Merck makes its mark
German healthcare, life science and performance materials company Merck’s US$6.3bn-equivalent loan backing its takeover of US-based Versum Materials provided an exceptional example of a tightly priced acquisition loan with a quick bond takeout.
Merck has made around €40bn of acquisitions and divestments since 2007, transforming itself into one of the world’s largest science and technology companies by revenues. Those transactions included the momentous US$17bn acquisition of US-based lab supplies company Sigma-Aldrich in 2014, which was backed with a US$15.6bn loan.
Although on a smaller scale, the acquisition of Versum solidified Merck’s position as an electronic materials player focused on the semiconductor and display industries.
On February 27, Merck made a US$5.9bn cash bid for Versum, topping a rival offer from US group Entegris. The bid went hostile in March when Merck decided to take its offer directly to shareholders after Versum said it remained committed to Entegris’ all-share merger, which it had agreed in January.
Bank of America, BNP Paribas and Deutsche Bank underwrote the financing as mandated lead arrangers and bookrunners on March 26 as Merck launched the public tender offer.
“The hostile nature of the bid meant there were additional levels of scrutiny on the transaction, while the underwriting banks had to sit on the financing during the public tender offer process,” said David Garcia Capel, director, acquisition finance at Deutsche Bank.
The financing, which was available in euros and US dollars, comprised a US$4.02bn 12-month bridge loan with two six-month extension options; and a US$2.28bn three-year term loan.
The margin on the bridge loan started at an ultra-thin 15bp over Libor/Euribor, rising over time to maximum 90bp, encouraging a fast bond market refinancing.
Pricing on the term loan ranged from 40bp to 70bp, depending on Merck’s long-term credit rating.
Commitment fees also rose over time, starting at 10% from three months after signing, rising to 20% after four months and to 30% after five months.
“The deal delivered tight pricing and the flexibility Merck needed to progress to completion,” Garcia Capel said.
The loan was syndicated to a group of 16 of Merck’s relationship banks in April after Merck eventually won the support of Versum’s board with an increased US$6.5bn bid.
Merck moved quickly to replace the bridge loan, which was partially refinanced through a €1.5bn issue of hybrid bonds in June and a €2bn bond in July. Merck used commercial paper and cash to complete the refinancing.
“We secured a solid financing structure for the proposed acquisition of Versum right from the start,” said Merck CFO Marcus Kuhnert.
Merck completed the acquisition on October 7.
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