LONDON, May 16 (IFR) - LVMH has become the latest company to
capitalise on a strong market backdrop and favourable funding
costs, opting to pre-finance its €12bn acquisition of Christian
LVMH announced last month that the acquisition - slated to
close in the third quarter - would be financed with debt,
leading investors to anticipate a speedy multi-billion takeout.
Europe has become a hotbed for M&A debt financing over the
last year with borrowers such as AB InBev and Verizon
demonstrating the depth of demand for multi-tranche jumbo
Supply has been further helped by the ECB's corporate
purchase programme, which started last June, spurring demand for
paper and bringing coupons to all-time lows.
LVMH hit the market on Tuesday for a €4.5bn bond split into
four tranches - an 18-month floater, a three-year fixed, a
five-year fixed and a seven-year fixed. Each will be of
Initial price thoughts were 100.20 area cash price (Euribor
plus 20bp area), mid-swaps plus 30bp area, plus 40bp area, and
plus 50bp area.
Guidance followed at 100.40-100.35, swaps plus 15bp area
(+/-3bp), plus 20-25bp and plus 30-35bp on orders of over €14bn.
All will price in those ranges.
Final terms were set for a €1.25bn FRN at 100.40 (around
Euribor plus 6bp), a €1.25bn three-year at plus 12bp, a €800m
five-year at plus 20bp and a €1.2bn seven-year at plus 30bp.
Investors had expected the deal to be snapped up, with many
accounts wanting to buy a rare and high-rated issuer.
Despite initially increasing leverage on the back of the
acquisition, analysts at CreditSights said LVMH will still have
the strongest financial profile of Europe's retailers.
S&P, the only agency that rates LVMH, said last month that
its rating will remain at A+ stable.
Some investors warn, however, that the large deal size may
affect performance in the secondary market.
"I suppose the market is fairly hot and pricing looks
attractive, although I would expect them to do €6.5bn which may
limit performance post issue," one investor said early in the
The bonds come with a covenant that LVMH can redeem notes at
100.5 plus accrued if it no longer pursues the acquisition, or
if it is not completed on or before 31 March 2018.
The world's biggest luxury group by sales is also servicing
a €6.5bn vendor loan as a stop-gap measure to fund the
The Christian Dior fashion brand will be combined with the
LVMH luxury goods empire as part of a €12bn move to simplify
owner French billionaire Bernard Arnault's business interests.
The Arnault family, which holds a 47% stake in LVMH, will
also offer to buy the 25.9% of the Christian Dior holding
company it does not already own for around €260 a share.
BAML, Barclays, CA CIB, HSBC, JP Morgan and Natixis are
active bookrunners on the trade.
M&A ON THE CARDS
Other M&A deals waiting in the wings include BAT, which is
expected as its acquisition of Reynolds draws closer.
BAT intends to refinance two bridge facilities in the bond
market - one of US$15bn and the other of US$5bn, maturing in
2018 and 2019, respectively.
The company previously said it would sell a mix of debt in
US dollars, sterling and other currencies, although investors
expect most to be issued in dollars.
AT&T is also circling. An investor who attended a recent
non-deal roadshow said it is targeting a
US$3.5bn-$5bn-equivalent euro issue.
AT&T announced that it had agreed to buy Time Warner Inc in
October and said it would finance the cash portion of the
acquisition with debt and cash on its balance sheet.
Bayer is another with a hotly anticipated deal, having said
it will sell a mix of senior and hybrids to help finance its
US$66bn takeover of US seed company Monsanto.
Bayer expects to close the transaction by the end of 2017.
(Reporting By Laura Benitez, editing by Sudip Roy and Julian