Zendesk, Inc. (NYSE: ZEN) (“Zendesk”) today announced the
pricing of $1.0 billion aggregate principal amount of Convertible
Senior Notes due 2025 (the “Notes”) in a private offering (the
“Offering”) to persons reasonably believed to be qualified
institutional buyers pursuant to Rule 144A under the Securities Act
of 1933, as amended (the “Securities Act”). 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.
The sale of the Notes is expected to settle on June 16, 2020,
subject to customary closing conditions, and is expected to result
in approximately $979.0 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.
The Notes will be senior, unsecured obligations of Zendesk. 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 each year,
beginning on December 15, 2020. 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. 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).
Prior to 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. Conversions of the Notes will be
settled in cash, shares of Zendesk’s common stock, or a combination
thereof, at Zendesk’s election.
In connection with the pricing of the Notes, Zendesk entered
into privately negotiated capped call transactions with respect to
Zendesk’s common stock with the initial purchasers of the Notes and
other financial institutions (the “Option Counterparties”). The
capped call transactions are expected generally to reduce potential
dilution to Zendesk’s common stock upon any conversion of Notes
and/or offset any potential cash payments Zendesk is required to
make in excess of the principal amount of converted Notes, as the
case may be, with such reduction and/or offset subject to a cap.
The cap price of the capped call transactions will initially be
approximately $164.17 per share, which represents a premium of 100%
over the volume-weighted average price including the close of
Zendesk’s common stock on June 11, 2020, and is subject to certain
adjustments under the terms of the capped call transactions.
Zendesk expects that, in connection with establishing their
initial hedges of the capped call transactions, the Option
Counterparties or their respective affiliates will enter into
various derivative transactions with respect to Zendesk’s common
stock and/or purchase shares of Zendesk’s common stock concurrently
with or shortly after the pricing of the Notes. This activity could
increase (or reduce the size of any decrease in) the market price
of Zendesk’s common stock or the Notes at that time. In addition,
Zendesk expects that the Option Counterparties or their respective
affiliates may modify their hedge positions by entering into or
unwinding various derivatives with respect to Zendesk’s common
stock and/or by purchasing or selling Zendesk’s common stock or
other securities of Zendesk in secondary market transactions from
time to time prior to the maturity of the Notes (and are likely to
do so on each exercise date for the capped call transactions, which
are expected to occur on each trading day during the 40 trading day
period beginning on the 41st scheduled trading day prior to the
maturity date of the Notes, or following any termination of any
portion of the capped call transactions in connection with any
repurchase, redemption or early conversion of the Notes). This
activity could also cause or avoid an increase or a decrease in the
market price of Zendesk’s common stock or the Notes, which could
affect the ability of holders of Notes to convert the Notes and, to
the extent the activity occurs following a conversion or during any
observation period related to a conversion of the Notes, it could
affect the number of shares of Zendesk’s common stock and value of
the consideration that holders of Notes will receive upon
conversion of the Notes.
Zendesk intends to use $113.0 million of the net proceeds from
the Offering to pay the cost of the capped call transactions
described above. 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 the Option Counterparties.
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 (the “2023 Notes”) described
below. Zendesk intends 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. Zendesk may also use a
portion of the net proceeds to acquire complementary businesses,
products, services, or technologies. However, Zendesk has not
entered into any agreements for any specific acquisitions at this
time.
Contemporaneously with the pricing of the Notes in the Offering,
Zendesk entered into separate and individually negotiated
transactions (each, a “Note Repurchase”) with certain holders of
the 2023 Notes to repurchase approximately $425.8 million in
aggregate principal amount of the 2023 Notes for an aggregate of
approximately $617.6 million in cash.
Zendesk expects that holders of the 2023 Notes that Zendesk
agreed to repurchase that have hedged their equity price risk with
respect to such 2023 Notes (the “hedged holders”) will,
concurrently or shortly after the pricing of the Notes, unwind
their hedge positions by buying Zendesk’s common stock and/or
entering into or unwinding various derivative transactions with
respect to Zendesk’s common stock. The amount of Zendesk’s common
stock to be purchased by the hedged holders may be substantial in
relation to the historic average daily trading volume of Zendesk’s
common stock and this activity by the hedged holders may have
increased the effective conversion price of the Notes.
In connection with the issuance of the 2023 Notes, Zendesk
entered into capped call transactions (the “Existing Capped Call
Transactions”) with certain financial institutions (the “Existing
Option Counterparties”). In connection with the concurrent Note
Repurchases, Zendesk entered into agreements with the Existing
Option Counterparties to terminate a portion of the Existing Capped
Call Transactions in a notional amount corresponding to the
principal amount of the 2023 Notes that Zendesk agreed to
repurchase. In connection with such termination of a corresponding
portion of the Existing Capped Call Transactions, Zendesk expects
that such Existing Option Counterparties and/or their respective
affiliates will sell shares of Zendesk’s common stock in secondary
market transactions, and/or unwind various derivative transactions
with respect to Zendesk’s common stock. In connection with such
terminations, Zendesk anticipates that it will receive cash from
the Existing Option Counterparties equal to approximately $83.0
million, which Zendesk intends to use for general corporate
purposes.
The repurchase of the 2023 Notes and the termination of a
corresponding portion of the Existing Capped Call Transactions
described above, and the potential related market activities by
holders of the 2023 Notes participating in the concurrent Note
Repurchases and the Existing Counterparties, as applicable, could
increase (or reduce the size of any decrease in) or decrease (or
reduce the size of any increase in) the market price of Zendesk’s
common stock, which may affect the trading price of the Notes at
that time. Zendesk cannot predict the magnitude of such market
activity or the overall effect it will have on the price of the
Notes or Zendesk’s common stock.
Neither the Notes nor the shares of Zendesk’s common stock
potentially issuable upon conversion of the Notes, if any, have
been, or will be, registered under the Securities Act or the
securities laws of any other jurisdiction, and unless so
registered, may not be offered or sold in the United States except
pursuant to an applicable exemption from such registration
requirements.
This press release does not constitute an offer to sell or a
solicitation of an offer to buy, nor shall there be any offer or
sale of, the Notes (or any shares of Zendesk’s common stock
issuable upon conversion of the Notes) in any state or jurisdiction
in which the offer, solicitation, or sale of the Notes would be
unlawful prior to the registration or qualification thereof under
the securities laws of any such state or jurisdiction.
About Zendesk
The best customer experiences are built with Zendesk.
Zendesk is a CRM company that builds flexible support, sales,
and customer engagement software that is quick to implement and
scales to meet changing needs. From large enterprises to startups,
we believe that powerful, innovative customer experiences should be
within reach for every company, no matter the size, industry or
ambition. Zendesk serves more than 160,000 customers across a
multitude of industries in over 30 languages. Zendesk is
headquartered in San Francisco, and operates 17 offices
worldwide.
Forward-Looking Statements
This press release contains forward-looking statements,
including, among other things, about the closing of the Offering,
the potential effects of the capped call transactions, the Note
Repurchases and the terminations of a portion of the Existing
Capped Call Transactions, the potential dilution to Zendesk’s
common stock and the expected use of the net proceeds from the sale
of the Notes and the terminations of a portion of the Existing
Capped Call Transactions. Words such as “may,” “should,” “will,”
“believe,” “expect,” “anticipate,” “target,” “project,” and similar
phrases that denote future expectation or intent are intended to
identify forward-looking statements. You should not rely upon
forward-looking statements as predictions of future events.
The outcome of the events described in these forward-looking
statements is subject to known and unknown risks, uncertainties,
and other factors that may cause actual results, performance, or
achievements to differ materially, including risks related to or
associated with: (i) whether Zendesk will consummate the Offering,
(ii) whether Zendesk will consummate the anticipated Note
Repurchases and the related terminations of a portion of the
Existing Capped Call Transactions and (iii) whether the capped call
transactions will become effective, all of which could differ or
change based upon market conditions or for other reasons.
The forward-looking statements contained in this press release
are also subject to additional risks, uncertainties, and factors,
including those more fully described in Zendesk’s filings with the
Securities and Exchange Commission, including its Quarterly Report
on Form 10-Q for the quarter ended March 31, 2020. Further
information on potential risks that could affect actual results
will be included in the subsequent periodic and current reports and
other filings that Zendesk makes with the Securities and Exchange
Commission from time to time, including its Quarterly Report on
Form 10-Q to be filed for the quarter ending June 30, 2020.
Forward-looking statements represent Zendesk’s management’s
beliefs and assumptions only as of the date such statements are
made. Zendesk undertakes no obligation to update any
forward-looking statements made in this press release to reflect
events or circumstances after the date of this press release or to
reflect new information or the occurrence of unanticipated events,
except as required by law.
Source: Zendesk, Inc.
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version on businesswire.com: https://www.businesswire.com/news/home/20200612005232/en/
Zendesk, Inc. Investor Contact: Marc Cabi, +1
415-852-3877 ir@zendesk.com or Media Contact: Paige Young,
+1 415-852-3877 press@zendesk.com
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