Paying for the $66bn purchase of US agribusiness Monsanto, announced on Wednesday, will require bankers for Bayer to orchestrate funding arrangements in the stock and bond markets likely to rank among the largest deals of their kind on record.
Confidence in the ability to raise such sums reflects an environment where the support of central banks, particularly the European programme of corporate bond buying, has made large debt issues an easy sell.
Raising such sums is expected to be straightforward. “As we have seen in the past 12 months, pretty much everything is possible for M&A financings”, said Jonathan Brown, a senior debt banker at Barclays.
“Bond investors often want to invest — as in these deals companies have a high level of debt but are incented to deliver quickly, which is accretive to the credit.”
The German chemicals conglomerate intends to raise $19bn from a combination of convertible bonds and an equity rights issue, with the balance to come from debt. Temporary bridge financing of $57bn has been committed by five banks.
Convertible bonds are hybrid instruments which pay a fixed coupon and transform into shares at a future date. “They will try to do as much as they can in convertible finance because these deals can be structured to make them irresistible for parts of the investor universe”, said one banker not working on the deal.
Bankers speculate Bayer could potentially raise a $5bn convertible, which would equal the second-largest on record sold last year by Actavis, part of the purchase of fellow drugmaker Allergan. The largest was $9.7bn raised by Santander in 2007, to fund its part in the takeover of Dutch bank ABN Amro, according to Dealogic.
A possible further source of funds is Bayer’s remaining 64 per cent stake in Covestro, worth €5.6bn ($6.3bn), after a spinout of the materials science group last year.
For the debt component, a mix of term loans and bonds would be typical, according to people close to the process. Raising more than $20.5bn from the bond market would make a Bayer offering the third-largest of its kind, according to Dealogic.
In 2013 Verizon sold a $49bn bond as part of a deal to take full control of Verizon Wireless, and in January this year Anheuser Busch-InBev raised $46bn for the purchase of rival brewer SABMiller.
BofA Merrill Lynch and Credit Suisse are lead financial advisers to Bayer, with bridge finance also provided by Goldman Sachs, HSBC and JPMorgan.
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