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Micron calls on market for $500m

Bond issue

Micron is to raise $500m through a convertible bond issue. America's last DRAM maker will spend the money on general working capital, R&D and managing the transition to new technologies and manufacturing processes.

That's the simple bit: the complicated stuff comes with the cost of this money. First up, the "interest rate, conversion rate and offering price
are to be determined by negotiations between Micron and the initial purchasers of the notes." That's a lot of detail. At least we know that the notes will be convertible in 2010.

Second, Micron is to use approx. $80m of the proceeds
to "enter into call spread options on its common stock to limit exposure to potential dilution from conversion of the notes." In other words it will buy the right to buy shares in itself at a fixed price.

Along with these call spread options, the initial purchasers are "expected to take positions in Micron's common stock in secondary market
transactions and/or enter into various derivative transactions both in anticipation of and after the pricing of the notes".

So how long is this $80m tied up and how much will end up in the company's coffers? Buying in shares does not, considering Micron's debt position - around $347m outstanding, according to a recent SEC filing - seem to be a productive use of capital. So what is the potential dilution of the issue, and how much is the interest price?

The fact that Micron can go to market with an issue shows some strength; the fact that it needs to go to market shows the terrible weakness of the DRAM market. ®

Related links

Micron press release
Bloomberg: analyst responses to Micron bond issue

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