Textron Inc. (TXT) announced that its 4.5% Convertible Senior Notes, due 2013, will remain convertible at the holders’ discretion till June 30, 2011.
Textron had issued $600 million of the said 4.5% Convertible Senior Notes in May 2009 with a maturity date of May 1, 2013 and interest payable semiannually. Subject to certain conditions, the holders have the option to convert the notes into Textron shares.
The initial conversion rate had been set at 76.1905 Textron shares per $1,000 principal amount of convertible notes. This translates into an initial conversion price of approximately $13.125 per share. Upon conversion, Textron has the option to settle the conversion by cash or shares or a combination of both.
The conversion conditions referred above include the following clauses:
1) after June 30, 2009, if during any calendar quarter, Textron’s stock price exceeds 130% of the applicable conversion price per share (or $17.06 per share) for at least 20 trading days during the 30 consecutive trading days ending the last trading day of the preceding calendar quarter;
2) during the five business day span after any 10 consecutive trading day measurement period, in which the trading price per $1,000 principal amount of convertible notes for each day in the measurement period falls below 98% of the product of the last stock price and the applicable conversion rate;
3) if specified distributions to holders of common stock are made or specified corporate transactions occur; or
4) at any time on or after February 19, 2013.
During the 30 consecutive trading days ending March 31, 2011, Textron’s price exceeded the conversion threshold price of $17.06 per share for at least 20 trading days, thus satisfying the first condition. The notes are thus convertible at the holder’s option till June 30, 2011, the last trading day of the second calendar quarter. Post June 30, 2011 the conversion of the notes will depend on whether any of the conversion conditions are satisfied.
Prior to the current announcement, the notes had been declared convertible by Textron through 2010 as well as the first calendar quarter of 2011. This was due to the fact that Textron’s share price had been above the threshold limit for each of the corresponding previous quarters, thus fulfilling the first condition.
Textron Inc. is a global multi-industry company that manufactures aircraft, automotive engine components and industrial tools. It is also a provider of solutions and services for aircraft, fastening systems and industrial products and components.
Textron’s diversified presence across commercial, manufacturing and industrial products as well as financing operations protects it from specific business risk. The company is increasingly focused on its core manufacturing business and is gradually exiting from its commercial finance business through orderly liquidation and selected sales.
However, Textron remains exposed to defense spending cuts. Moreover, a slower recovery in the business jet market could lead to deferrals of orders. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock. In the near term, we would advise investors to accumulate its short-term Zacks #1 Rank (Strong Buy rating) peers like Lydall Inc. (LDL) and LSB Industries Inc. (LXU).
