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 to qualified institutional buyers. The company also intends to grant the initial purchasers 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 both, 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 plans to use a portion of the net proceeds from the offering to pay the cost of capped call transactions, with the remainder intended for general corporate purposes, including 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 cover the number of shares of Zscaler’s common stock that will initially underlie the notes, with the aim of reducing potential dilution to Zscaler’s common stock upon any conversion of notes and/or offsetting any cash payments in excess of the principal amount of converted notes, subject to a cap.
Zscaler has been advised that, in connection with establishing their initial hedges of the capped call transactions, 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.
The offering is subject to market and other conditions, and there can be no assurance as to whether or when the offering may be completed, or as to the actual size or terms of the offering. 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. Following these announcements, the company's shares moved 1.76%, and are now trading at a price of $314.77. For more information, read the company's full 8-K submission here.
