Shares of Micron Technology (MU 41.98) are up 149% over the last 52 weeks and closed Tuesday at their highest level since 2001. Suffice it to say, demand for its stock has been high as the company has been riding a wave of higher prices for its memory chips, which are used in a host of technology products.
This is an opportune time, then, for Micron Technology to launch an offering of common stock -- and that's exactly what it plans to do.
The company said it will offer approximately $1 billion of shares of common stock in an underwritten registered public offering. J.P. Morgan Securities is the sole underwriter for the offering, and Micron said it expects to grant J.P. Morgan Securities a 30-day option to purchase up to approximately $150 million of additional shares at the public offering price.
Micron's intention is to use the proceeds from the sale of stock to pay down its debt. Specifically, Micron said it anticipates using approximately $476 million of the net proceeds from the offering to redeem approximately $438 million in aggregate principal amount of its 7.500% Senior Secured Notes due 2023 and pay accrued and unpaid interest thereon.
The remaining proceeds are likely to be used for the repurchase, redemption, retirement or other payment of its outstanding debt securities.
Shares of MU have fallen 3.2% in pre-market trading following the stock offering announcement. The response has been negative for a couple of reasons:
- There are concerns it will be dilutive to shareholders; and
- There are concerns it could mark a near-term top in the stock since such stock offerings are often made following a big move that leaves a company in a good position to take advantage of investors' enthusiasm
To be fair, MU has surged 53% in the last two months alone, so it could have been vulnerable to some profit-taking activity anyway in spite of the stock offering.
The reduction in debt, however, could offset some of the dilution resulting from more shares outstanding since it will lower Micron's interest expense on its debt. That consideration, along with strong DRAM/NAND fundamentals, prompted the analyst at Mizuho to raise the firm's price target on MU to $45 from $40 following the news of the stock offering.