Investors weren’t overjoyed to hear about a mandatory convertible stock issue.
Medical device and diagnostics company Bruker (BRKR 2.69%) wasn’t looking like the cure for any investor’s ailments on Wednesday. The stock was hit with an assertive sell-off from the market, leaving it with a nearly 12% price decline on the session. The S&P 500 index had a much better day, ticking up by 0.5%.
Preferring to raise new funds
Just after market close on Tuesday, Bruker announced that it was floating a $600 million issue of mandatory convertible preferred stock. The conversion date will be on or about Sept. 1, 2028. Additionally, the company said it expects to grant the issue’s underwriters a 30-day option to collectively purchase up to an additional $90 million worth of the securities.
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All told, Bruker will sell from 2.4 million to 2.76 million shares of this stock, depending on whether the underwriters exercise their option (and to what extent). The company said it will use its share of the offering’s base proceeds to retire debt. If the option is exercised to any extent, those funds will be used for “general corporate purposes,” Bruker said.
The underwriters of the issue are JPMorgan Chase (JPM 2.39%) unit J.P. Morgan, Bank of America (BAC 0.43%) Securities, and PNC (PNC 1.75%) Capital Markets.
Debt to pay
Share dilution is always a concern for investors. Cleverly, Bruker somewhat sidestepped this worry by issuing convertible preferred — rather than common — stock. Still, whenever a business goes to the investor well for new financing, it justifiably leads to worries about its financial performance and health.
This company certainly isn’t doing badly, as it earned nearly $800 million in revenue in its most recently reported quarter and delivered a healthy profit, but investors should keep an eye on that indebtedness — long-term borrowings were relatively high at nearly $2.4 billion at the end of said period.
JPMorgan Chase is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bruker and JPMorgan Chase. The Motley Fool has a disclosure policy.