By Aaron Lorenzo
Believing it¿s a borrower¿s market these days, Cephalon Inc. and Invitrogen Corp. both reported $500 million private offerings of convertible subordinated notes due in 2006.
Cephalon privately placed $500 million of 2.5 percent notes due Dec. 15, 2006, with a 30-day option for an additional $100 million in aggregate principal amount of notes to the initial purchasers.
¿The capital markets are such right now that it¿s a very advantageous time to be doing this kind of financing arrangement,¿ said Robert Grupp, Cephalon¿s vice president of corporate communications. ¿With the interest rates being where they are, and our stock trading where it is ¿ and we¿re not the only company by any means who¿s participating in these convertible debt arrangements ¿ I think it¿s a smart thing to do to raise money through this kind of vehicle at this time.¿
Invitrogen also sold $500 million in notes, an increase from the previously announced intention to sell $400 million worth of notes.
The Cephalon agreement, managed by Credit Suisse First Boston, will help fund a portion of the company¿s purchase of French pharmaceutical company Group Lafon, a deal announced Monday.
Cephalon, of West Chester, Pa., agreed to pay cash for the $450 million price tag of the Maisons Alfort-based drug maker. Cephalon had about $444 million in cash on Sept. 30. (See BioWorld Today, Dec. 4, 2001.)
The company expects an immediate turnaround from the purchase of Lafon, which has rights to Cephalon¿s Provigil in France. Pharmaceutical sales in France are expected to generate an extra $80 million in product revenue next year.
¿We said on Monday that we would use a combination of cash on hand and credit to finance that deal, and that remains the case,¿ Grupp said. ¿We will keep some cash on hand for general corporate purposes and to look at other opportunities, moving forward.¿
Cephalon also said it would use the proceeds from the offering for general corporate purposes, including working capital and further acquisitions of companies or products.
¿I think Frank Baldino, our chairman, has been very clear in saying that this company will grow by making smart acquisitions of growth products, and in the process sometimes that means acquiring companies as well,¿ Grupp added. ¿So I would say in the long term, we¿re not done doing that. And I think he has every intention of continuing to look at good opportunities, so we now have the capital to do that.¿
The notes are convertible into Cephalon common stock at $81 per share, subject to adjustment in certain circumstances. The company¿s stock (NASDAQ:CEPH) closed at $67.81 Thursday, down $1.43.
Invitrogen¿s notes may be converted at any time into shares of the company¿s common stock at $86.10 per share. They will accrue interest at an annual rate of 2.25 percent that will be payable semiannually, and will be callable after Dec. 20, 2005.
¿There is still an additional $100 million that can be exercised over the next 30 days,¿ said Paul Goodson, Invitrogen¿s vice president of investor relations. ¿The original offering was $400 [million], with an additional $100 million allowance. It went to $500 [million], with still an original $100 million overallotment ¿ so a potential up to $600 million.¿
The company expects to use the proceeds from the offering for general corporate purposes, including research and development activities and working capital, investments in infrastructure and potential acquisitions. Invitrogen¿s most recent quarter report revealed $563 million in cash holdings.
¿We probably will have an increase in working capital in 2002 simply because every time our sales go up, there¿s a need to finance receivables,¿ Goodson said. ¿Development activities transitioning some manufacturing from the East Coast out here to the West Coast, and we¿re going to need some capital to complete the construction of a very large building that we leased a few months ago.¿
The Carlsbad, Calif., structure will cover 320,000 square feet, as large as a pair of Home Depot stores, Goodson said.
¿There¿s also the possibility of acquisitions,¿ he added. ¿We felt that this was an attractive time to do a financing ¿ interest rates are low, the lowest we¿ve seen.¿
Invitrogen¿s stock (NASDAQ:IVGN) closed at $64.78 Thursday, down 21 cents.
Cephalon¿s offering is expected to close Dec. 11, the same day as San Diego-based Invitrogen.