Juniper's Bullish Conversion

With a $350M offering of convertible stock, is Juniper stocking up for a longer winter or feeling acquisitive?

May 28, 2003

2 Min Read
Juniper's Bullish Conversion

The stock market's rising again -- and networking companies are wasting no time in going back to investors for more money.

Juniper Networks Inc. (Nasdaq: JNPR) announced last night that it seeks to raise $350 million, selling convertible securities, which shows just how bullish things have become.

The full details of the offering aren’t yet available, but according to some information available through a press release, the convertibles will have a 5-year maturity and a 0 percent yield (see Juniper Offers Notes). A convertible differs from common stock in that it gives the buyer the option to convert to common stock at a fixed price. While some convertibles pay the investor interest, in this case the Juniper security looks as if it won't have a dividend yield.

The big question is what Juniper intends to do with the money it raises in the deal. The company has recently cut losses and returned to profitability. It has more than $600 million in cash and short-term securities -- though that is down from the $1 billion in cash it held at this time last year.

So why would be Juniper be going back to the markets to get more cash? There could be a few reasons:

  • 1) Juniper sees the recent strength in the market as an opportune time to raise money (the Nasdaq Index is up 17 percent so far this year);
    2) It’s planning on making some acquisitions;
    3) It feels the need to beef up its balance sheet;
    4) All of the above.

”It’s an opportunistic time to grab cash," says Gabriel Lowy, director of technology research for Blaylock & Partners. Lowy points out that the company could also just be shoring up its balance sheet, perhaps to appeal to RBOC customers or prepare for acquisitions.

The sale of convertibles has the potential to dilute Juniper’s stock, but investors didn’t seem to mind. Juniper shares rose $0.14 (1.01%) to $14.03 in trading today.

One thing's for sure, a successful $350 million convertible offering be a sign that things are thawing in the capital markets, even for the beleaguered telecom equipment sector. If the strength in the markets continues, other companies may make moves to sell securities into the market and raise cash.

“Things are the reverse from last year -- last year it was sell, sell, sell,” says Lowy. “But this year everybody’s ignoring the bad news and buying these stocks."

The most recent public offering of notes came from Sonus Networks Inc. (Nasdaq: SONS), which raised about $60 million in a secondary offering of common stock in April (see Sonus Snags $61M, Stock Tanks.

— R. Scott Raynovich, US Editor, Light Reading

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