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InBev bonds slightly down after SABMiller pause reports
By Hillary Flynn
NEW YORK, July 27 (IFR) - AB InBev bonds were slightly weaker on Wednesday after news that SABMiller (Xetra: BRW1.DE - news) had asked its employees to pause the process of integrating its operations with the brewer.
AB InBev sold a US$46bn bond in January - the second biggest in history - to help finance the acquisition.
But the company raised its US$100bn-plus bid this week in an attempt to quash investor dissent over its original offer that has been made less attractive by a fall in the pound after Britain's shock vote to leave the European Union.
On Wednesday, SABMiller asked employees to pause the process of integrating its operations with those of AB InBev as the brewer's board weighs its sweetened takeover offer, two sources familiar with the matter told Reuters.
"With (Other OTC: WWTH - news) the pound materially lower post-Brexit, the value to US shareholders is less than before," Matt Brill, a portfolio manager at Invesco (NYSE: IVZ - news) , told IFR.
Brill still expects the merger to go through.
Some of the AB InBev bonds, however, weakened in secondary on the latest developments. The company's 3.65% 2026 bonds were over a point lower at 105.78, while its 3.3% 2023s fell almost a point to 104.43, according to MarketAxess.
Both of these bonds include a special mandatory redemption (SRM) clause which requires AB InBev to buy the debt back at a cash price of 101 if the merger does not go through by November 11 2016. The terms include an optional six-month extension of that deadline to May 11 2017.
The SMR provision also applies to the 1.9% 2019s, the 2.65% 2021s and a five-year US$500m floating rate note. Only two of the seven tranches sold in January - the 4.7% 2036s and 4.9% 2046s - will remain outstanding and those were trading higher on the day.
Brill said bondholders may start to demand better protections after a number of M&A deals have been thrown into doubt after the companies involved had raised debt.
Bonds issued by healthcare company Aetna (NYSE: AET - news) have also come under pressure after the US Department of Justice filed a suit to block its merger with Humana (NYSE: HUM - news) earlier this month.
Aetna, which announced the merger last summer, had waited until June 2 to come to the bond market to help finance the deal with a US$13bn eight-tranche bond offering.
Oilfield services company Halliburton (Hanover: HAL.HA - news) had to repay some of the bonds it issued to pay for its planned acquisition of Baker Hughes after the merger was scrapped in May. That came after opposition from antitrust regulators.
"These days M&A financings are prefunded well in advance, without regulatory or shareholder approval," said Brill.
"(But) if we see more of these deals not go through, bondholders may start demanding more than 101 mandatory redemptions. They may want 102 or 103". (Reporting by Hillary Flynn; Editing by Natalie Harrison and Shankar Ramakrishnan)
