LONDON (Reuters) - Nestle NESN.VX, the world’s biggest food group, has been talking to banks about raising a new 7 billion euro ($8.7 billion) syndicated loan to help fund its $11.85 billion takeover of Pfizer Nutrition, banking sources said on Thursday.
Nestle said in late April the acquisition would be fully debt-financed through internal cash resources, existing facilities and the bond markets.
The new loan would give the company enough liquidity until the deal is approved, which is expected to be in the first quarter of 2013, if the acquisition goes ahead, bankers said.
Nestle was not immediately available for comment.
The new loan is expected to have a short-term maturity of one year, with a one-year extension option, which could lead to a quick bond market refinancing, they added.
The loan could be raised as an undrawn revolving credit which would support the company’s short-term money market Commercial Paper program - a borrowing route that Nestle has taken before.
Bankers are confident that the company will be able to raise the money after holding extensive discussions for the last couple of months, but are less confident about making money on the deal.
“Nestle has been talking to banks for the last two or three months and could round this up in 24 hours if needed. There is not a single concern that it could raise the money, it’s just timing and whether they want to do the M&A deal,” a senior banker said.
Nestle is one of the most aggressive borrowers in the loan market and has historically been able to raise funds at the cheapest rates.
Nestle last tapped the loan market in October 2011 for a 4.5 billion euro revolving credit facility which paid an initial margin of just 10 basis points (bps), the lowest margin for a European loan in 2011. Undrawn commitments on that deal paid just 1 bp.
While the size of the new loan and the fact that it is additional borrowing or ‘new money’ for Nestle mean that the company is likely to be unable to replicate those lows, it will still be an unprofitable piece of business on a stand-alone basis.
Banks are still struggling with high funding costs, and a painfully low rate on the loan will need to be offset by bond fees and whatever other ancillary business that Nestle is able to offer.
“This is a very, very unattractive piece of business from a return point of view. Even if it is outstanding for a short time, no bank is able to fund at those rates,” the senior banker said.
Reporting by Tessa Walsh; Editing by Jon Loades-Carter