Who said leveraged loans are dead? There were echoes of the good old days of highly leveraged deal-financing with news that specialty drug maker Warner Chilcott is expected to announce as early as Monday the acquisition of Procter & Gamble’s prescription-drug business for more than $3bn.
In what the Wall Street Journal described as a “sign that the market for loans on more highly levered deals may be loosening”, six banks, led by JPMorgan Chase and Bank of America, and including Credit Suisse, Citigroup, Barclays and Morgan Stanley, are expected to put up as much as $4bn in financing for the transaction. Roughly $3bn will go toward the acquisition, with the remainder refinancing $1bn in existing Warner Chilcott debt, the Journal added.
In a process that had drawn some interest from a couple of other buyout groups and potential trade bidders, P&G had earlier this year put Goldman Sachs in charge of the sale process for the unit, which made about $800m in operating profit last year and $2bn in annual sales.
The deal, if completed, would be the fourth-largest “leveraged loan” of 2009 in the US and the largest globally for an acquisition, according to data provider Dealogic. The Journal adds that the last leveraged loan of this size for a deal in the US was in April 2008, when confectionery maker Mars Inc announced its planned purchase of Wrigley.
So, if Warner Chilcott can pull this off, absorbing the banking fees amid historically low interest rates, can others follow suit? As some analysts and media reports suggest, the deal is definitely one of the biggest transactions in a weak summer M&A market – and could herald new activity in the rather subdued markets for deal financing. As the Journal noted:
Financing for deals have lately been mostly limited to big companies with strong credit ratings. None of the banks wanted to underwrite this deal alone, but “no bank wanted to miss out,” said one person familiar with the matter.
What’s more, other buyout groups and potential bidders – including Cerberus Capital Management and rival drug-maker Forest Laboratories – had been eyeing the P&G unit, the Journal noted. But Warner was able to produce the best bid – and undoubtedly the speediest financing package – for the P&G unit, which will be run as a wholly owned subsidiary of Warner.
Warner Chilcott itself is living proof that “what goes around, comes around”. As the FT noted in June 2007, it was a rare example of a quoted drugs company entirely bought out, restructured and successfully “flipped” back into the public markets by private equity:
Bain, Thomas H Lee and the buyout units of JPMorgan and Credit Suisse remain Warner Chilcott’s four largest shareholders, with control of more than half the shares, according to Bloomberg data. JPMorgan has since spun off its buyout fund, now known as CCMP Capital Advisors. With JPMorgan and Bank of America now leading the $4bn financing frenzy for the deal it is, in some respects, rather like the old days.
Related links:
Warner Chilcott said to plan purchase of P&G drug division – Bloomberg
Private equity sets its sights on big pharma – FT