RALEIGH, N.C.--(BUSINESS WIRE)--
Red Hat, Inc. (NYSE:RHT) ("Red Hat") today announced that it has priced
its private offering of $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 has granted the initial purchasers of the
notes 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. The sale of the
notes is expected to close on October 7, 2014, subject to customary
closing conditions. The notes will mature on October 1, 2019, unless
earlier repurchased or converted in accordance with their terms prior to
such date. The notes will bear interest at a rate of 0.25% per year,
payable semiannually in arrears on April 1 and October 1 of each year,
beginning on April 1, 2015. The notes will be convertible prior to April
1, 2019, only upon the occurrence of certain events and will be
convertible thereafter at any time until the close of business on the
second scheduled trading day immediately preceding the maturity date
regardless of these events, in either case, into 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. The conversion rate will initially be
13.6219 shares of Red Hat's common stock per $1,000 principal amount of
notes, which is equivalent to an initial conversion price of
approximately $73.41 per share of Red Hat's common stock, subject to
adjustments in certain events. The initial conversion price represents a
premium of approximately 30% to the $56.47 per share closing price of
Red Hat's common stock on October 1, 2014. When issued, the notes will
be senior unsecured obligations of Red Hat.
Red Hat expects the net proceeds from this offering to be approximately
$686.7 million (or approximately $789.8 million if the initial
purchasers exercise their option to purchase additional notes in full)
after payment of the initial purchasers' discounts and estimated
offering expenses payable by Red Hat.
Red Hat intends to use approximately $59.4 million 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 $375 million of the remaining net proceeds
from the offering to repurchase shares of its common stock under an
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. 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.
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 entered 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 receive upon conversion of the
notes. The strike price of the warrant transactions will initially be
$101.646 per share, which represents a premium of 80% over the $56.47
per share closing price of Red Hat's common stock on October 1, 2014.
Morgan Stanley, Citigroup, J.P. Morgan, BofA Merrill Lynch, 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 was and 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 offering of the
notes, its use of proceeds from the offering and the effect of the
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
Relations:
Stephanie Wonderlick, 571-421-8169
swonderl@redhat.com
Source: Red Hat, Inc.
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