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When A Mastodon Swallows Another One

15 September 2016 by lberuti

BAYNGR (Bayer AG) finally announced yesterday its acquisition of Monsanto, after they agreed to pay $128/share which represents an enterprise value of $66bln (including roughly $9bln of debt). At the moment, BAYNGR has organised a bridge financing of $57bln. The plan is to finance part of the transaction with equity – a mandatory convertible and a right issue is scheduled -, and part with a mix of senior debt as well as corporate hybrids. Even though S1P has noted it could cut BAYNGR’s A- rating by up to 2 notches, the management believes the merged company will receive an investment grade. Investors took the side of BAYNGR. While in May - when the deal was first mooted - the 5 year risk premium jumped 9bps, it was unchanged today. To move a mastodon, it takes more than swallowing one of its congeners. Meanwhile, the broader credit market was once again range bound and the variations were minimal, even though trading volumes felt healthy across the board. Credit indices closed roughly unchanged, at the wider end of the range they have been in since mid July.