Big biotech, Cubist Pharmaceuticals, announced its intention to commence a financing offering, subject to market and other conditions, of $600 million in convertible senior unsecured notes that are expected to be issued in two $300 million series, with one series maturing on September 1, 2018 (2018 notes) and the other series maturing on September 1, 2020 (2020 notes and together with the 2018 notes, the Notes).
The Notes will be offered and sold to qualified institutional buyers pursuant to Rule 144A under the Securities Exchange Act of 1933, as amended.
Cubist also expects to grant the initial purchasers of the Notes an option to purchase up to an additional $50 million aggregate principal amount of each series of the Notes.
The Notes will bear cash interest, payable semi-annually, beginning on March 1, 2014.
The Notes will not be redeemable prior to maturity.
The Notes will be convertible, only during certain periods and subject to certain circumstances, into cash, shares of Cubist common stock, or a combination of cash and shares of Cubist’s common stock, at Cubist’s election.
Final terms of each series of the Notes, including interest rates, conversion rates, conversion prices, and certain other terms of the offering, will be determined at the time of pricing.
In connection with the pricing of the Notes, Cubist also expects to enter into one or more privately negotiated convertible note hedge transactions and warrant transactions with one or more of the initial purchasers or their respective affiliates in order to reduce the potential dilution with respect to shares of Cubist's common stock upon any conversion of the Notes and/or offset any cash payments Cubist is required to make in excess of the principal amount of converted Notes.
If the initial purchasers exercise their option to purchase additional Notes, Cubist may enter into additional convertible note hedge and warrant transactions.
The warrant transactions will have a dilutive effect with respect to Cubist's common stock to the extent that the market price per share of Cubist's common stock, as measured under the terms of the warrant transactions, exceeds the applicable strike price of the warrants, which is anticipated to be significantly higher than the closing price of Cubist’s common stock on the date the warrants are issued.
Cubist intends to use the majority of the net proceeds of the financing to fund its previously announced acquisition of Optimer Pharmaceuticals, and to pay the cost of the convertible note hedge transactions.
The remaining net proceeds from the financing offering will be used for general corporate purposes.
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