Lumentum Holdings (LITE) experienced a significant pre-market plunge of 5.16% on Monday, as the stock faced selling pressure following the announcement of a major corporate action.

The decline comes after Lumentum disclosed it has entered into agreements to exchange approximately $650.4 million of its 0.50% convertible senior notes due 2028 for roughly 5 million shares of its common stock. The transaction, which is expected to close around Thursday, will result in the cancellation of the exchanged debt but will not provide any cash proceeds to the company. Approximately $172.2 million of the convertible notes will remain outstanding after the exchange.

Market participants reacted negatively to the news as the exchange will lead to share dilution, adding about 0.8 million incremental shares tied to the notes' principal amount. The dilution concern appears to be the primary driver behind the pre-market selloff, overshadowing the benefit of reduced convertible debt on the company's balance sheet.