Cephalon Prices $800M Equity Offering in 2 Tranches

Cephalon, Inc. (Nasdaq: CEPH - News) announced today the pricing of its concurrent public offerings of 5 million shares of common stock, at a price of $60 per share, and $435 million in aggregate principal amount of 2.50% convertible senior subordinated notes due 2014. Cephalon has also granted the underwriters a 30-day option, solely to cover over-allotments, to purchase up to an additional 750,000 shares of common stock, with respect to the common stock offering, and to purchase up to an additional $65 million in aggregate principal amount of the notes, with respect to the notes offering.
The notes will bear interest at a rate of 2.50% per year, payable on May 1 and November 1 of each year, commencing on November 1, 2009. The notes will mature on May 1, 2014. Holders may require the Company to repurchase all or a portion of their notes upon a fundamental change (as defined in the prospectus supplement relating to the notes) at a cash repurchase price equal to 100% of the principal amount plus accrued and unpaid interest. Cephalon may not redeem the notes prior to the maturity date.
The notes are convertible prior to maturity, subject to certain conditions, into cash and shares, if any, of the Company's common stock at an initial conversion price of $69.00 per share of common stock (equivalent to a conversion rate of approximately 14.4928 shares per $1,000 principal amount of notes). The notes will be subordinate to existing and future senior indebtedness, equal to existing and future senior subordinated indebtedness and senior in right of payment to existing and future subordinated indebtedness of Cephalon.
The aggregate net proceeds from the sale of shares of common stock and the notes being offered are expected to be approximately $709.5 million, after deducting the underwriters' discounts and estimated offering expenses payable by the Company, assuming the underwriters do not exercise their option to purchase additional notes or shares of common stock.
Cephalon intends to use a portion of the net proceeds of the notes offering in connection with its entry into a convertible note hedge transaction (the "convertible note hedge") on its common stock with Deutsche Bank AG, London Branch (the "hedge counterparty"), an affiliate of the representative of the underwriters. The convertible note hedge will have the impact of increasing the effective conversion price of the new notes from the Company's perspective to $100.00 per share. Cephalon also has entered into a separate warrant transaction with the hedge counterparty (the "warrant transaction"), which would result in additional proceeds to Cephalon. If the underwriters exercise their over-allotment option to purchase additional notes, Cephalon expects to use a portion of the net proceeds from the sale of such additional notes to increase the number of shares of common stock underlying the convertible note hedge and the warrant transaction. Holders of the notes will not have any rights with respect to the convertible note hedge or the warrant transaction. The Company intends to use the remaining proceeds from the convertible notes offering and the proceeds from the common stock offering for general corporate purposes.
In connection with the convertible note hedge and warrant transactions, the hedge counterparty or its affiliates may enter into various derivative transactions with respect to Cephalon's common stock concurrently with or shortly after the pricing of the notes. These transactions could have the effect of increasing or preventing a decline in, or having a negative effect on, the price of Cephalon's common stock concurrently with or following the pricing of the notes. In addition, the hedge counterparty or its affiliates may from time to time, after the pricing of the notes, modify their respective hedge positions by entering into or unwinding various derivative transactions with respect to Cephalon's common stock or by purchasing or selling Cephalon's common stock in secondary market transactions during the term of the notes (and are likely to do so during any applicable conversion reference period related to conversion of the notes). These activities could have the effect of decreasing the price of Cephalon's common stock and could adversely affect the price of the notes during any such applicable conversion reference period.
The offerings are being made pursuant to an effective shelf registration statement previously filed with the U.S. Securities and Exchange Commission. For each offering, a prospectus supplement and accompanying prospectus describing the terms of the offering will be filed with the U.S. Securities and Exchange Commission. Neither of these offerings is contingent upon the consummation of the other offering. Completion of each offering is subject to customary closing conditions, and each offering is expected to close on May 27, 2009.
Until the closing of the offerings, the Company is suspending its basic adjusted income per common share guidance for the second quarter 2009 and full year 2009. The Company will issue revised basic adjusted income per common share guidance following the completion of the offerings. The Company is not suspending its sales and adjusted net income guidance for the second quarter 2009 and full year 2009.
The sole book-running manager for both offerings is Deutsche Bank Securities Inc.