Cubist Pharmaceuticals, Inc. (NASDAQ:CBST) today announced the pricing of $700 million aggregate principal amount of convertible senior unsecured notes that will be issued in two series, with one series of $300 million aggregate principal amount maturing on September 1, 2018 (the 2018 notes) and the other series of $400 million aggregate principal amount maturing on September 1, 2020 (the 2020 notes and together with the 2018 notes, the Notes). The Notes are being offered and sold to qualified institutional buyers pursuant to Rule 144A under the Securities Exchange Act of 1933, as amended. Cubist has granted the underwriters an option to purchase up to an additional $50 million aggregate principal amount of each series of the Notes.
The 2018 Notes will bear interest at a rate of 1.125% per year and the 2020 Notes will bear interest at a rate of 1.875%, in each case, payable on March 1 and September 1 of each year, beginning on March 1, 2014. The Notes will not be redeemable prior to maturity. The Notes will be convertible, only during certain periods and subject to certain circumstances, into cash, shares of Cubist’s common stock, or a combination of cash and shares of Cubist’s common stock, at Cubist’s election. The initial conversion rate for each series of Notes is 12.1318 shares of Cubist’s common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $82.43 per share of Cubist’s common stock, representing an approximately 32.5% conversion premium based on the last reported sale price of Cubist’s common stock of $62.21 per share on September 4, 2013.
In connection with the pricing of the Notes, Cubist also entered into privately negotiated convertible note hedge transactions and warrant transactions with the initial purchasers or their respective affiliates (the option counterparties) in order to reduce the potential dilution with respect to shares of Cubist's common stock upon any conversion of the Notes and/or offset any cash payments Cubist is required to make in excess of the principal amount of converted Notes. If the initial purchasers exercise their option to purchase additional Notes, Cubist may enter into additional convertible note hedge and warrant transactions. The warrant transactions will have a dilutive effect with respect to Cubist's common stock to the extent that the market price per share of Cubist's common stock, as measured under the terms of the warrant transactions, exceeds the applicable strike price of the warrants, which is initially 55% higher than the last reported sale price of Cubist’s common stock on September 4, 2013.