Yahoo Inc. (YHOO – Analyst Report) has recently announced the pricing of convertible senior notes aggregating $1.0 billion, due to mature in 2018, through a private offering. Additionally, the company authorized the repurchase of additional shares worth $5 billion of the company’s common stock.
In order to manage over allotments, management will also provide an option to the initial purchasers of the notes to buy an additional $150 million aggregate principal amount of the notes. Additionally, the company intends to enter into a privately negotiated cash convertible note hedge and warrant transaction with the initial buyers of the notes.
The new issuance will require the company to pay half-yearly interests on Jun 1 and Dec 1 of each year, beginning Jun 1, 2014. The interest rate, initial conversion rate and other terms of the notes will be determined at the time of pricing of the offering.
Yahoo stated that the transaction proceeds will be deployed to finance the cash convertible note hedge transaction and buy back up to $200.0 million worth of its common stock in privately negotiated transactions. The remaining proceeds will be utilized for working capital needs and general corporate purposes, including acquisitions or other strategic transactions and additional repurchases of its common stock.
In the last reported third quarter, Yahoo had cash and short-term investments balance of $1.83 billion. The company spent $77.7 million on capex and $163.1 million on acquisitions. Since Jan 2012, Yahoo has spent $5.3 billion in buybacks, including $1.66 billion in the third quarter.
We believe that Yahoo has a strong balance sheet, which will help the company to capitalize on investment opportunities and strategic acquisitions, further improving its growth prospects. We believe the offering of the senior notes will bring down its cost of capital, further strengthening the company’s balance sheet and supporting growth. Additionally, the continued share buybacks will increase investors’ enthusiasm for the shares.
Yahoo shares carry a Zacks Rank #3 (Hold). Other stocks that are performing well at current levels include Blucora Inc. (BCOR – Snapshot Report), Liveperson Inc. (LPSN – Snapshot Report) and Facebook (FB – Analyst Report). All these stocks carry a Zacks Rank #1 (Strong Buy).