Shares in Cochlear Limited (ASX: COH) are in a trading halt as the hearing device company prepares to launch an equity raising.
Why is Cochlear launching an equity raise?
Cochlear is looking to conduct an $800 million equity raise, with the deal being underwritten by investment bank JP Morgan. The equity raise will be done through a share placement, which will be followed up by a share purchase plan to existing shareholders. Cochlear shares will be sold at $140 each, which is a 16% discount from the stock’s last closing price.
According to the company’s media release, Cochlear is looking to stockpile its balance sheet so that the company remains strongly capitalised during the current market uncertainties. According to the company, the COVID-19 pandemic will have a negative impact on Cochlear’s operations with many surgeries delayed.
The equity raise also follows Cochlear’s lost court appeal in the US. The company was ordered to pay $438 million to 2 research institutes in the US regarding patent infringements.
How has the COVID-19 pandemic impacted Cochlear?
The COVID-19 pandemic is expected to have a significant negative impact on Cochlear implants for an uncertain period of time. This is a result of elective surgeries around the world being suspended or deferred in a bid to curb the spread of the virus.
Despite the uncertain outlook, Cochlear believes that there will be a recovery due to the critical nature in demand for its products. Therefore, any surgeries and treatments that have been suspended will eventually be undertaken.
Cochlear also advised that the company has not seen any disruption in its supply chain, with the company carrying at least 3 months worth of inventory as a precaution.
Cochlear continues to be a global leader in implantable hearing solutions, with an estimated global market share of around 60%. The essential need and demand for the company’s products paints a positive long-term growth outlook for Cochlear.
The institutional placement will allow the company to enhance its balance sheet and provide Cochlear with financial flexibility during the uncertain market environment. The placement will result in 5.7 million new shares issued, which will represent approximately 9.9% of Cochlear’s existing issued capital.
Cochlear shares will remain in a trading halt until the company releases an announcement regarding the completion of the placement or until the commencement of trading on 27 March.
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Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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