Netflix Selling $200 Million in Convertible Bonds to VC Firm
By Shira Ovide
Wall Street Journal
November 21, 2011, 5:12 PM ET
Netflix said it is selling about $200 million in convertible bonds to Technology Crossover Ventures, a venture-capital firm that has made late-stage investments in big tech companies including Groupon.
Investors are not taking it as a good sign that Netflix needs a $200 million infusion of cash, and issuing fresh stock in the process. Netflix’s share price, which fell Monday during an ugly trading session, were slipping about 8% in after-hours trading but have clawed back some of those losses.
In a recent stock-research note, J.P. Morgan said it believed Netflix may need additional capital. The company ended the September quarter with $366 million in cash and short-term investments, and with $200 million in long-term debt. Netflix has been spending money to acquire digital-video rights for TV shows and movies.
Meanwhile, Netflix has been spending money buying back its own stock, including $199.7 million worth of buybacks in the first nine months of 2011, at an average price of $222 a share. Netflix’s stock price is about one-third of that level now.
The venture-capital firm, TCV, won’t earn any interest from its Netflix bonds, according to the regulatory filing. The VC firm will have the right to appoint a nominee to the Netflix board. (For now, TCV designated an existing Netflix director, Jay Hoag, as its board nominee.)
According to a regulatory filing, the initial conversion price baked into the deal is $85.80 for each Netflix share. The company’s stock price closed Monday at $74.47. The Netflix private placement is contingent on the company selling at least $200 million in common stock to “non-affiliated third parties,” according to a regulatory filing.
In a separate SEC filing, Netflix registered a so-far-undisclosed slug of stock for sale. Morgan Stanley and J.P. Morgan are leading the stock offering, according to the filing. Netflix said it will use proceeds from the stock sales for “general corporate purposes, including working capital and capital expenditures.”