Danaher mandatory convertible preferreds price with lowest dividend in nine years

By Abigail W. Adams

Portland, Me., Feb. 27 – Danaher Corp.’s series A mandatory convertible preferred stock deal, which priced after the market close on Tuesday, carried the lowest dividend of a mandatory convertible preferred stock deal in nine years, according to a market source.

Danaher priced an upsized $1.5 billion of par of $1,000 three-year series A mandatory convertible preferred stock after the market close on Tuesday with a dividend of 4.75% and an initial conversion premium of 22.5%.

The deal priced concurrently with a $1.35 billion, or 11 million share, common stock offering, which priced at $123.00 per share.

Demand for the mandatory convertible preferreds and the common stock offering was massive.

The books for both the mandatory convertible preferreds and common stock offerings each played to about $7.5 billion in orders.

Demand largely came from outright accounts, which accounted for nearly 50% of the orders, a market source said.

However, there was a good mix of investors who were interested in the deal, including hedge players and equity income funds.

The demand enabled the mandatory convertible preferreds to price through the range of price talk for a dividend of 5.25% to 5.75% and at the rich end of talk for an initial conversion premium of 17.5% to 22.5%.

The 4.75% dividend was the first time the 5% barrier on a mandatory convertible preferred stock deal was broken in nine years.

Danaher stock rallied into Tuesday’s close on word the mandatory convertible deal was only going to be slightly upsized and the common stock offering was not going to be upsized.

With investors confident the common stock would perform well, underwriters were able to drive the pricing tighter and break through the 5% barrier.

The quick turnaround between Danaher’s announcement of its acquisition of GE Life Sciences’ BioPharma division and the closing of the acquisition financing deal was another unique feature to the deal, a source said.

“It was an evening launch after a morning acquisition announcement,” a market source said. “It was unbelievably fast.”

The $21 billion acquisition is the largest in Danaher’s history. However, the company has a long and successful history of acquisitions, a market source said.

“People love the deal,” the source said.

The acquisition from the already highly regarded company is believed to be accretive to next year’s earnings and will help drive future growth, which in turn drove demand for the concurrent offerings.

Danaher was aware of how much equity they would need to raise to maintain their ratings and did not want to wait.

The risk on conditions in the market and Danaher’s stock move after the acquisition announcement made it a perfect time to move on the deal.

The deal was “remarkable for them overall,” a market source said.

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