A continued rebound in M&A will likely play an active role in shaping the corporate new issue calendar. M&A financing, a critical element of the new issue calendar, is expected to continue to increase as 2024 unfolds. With the equity market rally, lower interest rates, and a Fed that has turned the debate to the timing of rate cuts rather than hikes, corporate confidence has rebounded sharply.
- In December, Bristol Myers Squibb announced its acquisition of Karuna for $14bn in cash. The transaction will strengthen Bristol Myers’ neuroscience portfolio and is expected to close in the first half 2024. Bristol Myers Karuna Acquisition Announcement
- Two weeks prior, Occidental Petroleum announced its $12bn cash acquisition of CrownRock, strengthening its U.S. onshore portfolio in the Permian Basin. The transaction is expected to close in the first quarter of 2024. Occidental Petroleum M&A Announcement
- In October, Exxon Mobil announced its purchase of Pioneer Natural Resources for $59.5bn. Two weeks later, Chevron agreed to buy Hess for $53bn. While both are all stock deals, the announcements reflect CEO and Corporate Board confidence in proceeding with large scale strategic acquisitions. Many have also pointed out that at the time of both announcements, interest rates were materially higher and a cash portion may have perhaps been considered had rates been at today’s lower levels.
On December 11th, Occidental Petroleum announced its agreement to acquire CrownRock and has a $9.1bn committed bridge facility to finance the acquisition. The Company stated that it will issue approximately $1.7bn of equity in connection with the transaction. The deal strives to strengthen Occidental’s US onshore portfolio, and is valued at $12bn. The Company states that the transaction will generate immediate cash flow accretion. The acquisition will be financed with a $9.1bn committed bridge facility provided by BoA and approximately $1.7bn of equity. Occidental will also assume $1.2bn of Crownrock’s debt. The $9.1bn committed financing is one of the largest bridge financings of the year.
Occidental’s Credit Ratings
To ensure that the Company retains investment grade ratings, Occidental also announced $4.5-$6bn of planned asset sales to augment delveraging. The proposed equity offering will further bolster the Company’s balance sheet.
Occidental’s current credit ratings are as follows:
- Baa3 by Moody’s, having been upgraded from Ba1 in March 2023
- BB+ by S&P, downgraded from BBB- in January 2022
- BBB- by Fitch, upgraded from BB+ in May 2023
The Company has approximately $1bn maturing in 2024 and $1.2bn in 2025.
Given that Occidental Petroleum has been on either side of investment grade/HY ratings over the past 24 months, the Company’s ability to proceed with the announced asset sales will be important to the Company’s overall credit trajectory.
Bristol Myers Squibb
On December 22, the Company announced its plans to acquire Karuna Therapeutics(NASDAQ: “KRTX”) for $330 per share in cash. The total equity value of the transaction is $14bn, with $12.7bn of net cash required. The transaction is expected to be financed primarily through debt issuance.
Bristol Myers Squibb’s Credit Ratings
The Company also stated “Bristol Myer Squibb’s cash flows and strong financial profile enable continued commitment to strong investment-grade ratings and investment for growth through business development opportunities and distributions to shareholders through ongoing dividends and share repurchases.” Bloomberg reports total public bonds and loans outstanding totals $38.9bn.
On December 27th S&P downgraded the Company’s credit rating from A+ to A with a stable outlook. Moody’s meanwhile placed the current A2 rating under review for downgrade. Moody’s cited that pro-forma, the Company’s leverage will be over 3x Debt/EBITDA, and that the acquisition could also result in both added R&D and execution risk.
The Company indicated that the acquisition is expected to close during the first half of 2024.
Market participants fully expect additional large scale acquisition announcements in Q1, which will further fuel a growing M&A financing pipeline in 2024.
Hewlett Packard Enterprise
On January 9th Hewlett Packard Enterprise announced its acquisition agreement to buy Juniper Networks. The Company highlighted the expansion of the Company’s AI offerings as a key rationale for the transaction. See HPE Press Release
The acquisition is a $14bn all cash deal, adding to the M&A financing pipeline on the heels of Occidental Petroleum and Bristol Myers Squibb.
The acquisition will be financed through committed term loans provided by Citigroup Global Markets Inc., JPMorgan Chase Bank, NA, and Mizuho Bank, Ltd. JPM Morgan and Qatalyst Partners are advising HPE while Goldman Sachs is advising Juniper Networks.
Hewlett Packards’s Credit Ratings
-HPE has announced that, while the $14bn of committed term loans will facilitate the acquisition, mandatory convertible securities will also be part of the financing plan in addition to cash balances.
-S&P Global reaffirmed the Company’s BBB rating, however, revised its outlook to negative.
-Moody’s Investors Service maintained the current Baa2 senior debt ratings
-Fitch reaffirmed its current BBB+ ratings of HPE
Expect the M&A announcements to continue in earnest, and the M&A financing pipeline to continue to build.
The Walt Disney Company
In November Disney announced its intention to acquire from Comcast the remaining 33% stake in Hulu that it didn’t already own. Disney Hulu Announcement
The transaction stems from a put/call agreement entered into in 2019. Disney said it expects to pay $8.6bn for the stake, the amount of which will be finalized through an appraisal process expected to be completed in 2024.
The $8.6bn financing need is expected to be financed in the corporate bond market. Disney also has $11.2bn maturing in 2024-2026, $3.5bn of which comes due in 2024.
Disney’s Credit Ratings
Disney is currently rated A2/A-/A- by Moody’s, Standard & Poor’s and Fitch respectively.
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