Xero launches $1.27b convertibles deal; $380m delta block trade

Morgan Stanley and Goldman Sachs’ equities desks launched a $US250 million ($380 million) block trade in accounting software giant Xero Ltd after Tuesday’s market close, as part of the delta hedging for a broader $US850 million convertible notes deal.

Fund managers were being offered Xero shares at a 2.5 per cent to 4.5 per cent discount to the last close of $131.80. The book would shut overnight.

The block trade was a byproduct of the ASX-listed business’ latest convertible notes deal, which would be due in seven years and rank as senior unsecured. The notes would pay a coupon of 1.375 per cent to 1.875 per cent, and trade on the Singapore Exchange. The company will also buy back $US700 million worth of zero-coupon notes due next year.

Xero shares have run up 16 per cent this year, after new boss Sukhinder Singh Cassidy delivered a solid full-year result after embarking on a restructuring program that saw the business shed 750 roles as well as non-core businesses like Waddle.

It delivered an after-tax profit of $NZ174.6 million ($162 million) for the full year ended March 31, compared to a loss of $NZ113.5 million last financial year, beating the average analyst forecast of around $NZ160 million.

The company makes payroll and accounting software for bookkeepers and small and medium-sized businesses. It added 419,000 subscribers during the year despite pushing through price increases, bringing global subscribers to 4.16 million.