The Great Debate UK
Sometimes the wait can be worth it. Kraft’s sweetened offer for Cadbury followed four months of drooling over the British chocolatier that must have seemed like four years for Irene Rosenfeld, Kraft’s chief executive. But the delay had its benefits. Though the cheese and crackers conglomerate will have to raise more money to fund the final deal, that's become easier and cheaper since Kraft launched its bid.
Kraft’s offer, now agreed by Cadbury’s board, promises a cash component of 500 pence per Cadbury share. That’s a 66 percent increase over the cash part of the lower and more stock-heavy proposal in September. Kraft’s sale of its pizza business to Nestle earlier this month will fund roughly 60 pence of that. Given Kraft’s modest cash holdings, the rest will have to be funded largely with debt -- potentially some $10 billion of it.
In November, Kraft received commitments for 5.5 billion pounds ($9 billion) of funding from a cluster of banks including Citigroup, Deutsche Bank and HSBC. That’s still available and along with a separate revolving facility gives Kraft the borrowing capacity it needs. The downside is that the banks are only offering bridge financing that has to be replaced within a year.
Happily for Ms. Rosenfeld, the delay in snagging Cadbury has allowed conditions in the investment-grade corporate bond market to improve. Now, Kraft should have little trouble refinancing these bridge loans in the United States or Europe -- and more cheaply than it could have hoped back in September. The average risk premium on better-rated corporate debt has dropped to 1.65 percentage points over Treasury yields, from 2.32 percentage points in early September, according to Barclays Capital.
Dutch brewer Heineken has managed a delicate balancing act in clinching the auction for the beer business of Mexico's FEMSA. Despite outbidding SABMiller, the deal is in line with prices paid for growing Latin American markets. Meanwhile, Heineken's all-share offer keeps debt under control while leaving its founding family in charge.
Heineken wanted the additional emerging market exposure offered by FEMSA. But because it’s still paying down debt from previous deals, it wasn’t in a position to offer cash. Investors feared Heineken would turn to them for fresh capital. But the FEMSA deal side-steps the issue.
Belgians may like a tasty cheval-burger with their frites, but they ought to desist from flogging a dead one. The European Commission has thrown out an attempt to have the sale of Fortis Bank in Belgium to BNP Paribas cancelled, but the rebels are now threatening to take their case to the European Court of Justice.
– Neil Collins is a Reuters columnist. The views expressed are his own –
Shareholders in Rio Tinto would very much like to buy a bond yielding 9 percent, convertible into ordinary shares at $45, a tiny premium to today’s price of 29.30 pounds.
Unfortunately, if their board gets its way, they won’t get the chance, since the bonds are all being bought by the state-owned Aluminium Corporation of China (Chinalco).