convertible offering

[tradestar2012]

http://ir.nq.com/phoenix.zhtml?c=243152&p=irol-newsArticle&ID=1862239&highlight=

In a nutshell, the company wants to raise $150M in converts, possibly $172.5 if the shoe is exercised. As a reminder, the company has $130M in cash on their balance sheet already. Also, Omar previously stated they are done with acquisitions of scale. The only thing I can think of that makes this convertible offering make any sense is if they are doing this offering to increase the float or to provide a backdoor private placement for MS and DB.

Any thoughts?

[quantumvibes]

http://ir.nq.com/phoenix.zhtml?c=243152&p=irol-newsArticle&ID=1862239&highlight=

In a nutshell, the company wants to raise $150M in converts, possibly $172.5 if the shoe is exercised. As a reminder, the company has $130M in cash on their balance sheet already. Also, Omar previously stated they are done with acquisitions of scale. The only thing I can think of that makes this convertible offering make any sense is if they are doing this offering to increase the float or to provide a backdoor private placement for MS and DB.

Any thoughts?

[quantumvibes]

I think that 1) the new CFO hire took place with this transaction in mind, in particular, as they continue scaling up and globalizing; 2) that they're going to announce an acquisition. Even though Omar had said they had no plans to do so, that was some time back and, of course, they always keep the door open for opportunistic deals. Also, I'm figuring they'll say that their current set of businesses are coalescing faster than they'd expected, which also makes a material acquisition more doable and timely; and 3) they are supremely confident that their roster of high profile institutional investors and prospective investors will applaud whatever it is they have in the works... GL

[tradestar2012]

I'm sure the new CFO knew about it. Its not clear who the placement agent is, but PJC has been on their prior deals so I would not be surprised if the CFO was already in the know. As for doing a convertible offering before announcing a deal, thats very unusual and practically unheard of. Raising capital is a much more assure-able transaction than doing an acquisition. If you have an acquisition that is very actionable, you announce the deal first and then include commentary on how you will finance it. Not the other way around.

[quantumvibes]

I'm sure the new CFO knew about it. Its not clear who the placement agent is, but PJC has been on their prior deals so I would not be surprised if the CFO was already in the know. As for doing a convertible offering before announcing a deal, thats very unusual and practically unheard of. Raising capital is a much more assure-able transaction than doing an acquisition. If you have an acquisition that is very actionable, you announce the deal first and then include commentary on how you will finance it. Not the other way around.

Great points.  If you recall though, BIDU did a capital raise in anticipation of snapping up 91 Wireless, although it via a bond issue, I believe.  You're more informed than I about the ins and outs of M&A + financing, so on my part it's just a gut feel that they've got something in their crosshairs and will be pulling the trigger in the not to distant future.  The lack of announcement first could be a timing issue and the scope/nature/timing of the capital raise could be for opportunisitic reasons.  Just guessing here...

[quantumvibes]

The after-hours action is unreliable, not to mention dubious. I believe the offering will ultimately be viewed as an unequivocal positive, as well as signaling another exciting stage in NQ's evolution.

[tradestar2012]

Good point on BIDU. However if you look at the original PR for the BIDU offering (the one prior to 91), they specifically noted it was for refinancing some existing debt and for general corporate purposes. The did another offering right after the 91 announcement, and that offering specifically noted it was for acquisitions in addition to general corporate purposes.

http://ir.baidu.com/phoenix.zhtml?c=188488&p=irol-newsArticle&ID=1760982&highlight=
http://ir.baidu.com/phoenix.zhtml?c=188488&p=irol-newsArticle&ID=1842754&highlight=

[admin]

Here is some color from a reliable source

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Here's the color - I spoke with NQ last night. (1) $150M gives company a much stronger cash position (2) they will NOT do dilutive acquisitions (3) doing this convert transaction with Morgan Stanley as the lead underwriter very likely will lead to Morgan Stanley sell side coverage (a MASSIVE positive for NQ!!) and Deutsche Bank too. (4) There is no m&a deal pending and there is certainly no big dilutive deal coming.



As mentioned, MS is the lead underwriter on the covert deal. $150M is the minimum size for a convert deal to get a Tier 1 to lead. It was not possible to get 2 Tier 1's to split the deal, as it would not be worth the effort and fees for either. The debt pricing is super cheap....convert interest rate will likely be in the 3-4% range with the conversion strike price to equity approx 30% higher (around $26-$27). Morgan Stanley will make best efforts to place the convert offering with long-term convert investors, not convert arb funds. The difference is significant. Convert arb funds will short stock against their convert position to hedge out delta exposure. Straight convert investors generally do not do this. Hence, only minimal shorting is expecting due to this deal. Also, the price of borrowing NQ's stock to short is currently over 9% annually and there is very limited supply available. The shorts will try to lie about this. Now you know.



On my call last night, NQ repeated that NQ's opportunities and deal pipeline remain EXTREMELY strong. I think this marks the bottom for the stock given NQ has already preannounced Q3 will top the high end of guidance and we have NQ's Analyst Day on November 19th. Lots more detail and visibility will be provided on both. I have high confidence that both will be very bullish and tie together various strategic pieces. If equity markets hold, this is going over $30 in 2-6 months.

NQ is going to do a bunch of smaller tuch-in acquisitions that can be immediately monetized on their massive customer platform.  Money was cheap, and this was the best way to get the best Tier 1 analyst (MS) to cover the company.  



The debt does not even convert until the stock is 30% higher...so if the stock is not 30% higher, then is it s super cheap debt deal. 

[pwalk]

[quote='admin' pid='29652' dateline='1381238409']

Here is some color from a reliable source.......see above

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...very nice admin!  Thank you very much for the time and effort you expended to get the information straight from the company.

Knowledge is power, and your post is powerful stuff!

Update- my bad, reread the post, realize now it is from 'TH', so credit to him for original info, but still appreciate your posts admin!!