Onto Innovation Inc. (NYSE: ONTO) saw its shares fall 3.8% on Tuesday after the company priced a convertible senior notes offering that was increased to $1.3 billion from an earlier $1.1 billion announcement.
The securities are 0.00% Convertible Senior Notes due 2031 with an initial conversion price set at roughly $381.80 per share. That conversion price represents a 50% premium to the last reported sale price of $254.53 on the New York Stock Exchange on May 18. The notes are scheduled to mature on June 1, 2031, unless they are converted, redeemed or repurchased earlier.
Under the terms of the transaction, initial purchasers were granted an option to buy up to an additional $200 million aggregate principal amount of the notes. The offering is expected to close on May 21, subject to customary closing conditions.
Following discounts and commissions, Onto Innovation estimates net proceeds of approximately $1.27 billion, or about $1.47 billion if the initial purchasers exercise their option in full. The company has said it will allocate about $77.1 million of the proceeds to fund capped call transactions and around $205 million to repurchase roughly 0.8 million shares of its common stock in privately negotiated transactions at $254.53 per share.
Onto Innovation indicated the remaining cash will be used for general corporate purposes and may include financing for its previously announced plan to acquire a 27% stake in Rigaku Holdings Corporation.
In connection with the pricing, the company entered into capped call transactions with an initial cap price of $509.06 per share, a level that represents a 100% premium to the May 18 closing price. The company says those capped call transactions are expected to reduce potential dilution if and when the notes are converted.
The notes will be senior unsecured obligations and will not carry regular interest payments. Noteholders will have limited conversion rights prior to March 1, 2031, and may convert their notes at any time after that date until maturity.
Context and market reaction
The incremental size of the offering and the terms of the conversion and capped calls appear to have weighed on the stock near the announcement, as investors assessed dilution risk and the near-term impact of the share repurchase. The scheduled close and the option held by initial purchasers introduce additional variables until the transaction is finalized.