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Analog Devices Declares Pricing of $1.875B Senior Notes

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Leading semiconductor company Analog Devices Inc. (ADI - Free Report) recently announced the pricing of unsecured senior notes totaling $1.875 billion. These notes have been issued in four tranches of different amounts with varying coupon rates and maturities. The offering is expected to close on Dec 5, 2016, subject to customary closing conditions.

Shares of Analog Devices have been steadily treading upon a year-to-date basis. The stock has returned 34.73% compared with the Zacks Electronic Commerce industry’s gain of 10.29%.

The first tranch of $400 million, due 2021, carries an interest rate of 2.500%; the second tranch of $550 million, has an interest rate of 3.125% and is due in 2023; the third set of $900 million carries an interest rate of 3.500% and is due in 2026 and the remaining notes worth $250 million carry an interest rate of 4.500% and are due in 2036.

Analog Devices stated that the net proceeds would be used to finance a portion of the cash consideration related to the planned acquisition of Linear Technology Corporation . However, if the acquisition is not closed by Oct 26, 2017, the notes due on 2021, 2023 and 2036 will have a special mandatory redemption feature. The rest of the proceeds from this offering would be used for general corporate purposes, share repurchases, acquisitions, dividend payments and capital expenses.

J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC, and MUFG Securities Americas Inc. will be acting as joint book-running managers for the offering. The co-managers of the offering are BMO Capital Markets Corp., BNY Mellon Capital Markets, LLC, PNC Capital Markets LLC, SMBC Nikko Securities America, Inc., TD Securities (USA) LLC and Wells Fargo Securities, LLC.

Analog Devices is a leading supplier of analog and DSP integrated circuits. In the recently concluded fourth quarter of fiscal 2016, the company spent $1.4 million on share repurchases and $129.6 million on cash dividends.

Exiting the quarter, Analog Devices had cash and short-term investments of approximately $4.06 billion, up from $3.80 billion in the prior quarter. Long-term debt was approximately $1.7 billion, resulting in a net cash position of $2.04 billion.

We believe that the company has a strong balance sheet, which will help it to capitalize on investment opportunities and pursue strategic acquisitions, further improving its growth prospects. The senior notes offering will bring down the company’s cost of capital, in our view, thus strengthening the balance sheet and supporting growth.

Currently, Analog Devices has a Zacks Rank #3 (Hold).Some better-ranked stocks in the industry are Cognex Corporation (CGNX - Free Report) and Itron, Inc. (ITRI - Free Report) with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cognex Corporation delivered a positive earnings surprise of 24.92% in the trailing four quarters.

Itron, Inc. delivered a positive earnings surprise of 30.55%, on average, in the trailing four quarters.

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