Microchip Stock Falls On $1.35B Convertible Stock Offering, Retail's Feeling Bearish

The Chandler, Arizona-based company said it intends to use a portion of the net proceeds to pay for the cost of capped call transactions and repay existing debt.

Shares of Microchip Technology Inc. (MCHP) fell more than 2.3% during the after-hours trading session on Wednesday after the company announced a convertible stock offering plan.

The semiconductor manufacturing company announced plans to offer $1.35 billion of convertible stock, with the option of an additional offering of $135 million to cover for over-allotments.

The Chandler, Arizona-based company said it intends to use a portion of the net proceeds to pay for the cost of capped call transactions, which limit share dilution. It also intends to use a portion of these proceeds to repay existing debt, including outstanding notes.

Earlier this month, the company announced that it would slash its workforce by nearly 9%, impacting 2,000 employees, as it battles excess inventory and slowing demand from car manufacturers.

The chipmaker’s third-quarter earnings missed Wall Street expectations. Its inventory levels surged to 266 days, twice as much as its target range of 130 to 150 days.

It also issued weak guidance, depressing investor sentiment, but the company’s management highlighted that it is implementing a nine-point efficiency plan.

Retail sentiment on Stocktwits around the Microchip stock was in the ‘bearish’ (41/100) territory, with message volume at ‘extremely low’ levels.

Data from Koyfin shows that Microchip's average price target is $65.82, implying a 21% upside from Wednesday’s closing price.

Brokerages are largely bullish on the company – of the 24 calls, 16 either have a ‘Buy’ or a ‘Strong Buy’ recommendation, seven have a ‘Hold’ rating, and one brokerage has a ‘Sell’ suggestion.

Microchip’s stock has declined nearly 5% year-to-date, but its one-year performance is far worse, with a fall of over 37%.

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