Siemens AG is selling as much as 2.5 billion euros ($2.4 billion) in 5-year bonds exchangeable into Infineon AG stock, cutting its stake in the chipmaker and betting a planned German tax reform will go ahead.
Germany’s biggest electronics company is selling 2 billion euros in bonds and has a 500 million-euro over-allotment option if demand is strong. Bond owners can exchange their bonds for Infineon stock beginning in August 2001.
Siemens, which first sold shares in Infineon in March, is the latest to use exchangeable bonds as a means of reducing its stake in another company. The government plans to slash a tax on asset sales of 50 percent and more no later than 2002.
“The bond sale is clear evidence that Siemens wants to cut its stake as quickly as possible, and the exchangeable bond sale is an innovative way to do it,” said Theo Kitz, an analyst at Merck Finck & Co. “We expect further reductions in the fall.”
Infineon shares fell as much as 4.8 euros, or 5.8 percent, to 77.75 euros. The stock was sold at 35 euros in March and has since more than doubled, giving the company a market value of 49.2 billion euros.
If all buyers exercise their right to exchange the bonds into Infineon, Siemens’s stake in the chip company will fall to 67 percent from 71 percent now, Siemens said. The bonds carry a 1 percent coupon and mature Aug. 10, 2005, the company said.
The bond is being offered with a premium of 27 percent to 31 percent per Infineon share, Siemens said, adding that the final terms of the issue will be set tomorrow at the latest.
A seller of exchangeable bonds can get cheaper funds than sellers of ordinary bonds. That’s because investors are willing to take a lower interest rate on the gamble that shares of the companies the securities can be swapped for will rise.
Companies in the past sold exchangeable bonds to defer the country’s 54 percent tax on asset sales. The tax is payable when bondholders exchange the bonds, so sellers used to bet the tax rate would be cut. Reuters