Lam Research greenshoe exercise ups convertibles deal to $900 million

By Susanna Moon

Chicago, May 11 - Lam Research Corp. settled a total of $900 million convertible senior notes in two tranches on Wednesday after underwriters exercised the $75 million over-allotment options on both the $375 million of 0.5% convertibles due 2016 and the $375 million of 1.25% convertibles due 2018, according to an 8-K filing with the Securities and Exchange Commission.

Lam priced an upsized $750 million of the convertibles in two tranches on May 6. Both tranches have an initial conversion premium of 32.5%.

The initial conversion rate for both is 15.8687 common shares per $1,000 principal amount of notes, or a conversion price of $63.02 per share.

The company's shares (Nasdaq: LRCX) closed at $48.28 on Tuesday.

Both tranches had a $75 million greenshoe, which was increased from $50 million, and were sold via joint bookrunners J.P. Morgan Securities LLC and Goldman Sachs & Co.

As previously noted, the Rule 144A offering, which was initially going to be $700 million in size, or two $350 million tranches, came at the rich end of talk, which was a 0.5% to 1% coupon on the 2016 notes and a 1.25% to 1.75% coupon on the 2018 notes, and 27.5% to 32.5% for the initial conversion premium.

The bonds are non-callable for life with no puts. There is takeover and dividend protection.

The notes have contingent conversion subject to a 130% price hurdle. They have net share settlement.

A portion of the proceeds will be used to repurchase 1 million shares of common stock from initial purchasers of the notes in privately negotiated transactions.

Lam Research entered into privately negotiated convertible note hedge and warrant transactions with initial purchasers or affiliates in connection with the offering. And these transactions boost the initial conversion premium from the issuer's perspective to 50% for the 2016 notes and 60% for the 2018 notes.

A small portion of the proceeds will be used to pay the cost of the convertible note hedge transactions. The balance will be used for general corporate purposes, including working capital and capital expenditures.

Lam Research may also use a portion of the net proceeds to acquire other businesses, products or technologies, or to repurchase shares of common stock under its share repurchase program.

Lam Research is a Fremont, Calif.-based semiconductor equipment company.

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