German pharmaceutical and chemical giant Bayer’s US$14.2bn loan backing its acquisition of Merck & Co’s consumer care business heralded the return of large-ticket European M&A loan financing and created the blueprint for the structuring, syndication and pricing of future European M&A loans.
At the time of syndication, the deal was the largest acquisition financing by a German corporate borrower since the collapse of Lehman Brothers, and the largest US dollar-denominated loan transaction by a German borrower since 2007.
Bayer agreed on May 6 to acquire the consumer care business of US pharmaceutical company Merck in a US$14.2bn deal, creating the world’s second-largest supplier of non-prescription products.
Bayer’s access to a sizeable underwritten loan financing, which was already in place before the bid went in, gave it a competitive advantage in securing the acquisition in a highly competitive auction process that saw strong interest from a number of major international healthcare and consumer product companies.
Bayer appointed BNP Paribas, Mizuho and Bank of America Merrill Lynch to underwrite the deal, helping to provide global coverage of European, US and Japanese banks. The deal was sized and structured to preserve Bayer’s strong investment-grade rating by including a planned hybrid bond.
The financing comprised a US$12.2bn one-year bridge to bond facility with two six-month extension options as well as a US$2bn four-year term loan.
Pricing on the deal was tight. The bridge loan paid an initial margin of 25bp over Euribor, with step-ups after three months to encourage early refinancing, while the term loan paid 50bp, helping to give participating banks attractive medium-term interest income on the deal.
“It’s our job as underwriter to give clients cost-effective and successful transactions. There is not much premium for size or acquisition financing, as these are deals that banks want to do,” said Charlotte Conlan, EMEA head of loan syndications at BNP Paribas.
The syndication strategy was designed to extract the maximum support possible from Bayer’s core relationship banks and included an agreement that the invited banks would get a fair share of the take-out economics.
The financing was a blow-out success in syndication, which closed on June 12, raising more than US$25bn in commitments from the market with a hit rate of 96%. A total of 23 out of the 24 banks approached in general syndication committed to the financing.
“Losing one to two banks in the market shows that clients are getting best terms, and the deal had a nice oversubscription,” Conlan said.
Even before the acquisition closed on October 1, Bayer had moved to replace most of the bridge loan, issuing €3.325bn of hybrid bonds on June 25, and US$7bn of fixed and floating-rate bonds in the US market on October 1.
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