Symantec Leverages Up

On Monday Symanted announced it will offer convertible debt and use the proceeds to repurchase shares. Here’s the SEC filing.

In a press release (the “Release”) issued on June 12, 2006, Symantec Corporation (the “Company”) announced that it expects to use a portion of the net proceeds from an offering of convertible senior notes to repurchase approximately $1.5 billion worth of its common stock. The Company anticipates that a substantial portion of this repurchase will be completed concurrently with the offering, and the remainder will be executed during the September quarter. This repurchase amount is in addition to repurchases under the Company’s previously announced repurchase program, under which approximately $710 million remained authorized as of May 31, 2006.

OK, we’re a little confused. They are issuing convertible bonds, which one day may be converted into shares, so they can buy back shares? To us this sounds like a way for investment banks to earn a fee and for hedge funds to get a sweetheart deal on the debt issuance. For more of our thoughts on convertible debt see this article.

In connection with the convertible note hedge and warrant transactions described in the Release, affiliates of the initial purchasers that are a party to those transactions have advised the Company that they will purchase the Company’s common stock in secondary market transactions prior to or following pricing of the notes, and may enter into various over-the-counter derivative transactions with respect to the Company’s common stock concurrently with or following pricing of the notes.

Like we said, the hedgies buy the debt, sell the shares short against the debt (to the company, no less) and pocket a risk-free premium courtesy of Symantec shareholders. Since this is a private offering and we haven’t seen a prospectus we can’t say for sure that this is what is happening, but it sure sounds like it.

In addition to its issuance of the notes, the Company has entered into a commitment letter with lenders regarding the establishment of a credit facility with an anticipated borrowing capacity of $1.0 billion. While the Company has no current plan to borrow funds under such credit facility, its availability would allow the Company immediate access to domestic funds if it identifies opportunities for its use.

This part actually could make sense. We have said that software stocks have too much capital, and buying back shares using debt that will eventually be paid off is a valid way to reduce it. The convertible stock/buyback shell game sounds different.

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3 Comments on “Symantec Leverages Up”

  1. Eric Risley

    Thre real rationale and purpose of the deal strucuture is at

  2. Trent


    Thank you for explaining some of the rationale. Part of your article appears to justify part of our premise:

    “Underwriters LOVE these deals because the fees are very high. Bankers and issuing company executives also feel good because effort put into structuring a rather complicated deal (satisfying in its own right) results in superior terms for their shareholders. Believe me, every technology company over $2 billion in market capitalization is getting bombarded by bankers selling this same technique. Investment bankers get giddy sometimes.”

    While the bankers may be satisfied with both the fees and the intellectual thrill of a complicated offering, it seems fair for investors to be suspicious of the value being provided. Is there any way you could walk us through a similar issue, and how the economics work for the company, the buyers of the converts, and the existing shareholders?



  3. Eric Risley

    For a more thorough explanation take a look at Symantec Convertible – Part Two at:

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