Zendesk (ZEN): Pricing Of Offering Of $1 Billion Of Convertible Senior Notes

By Amit Chowdhry ● June 14, 2020
  • Zendesk Inc (NYSE: ZEN) recently announced the pricing of $1 billion aggregate principal amount of Convertible Senior Notes due 2025 in a private offering

Zendesk Inc (NYSE: ZEN) recently announced the pricing of $1 billion aggregate principal amount of Convertible Senior Notes due 2025 in a private offering to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933 as amended. Zendesk also granted the initial purchasers of the notes an option to purchase up to an additional $150 million aggregate principal amount of the notes.

Zendesk is known as a CRM company that builds flexible support, sales, and customer engagement software that is quick to implement and scales up to meet changing needs. The company’s customers range from large enterprises to startups. Currently, Zendesk serves over 160,000 customers across a multitude of industries in more than 30 languages.

The sale of the notes is expected to settle on June 16, 2020, subject to customary closing conditions and it is expected to result in approximately $979 million (or approximately $1.126 billion if the initial purchasers exercise their option to purchase additional Notes in full) in net proceeds to Zendesk after deducting the initial purchasers’ discount and estimated offering expenses payable by Zendesk.

These notes will be senior unsecured obligations of Zendesk. And the notes will bear interest at a rate of 0.625% per year, payable semi-annually in arrears on June 15 and December 15 of every year, starting on December 15, 2020. And the notes will mature on June 15, 2025, unless earlier converted, redeemed, or repurchased.

Zendesk may not redeem the notes prior to June 20, 2023. And Zendesk may redeem for cash all or any portion of the Notes, at its option on or after June 20, 2023 and on or prior to the 41st scheduled trading day immediately preceding the maturity date, if the last reported sale price of Zendesk’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), including the trading day immediately preceding the date on which Zendesk provides notice of redemption during any 30 consecutive trading day period ending on and including the trading day immediately preceding the date on which Zendesk provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest to (but excluding) the redemption date.

The notes will be convertible at an initial conversion rate of 9.1944 shares of Zendesk’s common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $108.76 per share — which represents a conversion premium of approximately 32.5% over the volume-weighted average price including the close of Zendesk’s common stock on the New York Stock Exchange on June 11, 2020).

Before the close of business on the business day immediately preceding March 15, 2025, the notes will be convertible at the option of the holders of the notes only upon the satisfaction of specified conditions and during certain periods. On or after March 15, 2025 until the close of business on the second scheduled trading day preceding the maturity date, the notes will be convertible at the option of the holders of the notes at any time regardless of these conditions. And conversions of the notes will be settled in cash, shares of Zendesk’s common stock, or a combination at Zendesk’s election.

Zendesk intends to use $113 million of the net proceeds from the offering to pay the cost of capped call transactions. And if the initial purchasers exercise their option to purchase additional notes, Zendesk expects to use a portion of the net proceeds from the sale of the additional notes to enter into additional capped call transactions with option counterparties. And Zendesk intends to use approximately $617.6 million of the net proceeds from the offering to repurchase for cash of approximately $425.8 million in aggregate principal amount of Zendesk’s 0.25% Convertible Senior Notes due 2023.

Zendesk is planning to use the remainder of the net proceeds from the offering for working capital or other general corporate purposes, including the further expansion and development of Zendesk’s customer experience product and platform solutions, the development of new solutions and services, continued investment in Zendesk’s sales and marketing capabilities, and maturation of Zendesk’s international organization. And Zendesk may also use a portion of the net proceeds to acquire complementary businesses, products, services, or technologies. But Zendesk has not entered into any agreements for any specific acquisitions at this time.