2nd UPDATE: FOCUS: Kraft Rounds Up Many Banks In Cadbury Bid
25 November 2009 - 4:18AM
Dow Jones News
As rivals weigh whether to top Kraft Food Inc.'s (KFT) GBP9.9
billion ($16.5 billion) offer for Cadbury PLC (CBY), they are
confronting an unusual situation: Kraft has extracted exclusivity
agreements from the banks it is using to finance its bid, leaving
contenders with few other banks to choose from.
Kraft, which made a hostile offer for Cadbury on Nov. 9, is
being advised by Lazard (LAZ) and has secured a GBP5.5 billion
bridge loan from a group of nine banks lead by Citigroup Inc. (C),
Deutsche Bank AG (DB) and HSBC Holdings PLC (HBC) and including BNP
Paribas SA (BNP.FR), Barclays Capital, Royal Bank of Scotland Group
PLC (RBS) as well as Credit Suisse (CS), Societe Generale SA
(SCGLY) and Banco Bilbao Vizcaya Argentaria SA (BBV).
The lead banks have cast the net even further and the number of
banks financing Kraft's bid could grow to 18, a person familiar
with the matter said earlier this month.
The banks providing the multibillion-pound bridge loan have
signed exclusivity agreements that prevent them from jumping ship
to finance any rival bidders, according to several people familiar
with the situation.
"Kraft is being very strategic and tactical - but it needs to be
given the amount of paper and cash that it needs for its bid,"
commented Shore Capital's Clive Black.
Exclusivity agreements for financing banks - except those
leading the debt package - are rare in M&A transactions,
according to Brett Barragate, partner and co-head of the financial
institutions group at law firm Jones Day in New York.
"It's bad for [banks'] business. They don't want to be tied up
and shut out of other potential bids because they are working with
one party. Only a borrower with significant leverage would be able
to get banks to do this," Barragate said. "Kraft likely wants to
make sure it has the full and undivided attention of its advisers
and it doesn't want the banks to be restrained in their capacity to
lend to it."
While Kraft's pre-emptive measure has shrunk the pool of banks
available to finance counter offers, it isn't clear whether Kraft
has hobbled its rivals enough to discourage them from bidding.
U.S.-based Hershey Co. (HSY) and its controlling charitable
trust are working with adviser JPMorgan Chase (JPM) and Bank of
America's (BAC) Merrill Lynch to raise money, people familiar with
the situation have said. Italian bank Mediobanca (MB.MI) and
London-based Rothschild are advising family-owned Ferrero of Italy,
they added.
Renewed visibility in the corporate bond markets is providing
borrowers with an obvious route to refinance loans to fund
acquisitions, analyst say. This should give banks the confidence to
commit capital to back any deal should another party table a
bid.
Gary Jenkins, head of fixed-income research at Evolution
Securities in London, said for example that JPMorgan and Bank of
America Merrill Lynch could easily stump up the cash required
between them to back Hershey and then look to refinance any loan
quickly in the bond markets.
"But the bond market is very much open, so a bank would be
willing to bridge the financing," Jenkins said.
On top of this, Jenkins said it would be surprising if Kraft's
banks weren't released from their financing arrangements upon any
official and public disclosure that the firm is no longer in the
running for Cadbury. This would free up the banks to finance an
offer from another bidder in later stages of syndication, Jenkins
said.
- By Kate Haywood and Marietta Cauchi, Dow Jones Newswires; +44
207 842 9241; marietta.cauchi@dowjones.com