Can't Take a Hint: Micron Proposes $1.1 Billion in Convertible Senior Notes

When a mature business can’t generate enough cash to fund its operations, it usually takes the hint and... Micron Announces Proposed $1.1 Billion Offering of Convertible Senior Notes:

Micron Technology, Inc., (MU) today announced that it intends to offer, subject to market and other considerations, $1.1 billion aggregate principal amount of unsecured Convertible Senior Notes due June 1, 2014. Micron also intends to grant the underwriters an over-allotment option to purchase up to $165 million aggregate principal amount of additional notes. The interest rate, conversion price and other terms of the notes will be determined by negotiations between Micron and the underwriters. Morgan Stanley & Co. Incorporated will act as sole bookrunning manager for the offering.In connection with this offering, Micron plans to enter into capped call transactions with one or more counterparties, which may include some of the underwriters and/or their affiliates. The capped call transactions are expected to reduce the potential dilution upon conversion of the notes. The capped call transactions are expected to be in three tranches with cap prices ranging from approximately 50% to 100% higher than the closing price of our common stock on the date of pricing.

Micron intends to use a portion of the net proceeds from this offering to pay the cost of the capped call transactions entered into in connection with the offering of the notes. The remaining proceeds from the offering will be used for general corporate purposes, including working capital and capital expenditures.

So, in a one-two punch that almost seems designed solely to infuriate me, Micron is using complex convertible securities, which I consider to be financial sleight-of-hand, so they can keep funding the capex levels I already think are too high. Why can’t they take the hint that there are too many memory chips already, and cut their capex by $1.1 billion instead?

MU 1-yr chart:

Comments

[Phil Anthropy:]

One possibility is that MU needs to continue capex in order to bring home the joint venture deal with Intel concerning manufacture of flash memory. If that is the point, then late this year or early next year there should be a revenue increase. If instead MU is simply making dubious decisions about financing and spending strategies, with the Intel deal tangential, then I don't see a positive outcome anytime soon.

2007 May 18 08:17 AM

[William Trent1:]

Well, any capex ought to result in a revenue increase. More chips for sale generally equates to more revenue.

The problem is they are clearly continuing to drive sales without much regard for profit. It is the return on investment, not the sales it generates, that Micron can't seem to get their arms around.

2007 May 18 08:34 AM

[Ronald J Riley:]

There is a difference between quantity and quality, and Micron appears to be losing the innovation game within their industry. Micron is in my opinion a very poor investment risk. Their profitability has been falling for a long time. I think that their competitors are eating their lunch. Many other aging tech companies are in the same boat.

Investors will see better returns by betting on true innovators and on the companies who enforce those innovators property rights. It seems pretty clear that Micron is on the wrong side of these issues.

I think that Micron and a number of other older stagnate tech companies have the same problems which have destroyed many auto companies and that it is only a matter of time before they face the same fate.

Ronald J. Riley,
President - PIAUSA.org - RJR at PIAUSA.org
Executive Director - InventorEd.org - RJR at InvEd.org
Washington, DC
Direct [phone] - 9 am to 9 pm EST.

2007 May 20 09:51 PM

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2008 Sep 06 07:31 PM