Microsoft to price $1.15 billion three-year convertible notes talked to yield 0%, up 30%-35%

By Rebecca Melvin

New York, June 8 - Microsoft Corp. plans to price $1.15 billion of three-year convertible senior notes after the market close Tuesday that were talked to yield 0% with an initial conversion premium of 30% to 35%, according to a syndicate source.

The Rule 144A offering has a greenshoe of $100 million.

Citigroup Global Markets Inc. and Bank of America Merrill Lynch are the joint bookrunners, with co-managers Barclays Capital Inc. and UBS Securities LLC.

The bonds are non-callable for life with no puts. There is net share settlement, which will be par cash settled, with the residual in cash or stock at Microsoft's option prior to March 15, 2013.

In connection with pricing of the notes, Microsoft plans to enter into capped call transactions, aimed at reducing potential dilution upon conversion of the notes.

Proceeds will be used to repay commercial paper, to pay for the call spread, and, to the extent there is any additional shorting, the company is going to buy back associated shares.

Microsoft is a Redmond, Wash.-based maker of computer software and hardware.

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