Micron (NASDAQ:MU) has been on a momentum run many of us expected to see earlier this summer. But here it is breaking decade-old highs, nonetheless. It looked like nothing would stop the relentless climb in the last two weeks but then the company announces a $1B share offering.
Hey, what? Where did that come from?
I've seen quite the reaction from readers on Seeking Alpha - everything from management knowing what they're doing and one should chill out to this being a terrible sign for things to come as management must think its stock won't have much runway left to actively destroying shareholders' equity.
It's easy to get emotional about this while shares react negatively to the offering - especially if you just went long around earnings - but let's understand if this short-term pain is a long-term gain.
The reason a company conducts a share offering is to raise cash. The question naturally then becomes what is that cash being used for? In Micron's case, it's to retire debt with half of the proceedings and wait for another opportunistic time to retire debt or use for general purposes with the other half.
Micron expects to use approximately $476 million of the net proceeds from the offering of common stock 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...it will use the remaining net proceeds from the offering for the repurchase, redemption, retirement or other repayment of its outstanding debt securities...
The next question then becomes, is the cash being generated outweighing the debt it's paying off? Repaying debt can be good as long as the elimination of interest expenses returns more than the cash financing over the long haul. We can get into the math with offering
