Dexcom (Nasdaq:DXCM) today announced that it intends to offer $1 billion in convertible senior notes due in 2028.
The continuous glucose monitor (CGM) maker made its private placement to persons reasonably considered qualified institutional buyers. San Diego-based Dexcom also plans to grant the initial purchasers of the notes an option to buy more. Those options fall within a 13-day period from, and including, the date of first issuance, for up to an additional $150 million.
Dexcom said in a news release that its notes are senior, unsecured obligations with interest payable semi-annually in arrears. The notes mature on May 15, 2028, unless earlier converted, repurchased or redeemed.
Dexcom earmarked a portion of its net proceeds to pay the cost of capped call transactions. If the initial purchasers exercise their option to buy additional notes, the company intends to use a portion of those proceeds to enter into additional capped call transactions.
Additionally, Dexcom expects to use up to $250 million of its net proceeds to repurchase shares of its common stock. The company expects those shares to equal the closing price of its common stock on the date of the pricing of the offering.
The company plans to use the remainder of its net proceeds for capital expenditures, working capital and general corporate purposes. This may include in-licensing or acquisitions of, or investments in, other businesses, products or technologies, or additional share repurchases. Dexcom said it has no commitments or specific plans for any of these actions at this time, though.
About the capped call transactions
In connection with the pricing, Dexcom plans to enter into privately negotiated capped call transactions. These may take place with one or more of the initial purchasers, their respective affiliates and/or other financial institutions.
Capped call transactions cover the number of shares of Dexcom’s common stock that initially underlie the notes. Dexcom expects them to generally reduce the potential dilution of its common stock upon the conversion of the notes. They may also offset any cash payments Dexcom could be required to make in excess of the principal amount of any converted notes.
In connection with establishing initial hedges for these transactions, capped call counterparties advised Dexcom of their expectation to enter into various derivative transactions with respect to Dexcom’s common stock. They may also purchase Dexcom’s common stock concurrently with or shortly after the pricing of the notes. This activity could increase (or reduce the size of any decrease in) the market price of Dexcom’s stock or the notes.
The counterparties can also modify hedge positions by entering into or unwinding various derivatives with respect to Dexcom stock. They may also purchase or sell common stock or other securities of Dexcom in secondary market transactions. This may only occur after the pricing of the notes and prior to the maturity of the notes.
Dexcom said this activity could cause or avoid an increase or decrease in the market price of its common stock or the notes.
Additional details of the Dexcom offering
Notes remain convertible prior to 5 p.m. ET on the business day immediately preceding Feb. 15, 2028, only upon the satisfaction of certain conditions. Thereafter they are convertible at the option of the holders at any time until 5 p.m. on the second scheduled trading day immediately preceding the maturity date.
On or after May 20, 2026, and prior to Feb. 15, 2028, Dexcom may redeem for cash all or part of the notes. This remains subject to a partial redemption limitation: if the last reported sale price of Dexcom’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which Dexcom provides notice of redemption.
Holders of the notes have the right to require Dexcom to repurchase for cash all or a portion of the notes at 100% of the principal amount. They may add any accrued and unpaid interest upon the occurrence of a fundamental change. Dexcom must also increase — in certain circumstances — the conversion rate for holders. This occurs for those who convert their notes in connection with certain fundamental changes. These changes occur prior to the maturity date.
The interest rate, initial conversion rate, offering price and other terms remain to be determined upon pricing of the notes.