May 16, 2017 / 11:38 AM / 2 years ago

LVMH readies jumbo bond for Dior acquisition

LONDON, May 16 (IFR) - LVMH has become the latest company to capitalise on a strong market backdrop and favourable funding costs, opting to pre-finance its €12bn acquisition of Christian Dior Couture.

LVMH announced last month that the acquisition - slated to close in the third quarter - would be financed with debt, leading investors to anticipate a speedy multi-billion takeout.

Europe has become a hotbed for M&A debt financing over the last year with borrowers such as AB InBev and Verizon demonstrating the depth of demand for multi-tranche jumbo trades.

Supply has been further helped by the ECB’s corporate purchase programme, which started last June, spurring demand for paper and bringing coupons to all-time lows.

LVMH hit the market on Tuesday for a €4.5bn bond split into four tranches - an 18-month floater, a three-year fixed, a five-year fixed and a seven-year fixed. Each will be of benchmark size.

Initial price thoughts were 100.20 area cash price (Euribor plus 20bp area), mid-swaps plus 30bp area, plus 40bp area, and plus 50bp area.

Guidance followed at 100.40-100.35, swaps plus 15bp area (+/-3bp), plus 20-25bp and plus 30-35bp on orders of over €14bn. All will price in those ranges.

Final terms were set for a €1.25bn FRN at 100.40 (around Euribor plus 6bp), a €1.25bn three-year at plus 12bp, a €800m five-year at plus 20bp and a €1.2bn seven-year at plus 30bp.

Investors had expected the deal to be snapped up, with many accounts wanting to buy a rare and high-rated issuer.

Despite initially increasing leverage on the back of the acquisition, analysts at CreditSights said LVMH will still have the strongest financial profile of Europe’s retailers.

S&P, the only agency that rates LVMH, said last month that its rating will remain at A+ stable.

Some investors warn, however, that the large deal size may affect performance in the secondary market.

“I suppose the market is fairly hot and pricing looks attractive, although I would expect them to do €6.5bn which may limit performance post issue,” one investor said early in the marketing process.

The bonds come with a covenant that LVMH can redeem notes at 100.5 plus accrued if it no longer pursues the acquisition, or if it is not completed on or before 31 March 2018.

The world’s biggest luxury group by sales is also servicing a €6.5bn vendor loan as a stop-gap measure to fund the acquisition.

The Christian Dior fashion brand will be combined with the LVMH luxury goods empire as part of a €12bn move to simplify owner French billionaire Bernard Arnault’s business interests.

The Arnault family, which holds a 47% stake in LVMH, will also offer to buy the 25.9% of the Christian Dior holding company it does not already own for around €260 a share.

BAML, Barclays, CA CIB, HSBC, JP Morgan and Natixis are active bookrunners on the trade.


Other M&A deals waiting in the wings include BAT, which is expected as its acquisition of Reynolds draws closer.

BAT intends to refinance two bridge facilities in the bond market - one of US$15bn and the other of US$5bn, maturing in 2018 and 2019, respectively.

The company previously said it would sell a mix of debt in US dollars, sterling and other currencies, although investors expect most to be issued in dollars.

AT&T is also circling. An investor who attended a recent non-deal roadshow said it is targeting a US$3.5bn-$5bn-equivalent euro issue.

AT&T announced that it had agreed to buy Time Warner Inc in October and said it would finance the cash portion of the acquisition with debt and cash on its balance sheet.

Bayer is another with a hotly anticipated deal, having said it will sell a mix of senior and hybrids to help finance its US$66bn takeover of US seed company Monsanto.

Bayer expects to close the transaction by the end of 2017. (Reporting By Laura Benitez, editing by Sudip Roy and Julian Baker)

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