October 19, 2017 / 12:58 PM / 9 months ago

LPC-Banks line up approx €5bn debt for Unilever spreads sale

LONDON, Oct 19 (Reuters) - Bankers are working on debt financings of up to €5bn to back a potential sale of the margarine and spreads business of Anglo-Dutch consumer group Unilever, banking sources said.

The sale of the business, which makes Flora and Stork margarines, officially kicked off in late September with Goldman Sachs and Morgan Stanley leading the process. First round bids are due this week for the business that could fetch £6bn.

Goldman Sachs, Morgan Stanley and Mizuho have provided a staple financing that will be offered to potential buyers, in an effort to give bidders comfort that liquidity is available for funding the potential buyout, the sources said.

The staple totals around €4bn, or 5.25 times the Ebitda of Unilever’s spreads business that is approximately €700m-€750m, the sources said.

Other bankers are working on more aggressive financing packages totalling up to 7.0 times debt to Ebitda, the sources said.

Unilever did not respond to an email requesting comment on the financing.

Any financing is expected to comprise a combination of senior and subordinated leveraged loans and high-yield bonds, denominated in euros, dollars and sterling, the sources said.

“It is a massive deal and every bank is around it. It will need to tap into as many liquidity pools as possible,” a senior banker said.

The leverage levels banks are willing to put on the business are wide ranging — anywhere from 5.25-7.0 times — due to differing assumptions on Ebitda adjustments, market growth potential and the costs of turning it into a standalone business.

“There are lots of different factors at play and that will impact how comfortable a financing bank will get with leveraging up the asset,” a second senior banker said.

International investors have teamed up in three rival consortiums consisting of Bain Capital and Clayton Dubilier & Rice as part of one group, Blackstone and CVC Capital Partners as part of a rival group, and KKR joining forces with Singapore’s sovereign wealth fund GIC.

US investment fund Apollo is looking to bid alone, Reuters reported previously.

In its bid to exit from the shrinking margarine business, Unilever agreed last month to exchange its spreads unit in South Africa for Remgro’s 26% stake in Unilever’s South African subsidiary, a deal worth US$900m.

Last month, Unilever agreed to buy cosmetics firm Carver Korea for €2.27bn from Goldman Sachs, Bain Capital and the company’s founder as it expands its beauty and personal care business. (Editing by Christopher Mangham)

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