Earlier this week,
) announced that it will offer 2.75% senior convertible debentures
due 2042, worth $1.35 billion. The company will also confer the
right to procure additional debentures worth $150 million to the
initial buyers to adjust for any over-allotment.
The offer, which is expected to close on October 9, 2012, is
open only to qualified institutional buyers, as defined by the
amended Rule 144A of the Securities Act of 1933. The debentures
carry a maturity date of October 15, 2042.
The 2.75% per annum interest on the debentures will be paid
semi-annually. Additionally, debenture holders might get a
contingent interest from October 15, 2022, in specific situations
depending on the debentures' trading price.
Moreover, in certain situations, the debentures will be
converted into cash up to the principal amount, while the debenture
holders will get either WellPoint's shares or cash for the amount
exceeding the principle amount.
The debenture holders will receive 13.2319 shares of WellPoint
for every $1,000 principle value of debentures, implying an initial
conversion price of $75.575 a share. This conversion price denotes
a conversion premium of 25% on the closing price of WellPoint's
shares on October 2, 2012.
However, the company will redeem the debentures before October
20, 2022 only on the occurrence of specific tax-related events.
From 20 October, 2022 onwards, WellPoint can redeem the debentures
fully or partly in cash, provided the last reported sale price of
its shares is a minimum of 150% of the conversion price effective
in no less than 20 trading days out of a period of 30 consecutive
trading days before the date of the notice of redemption.
Debenture holders will receive the full principal amount along
with the accrued and unpaid interest. Any applicable contingent
interest or additional interest amounts will also be included in
the redemption price. Further, till October 15, 2012, WellPoint can
fully or partly redeem the debentures in cash at a premium price,
on the enactment or issue of certain U.S. federal tax legislation,
regulations or rules.
WellPoint will spend $400 million of the money raised from the
debenture issue on share repurchase. The residual amount, including
money raised from additional issue to initial purchasers, will be
utilized for general corporate needs such as further share
repurchase or debt repayment.
The debt issue and share repurchase is expected to increase the
debt-equity ratio of WellPoint. The interest burden of the company
is also anticipated to increase, although any debt repayment from
the proceeds will partially offset this increase.
WellPoint, which competes with
UnitedHealth Group Inc.
), carries a Zacks #4 Rank, which translates into a short-term Sell
rating. We maintain a long-term 'Neutral' rating on its shares.
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WELLPOINT INC (WLP): Free Stock Analysis Report
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