What is the purpose of this $900 million financing?

The primary purpose of this financing is to strengthen Western Digital's balance sheet and provide increased financial flexibility. This capital infusion is expected to support the company's operations and potential strategic initiatives, such as a separation of its Flash Business.

When can the preferred stock be converted into common stock?

The preferred stock cannot be converted by the investors until after the earlier of (i) the closing of a potential Spin-Off of the Flash Business or (ii) 12 months following the closing date (January 31, 2023). There are also specific conditions related to Hart-Scott-Rodino Act waiting periods for Apollo and limitations on Elliott's conversion to maintain a certain ownership percentage.

What are the dividend rights associated with the preferred stock?

The Series A Preferred Stock carries a cumulative dividend rate that starts at 6.25% per annum for the first seven years, increases to 7.25% per annum until the ten-year anniversary, and then rises to 8.25% per annum thereafter. Dividends can be paid in cash or in-kind (through an increase to the liquidation preference) at the company's option, subject to certain limitations related to Nasdaq's 19.9% rule for accrued dividends.

What impact does this have on the company's board composition?

The financing agreements resulted in an increase of the Board size to nine directors. Apollo has the right to nominate one director, and Reed B. Rayman has been appointed to the Board. Elliott also has rights to select a director under certain conditions, contingent on meeting minimum holding requirements and other factors.

WDC 8-K: Leadership Changes, Material Agreements & More

Summary

Western Digital Corporation (WDC) announced on January 31, 2023, the completion of a $900 million private placement of Series A Convertible Perpetual Preferred Stock to affiliates of Apollo Global Management and Elliott Investment Management. This capital infusion is intended to strengthen the company's balance sheet and provide financial flexibility. The preferred stock carries a cumulative dividend, starting at 6.25% and increasing over time, and is convertible into common stock under certain conditions, primarily related to the potential spin-off of its Flash Business or other strategic transactions. The agreements also involve board representation rights for Apollo and Elliott, as well as specific transfer restrictions and standstill provisions for the investors. This move represents a significant strategic financing that aims to support WDC's operations and potential future strategic actions, such as a separation of its flash business. Investors should monitor the implications of this new preferred stock, including its conversion potential and impact on future earnings, as well as the strategic direction of the company.

Key Highlights

1WDC raised $900 million through the issuance of Series A Convertible Perpetual Preferred Stock to Apollo and Elliott.
2The preferred stock has a par value of $0.01 and was issued at $1,000 per share.
3The preferred stock accrues a cumulative dividend starting at 6.25% annually, increasing over time to 8.25% after 10 years.
4The preferred stock is convertible into WDC common stock at an initial conversion price of $47.75 per share, representing a 25% premium to the prior VWAP.
5Conversion into common stock is restricted until after a potential spin-off of the Flash Business or after 12 months from the closing date, subject to certain conditions.
6Apollo has been granted the right to nominate one director to the WDC Board, and Reed B. Rayman has been appointed.
7Elliott Investment Management L.P. also secured rights to select an individual for appointment to the Board under specific conditions.

WESTERN DIGITAL CORP 8-K Report, Material Agreement (Feb 1, 2023)

Summary

Key Highlights

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