Salesforce (CRM) Issues Senior Notes to Fund Slack Acquisition
Salesforce CRM yesterday announced the pricing of senior notes worth $8 billion to fund the proposed acquisition of Slack Technologies WORK. The company issued the notes in six tranches of different maturities, carrying different interest rates.
The company priced notes worth $1billion, having an annualized interest rate of 0.625% and maturity in 2024. Another senior note worth $1 billion carries an annualized interest rate of 1.5% and will mature in 2028. Additional $1.5 billion worth senior notes carrying an annualized interest rate of 1.95% will mature in 2031.
Salesforce priced another note worth $1.25 billion, carrying an annualized interest rate of 2.70% and maturity in 2041. Another senior note worth $2 billion carries an annualized interest rate of 2.90% and will mature in 2051. Additional $1.25 billion worth senior notes carrying an annualized interest rate of 3.05% will mature in 2061. Management stated that the offering will be closed on Jul 12.
This Zacks Rank #3 (Hold) company mainly intends to use the net proceeds to fund the acquisition of Slack, which is expected to close during second-quarter fiscal 2022 of the former. Markedly, on Nov 30, 2020, the two companies inked a definitive agreement, under which Salesforce would acquire Slack in a cash-and-stock deal worth $27.7 billion.
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Why is Salesforce Acquiring Slack?
The acquisition of Slack is likely to be a win-win deal for Salesforce. Firstly, the deal will help Salesforce grab solid opportunities from the major digital transformation initiatives undertaken by organizations. Per MarketsAndMarkets, the global digital transformation market size is estimated to reach $1.01 trillion by 2025 from $469.8 billion in 2020, reflecting a CAGR of 16.5% through 2020-2025.
Secondly, the buyout would enhance Salesforce’s team collaboration software capabilities. The company could integrate Slack’s software with its cloud-based office suits, with the goal of improving collaboration between sales and customer support teams.
Thirdly, the acquisition will bring a massive number of global customers to Salesforce. Notably, Slack had ended first-quarter fiscal 2022 with more than 169,000 paid customers.
Fourthly, the buyout would help Salesforce in competing with Microsoft MSFT better, which is growing as a main rival with its Dynamics CRM apps. For the last few quarters, Microsoft’s Dynamic CRM has been growing at a double-digit pace with the company’s ramped-up efforts to cross-sell the products to enterprises.
Salesforce Takes Advantage of Low Interest Rates
Borrowing costs continue to be low, enabling companies to obtain easy financing. With the U.S. treasuries offering low rates, corporate bonds and borrowings from banks are now witnessing high demand.
In the past few months, several companies have issued senior notes to improve liquidity. In April, Marvell Technologies MRVL raised $2 billion through senior notes to fund the acquisition of Inphi Corporation. In March, NCR Corporation NCR raised $1.1 billion through issuing 5.125% senior unsecured notes.
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