Symbol Technologies has shelved a $250 million stock offering and is instead putting in place bank debt to repay a bridge loan that funded the $230 million acquisition of radio frequency identification provider Matrics. The company is making the move because the stock offering was taking too long to execute and the bridge loan became too costly. Increasing cash flow, meanwhile, convinced Symbol that debt was a better financing option.
Last September, the enterprise mobility products manufacturer put in place the $250 million bridge loan with J.P. Morgan priced at LIBOR plus 4%, rising 50 basis points a month starting in November. Symbol was planning to use a stock offering, also led by J.P. Morgan, to pay down the unsecured bridge loan as soon as was possible, explained Cary Schmiedel, Symbol's v.p. and treasurer. "It was a great tool from Sept. 9 to Dec. 1 but it was never envisioned to go beyond that from my liquidity planning perspective," he noted.
As the end of 2004 approached Symbol realized the stock offering would not be optimal and simultaneously explored the possibility of tapping the loan market, Schmiedel said. "Though Symbol was planning to be over with the road show by Dec. 1, as we went through that process, since the company hadn't done this in many years it proved to be an overwhelming task. As we got closer to Dec. 1, I knew that we had to do something different--to have a back up plan," he said.
"It made good sense at this point to take out the bridge loan that was never intended to be long-term but it was more expensive as time went on," he said, adding that Symbol had planned a new bank credit facility in the future anyway. "We just flip-flopped transactions and moved the bank credit facility up in time," Schmiedel said. Another factor was improving cash flows. Symbol exited the third quarter with no senior borrowings and the strength of the cash flows indicated that the company could pay down debt and push a potential equity offering well into the future. "If the cash flows of the company continue to be strong, there may be no reason to do an equity offering," he added.
Once the decision was made, Symbol exited the bridge financing at LIBOR plus 5%. The new loan, consisting of a $100 million term loan and $150 million revolver, is priced at LIBOR plus 1 3/4%. J.P. Morgan and Bank of America are leading the facility and a bank meeting will be held within the next two weeks. The deal, which is expected to be syndicated by the end of February, also has other advantages. Though an equity offering carries no interest expense, the issuance of 20 million of shares is "hugely dilutive," Schmiedel stated. Symbol has about 240 million shares on a fully diluted basis and Fidelity Investments is the largest shareholder.