Heineken acquisition financing draws massive demand
By Shankar Ramakrishnan
NEW YORK, Oct 2 (IFR) - The much-awaited bond from Dutchbrewer Heineken to take out a EUR2.5bn (US$3.25bn) bridge loanfor its acquisition of Asia Pacific Breweries was announcedtoday, and early indications are that it will raise up toUS$3.25bn.
Heineken (Baa1/BBB+) announced a US dollarbenchmark 144A/Reg S four-parter comprised of three-year,five-year, 10.5-year and 30-year bonds.
As of 11:05am EDT, the tranches had attracted a total bookof over US$20bn, for what sources said was a maximum deal sizeof around US$3.25bn.
Guidance was about 20bp tighter from initial price talk, ina sign of the attractiveness of the issue. The guidance was at aspread of Treasuries plus 60bp area on the three-year; five-yearat plus 90bp area; 10.5-year at 120bp area; and the 30-year atplus 135bp area. The final pricing could even be another 5bptighter.
The EUR3.5bn acquisition was backed by the bridge loanprovided by a group of six banks. The loan was arranged byCitigroup and Credit Suisse, which approached four relationshipbanks to join the deal. The loan was a bridge to bond issue. Thetwo banks featured on the bond mandate as active bookrunnersalong with Barclays and JP Morgan, while BNP Paribas and SG werethe passive books.
Heineken said that in addition to the bridge loan, it wasfunding the takeover through around EUR1bn of available cashsheet and its existing EUR2bn committed undrawn revolving creditfacility. The company said that average acquisition financingcosts are expected to be below 3%.
Last Friday, Heineken won full control of Asia PacificBreweries, the maker of Tiger beer, after Fraser & Neaveshareholders voted to sell their stake in APB to the Dutchbrewer.
The deal is subject to regulatory approvals and is expectedto close in November.
The APB acquisition is yet another example of the USinvestment grade bond market being utilized to fund largeacquisitions. The year has not seen as many M&As as was expectedearly in the year, but the ones that have been announced havefound their way into the IG bond markets because of low fundingcosts.
Bankers are expecting still more M&A being funded by the IGbond markets going forward, with investment liquidity stillsupportive of quality acquisitions that would add to a company'sbottom line without also adding too much leverage.
S&P affirmed its Triple B/ A2 long- and short-term corporatecredit ratings on Heineken and also removed the ratings fromcreditwatch, where it had placed them with negative implicationson July 25. The outlook is now stable.
A Bank of America Merrill Lynch research report on Tuesdaysaid it was reiterating its buy call on Heineken after the APBdeal.
"We estimate 5.5% and 7% EPS accretion in year one and tworespectively, based upon a 2.5% cost of debt and 20% EBIT growthin 2013 estimates. Longer-term, the deal greatly improvesHeineken's growth profile, with emerging markets increasing toabout 60% of EBIT and Western Europe dropping to 29%," it said.
(Shankar Ramakrishnan is the US investment-grade editor of IFR;Editing by Marc Carnegie)
((shankar.ramakrishnan@thomsonreuters.com; Reuters messaging:shankar.ramakrishnan.thomsonreuters.com@reuters.net))
Keywords: US CORP BONDS HEINEKEN/BEER