Morning Commentary: Market eyes Energizer mandatory convertible preferred offering

By Abigail W. Adams

Portland, Me., Jan. 15 – Convertible primary market activity has been slow at the launch of the new year. However, another mandatory convertible offering is in the works.

Energizer Holdings, Inc. plans to price $187.5 million of par of $100 three-year mandatory convertible preferred stock after the market close on Tuesday with price talk for a dividend of 7.25% to 7.75% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

The deal comes with a call spread and is pricing concurrently with a $187.5 million offering of common stock.

The call spread on a mandatory convertible preferred stock deal is unique, a market source said. “Someone was thinking outside the box,” the source said.

While not often seen on mandatory convertible preferred stock deals, the call spread raises the price of dilution to the common, the source said.

The dividend on the deal at surface level looks appealing, sources said. “It just keeps on going,” a source quipped.

However, the higher dividend is needed given the erosion of the premium over three years, another source said.

Energizer also has an outstanding senior note which currently trades with a 7.25% yield, a source said.

In addition to the common stock and convertible preferred stock offering, the St. Louis-based manufacturer of batteries and portable lighting products is planning on launching a $500 million first-lien term loan and $600 million in senior notes in late January or early February.

The planned debt offerings are most likely why Energizer opted to price mandatory convertible preferred stock in lieu of a convertible bond offering, a source said.

Meanwhile, there was about $60 million in trading volume on the tape about one hour into Tuesday’s session.

Splunk Inc.’s 0.5% convertible notes due 2023 were active with the notes trading hands around 103. Splunk stock traded up to $116.41, an increase of 1.83%, shortly before 11 a.m. ET.

Splunk may be a potential acquisition target for Cisco Systems, according to an RBC Capital Markets analyst, Investor’s Business Daily reported.

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