Sanofi's (SNY.US) consumer health division battle heats up as lenders prepare over 10 billion euros to support a takeover
1min read Smart Finance News app noticed that as one of the most anticipated deals this year, banks and other lenders are preparing to provide more than 10 billion euros (US$11.1 billion) in financing to support the acquisition of Sanofi's (SNY.US) consumer health division, which is now in the final stages.
Some core banks signed financing commitments for senior debt of 7.5 billion to 7.8 billion euros over the weekend to support the bid, according to people familiar with the matter. They will also provide about 1.2 billion euros in revolving credit.
Private credit firms are also providing subordinated debt of about 1.5 billion to 2 billion euros.
Clayton Dubilier & Rice, a New York-based acquisition company, is competing with French rival PAI Partners for Sanofi's subsidiary, with bids due this month. Two people familiar with the matter said Citigroup is advising CD&R and JPMorgan is advising PAI. They added that the debt packages backing CD&R and PAI's bids are fairly similar, including leveraged loans and high-yield bonds denominated in euros and dollars to attract as much liquidity from institutional investors as possible.
While Sanofi declined to comment on financing, a representative of the company reiterated that it is considering options for the potential sale or IPO of its consumer business, which could decide on a course of action within the next few months.
Smart Finance News app reported in July that some of the bidders were valuing the division as high as 15 billion euros.
Banks are eager to re-emerge as lenders for leveraged buyouts, with as many as 15 banks vying for financing for the Sanofi deal. Such deals are among the most profitable in the financial world, especially after the Federal Reserve cut interest rates for the first time in four years, raising hopes that debt costs are finally falling.
But many still remember the risks: just two years ago, lenders were crushed while supporting large corporate acquisitions, leaving behind hundreds of billions of euros of "junk" debt that was hard to shed.
The total leverage banks are offering is likely to be six times the division's earnings, a high level by recent standards. If private credit is included, the figure rises to 7.5 times. Just over a year ago, banks were arranging debt packages of about four times earnings to support acquisitions.
Bloomberg News previously reported that CD&R, a New York-based acquisition company, was also in talks with banks to provide backstop leverage to fund some of the equity checks. Backstop leverage is a loan that an acquisition company can obtain to fund a portion of its equity investment in a specific company.