What are the conversion terms (conversion price, ratio, and timeline) and how might they dilute existing shareholders?

Conversion terms

• Conversion price: The 0.625 % senior convertible notes due 2031 are callable at a fixed conversion price of $31.00 per share (the “Conversion Price”).
  
• Conversion ratio: Each $1,000 principal amount of notes is convertible into 32.2587 shares of VIAVI common stock (i.e., 1 / $31.00).
  
• Conversion timeline: The notes may be exchanged or converted at any time on or after August 15 2027 (the “Conversion Commencement Date”) and must be fully converted at maturity on June 15 2031. The company also retains the right to force conversion earlier if the market price exceeds a pre‑set “make‑whole” threshold.

Potential dilution for existing shareholders

If holders elect to convert the $250 million principal amount, the maximum new‑share issuance would be roughly 8.06 million shares (250 MM / 31). That represents ≈ 9‑10 % of VIAVI’s current outstanding share count (≈ 85‑90 MM shares). The dilution impact includes:

1. EPS compression: Adding ~8 MM shares will lower earnings per share, pressuring valuation multiples unless the conversion is funded by proportionally higher earnings.
   
2. Voting dilution: Existing shareholders’ voting power will be reduced by about one‑tenth, potentially affecting board control dynamics.
   
3. Liquidity & price pressure: The conversion window in 2027‑2031 could create a supply‑side head‑wind if a sizable number of notes are converted simultaneously, capping upside and creating short‑term downward pressure on the stock.

Trading implications

• Short‑term: Until the 2027 conversion window opens, the notes act like a low‑coupon, long‑dated debt instrument—supporting the stock’s floor price but offering limited upside.
  
• Mid‑term (2027‑2029): Monitor the market price relative to the $31 conversion price. If VIAVI’s equity trades significantly above $31, conversion risk rises, prompting a potential sell‑side pressure as new shares are issued. Conversely, a price well below $31 keeps conversion unlikely, allowing the stock to capture upside without dilution concerns.
  
• Long‑term (2029‑2031): Anticipate a forced conversion at maturity. Positioning a modest short‑term hedge (e.g., protective puts) can mitigate the expected dilution shock, while a buy‑on‑dip if the price remains comfortably below $31 may capture upside before the mandatory conversion.

In summary, the $31 conversion price, 32.2587‑share ratio, and the 2027‑2031 conversion window set the stage for a potential 9‑10 % share‑count increase. Traders should watch the equity price relative to $31 and the approaching conversion dates to gauge dilution risk and adjust exposure accordingly.