What price a bear hug? | FT Alphaville

What price a bear hug?

Affection can be costly. The InBev approach to Anheuser-Busch, after being rudely rumbled in late May, is ticking along.

The intention was to send a “private letter” to the US icon, and to follow up with a stronger letter to the board should (as expected) the response be lacking in enthusiasm. After being smoked out in these pixels, however, the Belgium-headquartered brewer and its adviser took a rather more public route, sending a letter laying out the headline terms and benefits of a combination.

We are now, it seems, on an accelerated timetable. Instead of giving Anheuser the intended week or two to chew over the approach, InBev chief executive Carols Brito has put pen to paper again after just four days.

The reluctance shown by Anheuser to bring forward talks with their suitor, and the mooted talks with Mexican brewer Grupo Modelo, has got InBev moving. We’re in bear hug territory. From the FT:

In what appeared to be a call to Anheuser’s shareholders, InBev said that before moving ahead with any alternative transaction, it expected that Anheuser first fully explore its offer “and the potential adverse consequences any such [alternative] transaction could have on the ability of your shareholders to receive our premium offer”.

In a letter signed by the company’s chief executive, Carlos Brito, InBev said that ” . . . it is our strong belief that no alternative transaction that you could effectuate would create more value for your shareholders than the $65 per share in cash that we are offering.”

Expensive business though, life in the public eye. We’re told that the estimated upfront transaction costs (or bank fees) have shot up as a result of the bid’s increased profile, by a factor of 10. That reflects the increased costs of evaluating responses to Anheuser’s defence routes, such as a tie-up with Modelo, countering resistance to a much-loved US brand falling into foreign hands, and dealing with concerns about job losses.

Meanwhile, the costs of financing what could be the largest all-cash takeover ever – with a loan package of $40bn – are still being nailed down. Bankers are talking about a level of up to Libor plus 100bp for the syndicated facility, compared to margins of about 20-25bp for similar transactions a year ago when the market was at its most euphorically liquid.

The syndicated loans market took some time to settle down after last summer’s credit squeeze , says Loan Radar’s Tom Freke. Pernod Ricard was earlier this year forced to reprice mid-syndication, offering bigger spreads to entice more banks to participate in the €12bn financing of the acquisition of Vin & Sprit.

Worth remembering though, adds Freke, that while the margins may seem generous by the scant standards of last year the level at which the investment grade market has now settled is in line with where it was back before the credit boom.