Heineken acquisition financing draws massive demand

By Shankar Ramakrishnan

NEW YORK, Oct 2 (IFR) - The much-awaited bond from Dutch brewer Heineken to take out a EUR2.5bn (US$3.25bn) bridge loan for its acquisition of Asia Pacific Breweries was announced today, and early indications are that it will raise up to US$3.25bn.

Heineken (Baa1/BBB+) announced a US dollar benchmark 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 book of over US$20bn, for what sources said was a maximum deal size of around US$3.25bn.

Guidance was about 20bp tighter from initial price talk, in a sign of the attractiveness of the issue. The guidance was at a spread of Treasuries plus 60bp area on the three-year; five-year at plus 90bp area; 10.5-year at 120bp area; and the 30-year at plus 135bp area. The final pricing could even be another 5bp tighter.

The EUR3.5bn acquisition was backed by the bridge loan provided by a group of six banks. The loan was arranged by Citigroup and Credit Suisse, which approached four relationship banks to join the deal. The loan was a bridge to bond issue. The two banks featured on the bond mandate as active bookrunners along with Barclays and JP Morgan, while BNP Paribas and SG were the passive books.

Heineken said that in addition to the bridge loan, it was funding the takeover through around EUR1bn of available cash sheet and its existing EUR2bn committed undrawn revolving credit facility. The company said that average acquisition financing costs are expected to be below 3%.

Last Friday, Heineken won full control of Asia Pacific Breweries, the maker of Tiger beer, after Fraser & Neave shareholders voted to sell their stake in APB to the Dutch brewer.

The deal is subject to regulatory approvals and is expected to close in November.

The APB acquisition is yet another example of the US investment grade bond market being utilized to fund large acquisitions. The year has not seen as many M&As as was expected early in the year, but the ones that have been announced have found their way into the IG bond markets because of low funding costs.

Bankers are expecting still more M&A being funded by the IG bond markets going forward, with investment liquidity still supportive of quality acquisitions that would add to a company's bottom line without also adding too much leverage.

S&P affirmed its Triple B/ A2 long- and short-term corporate credit ratings on Heineken and also removed the ratings from creditwatch, where it had placed them with negative implications on July 25. The outlook is now stable.

A Bank of America Merrill Lynch research report on Tuesday said it was reiterating its buy call on Heineken after the APB deal.

"We estimate 5.5% and 7% EPS accretion in year one and two respectively, based upon a 2.5% cost of debt and 20% EBIT growth in 2013 estimates. Longer-term, the deal greatly improves Heineken's growth profile, with emerging markets increasing to about 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))