New Issue: Palo Alto Networks (PANW) $500 million Convertible Senior Notes

As a kid from Berkeley, Hillside’s co-founder needs to get over certain prejudices when looking at any company with “Palo Alto” in its name.

Ok. We’re good.

The new Palo Alto Networks convertible, on the surface, does a lot more for hedgers than outrights. While revenues are exploding, so are costs. The market thus far has given PANW a generous valuation, clearly focusing on that revenue growth. Where have we heard that before? That valuation gives a lot of comfort to arbs looking to set the new deal up and capture volatility figuring to be north of 40% for some time. This one has the look of a potential home run on the downside given the market cap and the company’s name recognition in cybersecurity.  The deal’s optics, needless to say, aren’t terrific, with just a wisp of a coupon and a premium pushing 40. This issue could be a poster child for why market capitalization should be one of your first considerations in evaluating any deal—even if it’s a much bigger help to the arbs than the outrights.

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