morgan, Barclays,
Goldman, Sachs & Co., RBC Capital Markets and Wells Fargo Securities are
acting as joint book-running managers for this offering.
This press release is neither an offer to sell nor a solicitation of an
offer to buy any of these securities (including the shares of Red Hat's
common stock, if any, issuable upon conversion of the notes). Any offer
of notes will be made only by means of a private offering memorandum.
The notes and any common stock issuable upon conversion of the notes
have not been and will not be registered under the Securities Act or any
state securities laws and may not be offered or sold in the United
States absent registration or an applicable exemption from registration
requirements.
Forward-Looking Statements
Certain statements contained in this press release, including statements
with respect to Red Hat's expectations to complete the proposed offering
of the notes, its use of proceeds from the offering and the effect of
the concurrent stock repurchase and convertible note hedge and warrant
transactions constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements provide current expectations of future events based on
certain assumptions and include any statement that does not directly
relate to any historical or current fact. Actual results may differ
materially from those indicated by such forward-looking statements as a
result of various important factors, including: the terms of the notes
and the offering, risks and uncertainties related to whether or not Red
Hat will consummate the offering, as well as other factors contained in
our most recent Quarterly Report on Form 10-Q (copies of which may be
accessed through the Securities and Exchange Commission's website at http://www.sec.gov),
including those found therein under the captions "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations." The forward-looking statements included in this press
release represent Red Hat's views as of the date of this press release
and these views could change. However, while Red Hat may elect to update
these forward-looking statements at some point in the future, Red Hat
specifically disclaims any obligation to do so. These forward-looking
statements should not be relied upon as representing Red Hat's views as
of any date subsequent to the date of this press release.
Red Hat, Inc.
Investor Relations:
Tom McCallum,
919-754-4630
tmccallum@redhat.com
or
Media
Contact:
Stephanie Wonderlick, 571-421-8169
swonderl@redhat.com
Source: Red Hat, Inc.
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