Zscaler, Inc. (NASDAQ: ZS) has announced its intention to offer $1.5 billion aggregate principal amount of its convertible senior notes due 2028 in a private offering. The company also plans to grant the initial purchasers of the notes a 13-day option to purchase up to an additional $225 million aggregate principal amount of notes.
The notes will be senior unsecured obligations of Zscaler, accruing interest payable semiannually in arrears and maturing on July 15, 2028. They will be convertible under certain circumstances into cash, shares of Zscaler’s common stock, or a combination of cash and shares of Zscaler’s common stock, at Zscaler’s election.
The interest rate, initial conversion rate, repurchase rights, and other terms of the notes will be determined at the time of pricing of the offering. Zscaler intends to use a portion of the net proceeds from the offering to pay the cost of capped call transactions and the remainder for general corporate purposes, which may include working capital, capital expenditures, and potential acquisitions and strategic transactions.
In connection with the pricing of the notes, Zscaler expects to enter into privately negotiated capped call transactions with one or more of the initial purchasers and/or their respective affiliates and/or other financial institutions. The capped call transactions are expected to reduce the potential dilution to Zscaler’s common stock upon any conversion of notes and/or offset any cash payments Zscaler is required to make in excess of the principal amount of converted notes, with such reduction and/or offset subject to a cap.
Zscaler has been advised that the option counterparties or their respective affiliates may purchase shares of Zscaler’s common stock and/or enter into various derivative transactions with respect to Zscaler’s common stock concurrently with or shortly after the pricing of the notes, which could impact the market price of Zscaler’s common stock or the notes at that time.
The notes will be offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and neither the notes nor any shares of Zscaler’s common stock issuable upon conversion of the notes have been registered under the Securities Act or any state securities laws.
This offering will allow Zscaler to raise significant funds for potential acquisitions and strategic transactions, while also mitigating potential dilution to its common stock through capped call transactions. The market has reacted to these announcements by moving the company's shares 1.76% to a price of $314.77. For the full picture, make sure to review Zscaler's 8-K report.
