From M&A to IPOs, transactions that were once routine became remarkable in 2008.

Up in the Air

Such news leaves executives in no doubt about their balance sheet options. Marcus Schenk, CFO of German utility E.ON, summed up the prevailing mood during a November conference call. “Now isn’t the time to increase our debt,” he said simply. Indeed, the value of European corporate bond issues is on track for a second consecutive annual decline in 2008. (See “Beleaguered Borrowers” at the end of this article.)

At the recent AGM for French drinks group Pernod Ricard, chairman Patrick Ricard noted that the company “grasped a magic window of opportunity” when it closed a deal to take over Swedish rival Vin & Sprit (V&S). The €12 billion loan backing the purchase — Europe’s largest-ever non-investment grade corporate loan — closed around €500m short of its target in the summer, despite a “flex” in May that boosted margins and fees in order to sweeten the deal. Now, “we could not finance a deal ourselves,” Ricard added. “We were lucky.”

Another executive breathing a sigh of relief following a fortuitous takeover is Xavier Rossinyol. After tough negotiations, the CFO of Dufry, a Swiss travel retailer, closed a deal in October to purchase Hudson Group, an American airport newsagent.

Financing the takeover is a SFr1.25 billion (€808m) loan with an initial margin of 225bp over Libor, more than double what Dufry received two years before for a loan financing a purchase in South America. Back then, “it was a borrower’s market and you were able to choose from whom you wanted the money,” Rossinyol says. As the rise in the firm’s cost of borrowing attests, this is no longer the case.

Longstanding relationships with a core group of banks and a history of deleveraging were critical to getting the Hudson deal off the ground, the CFO says. The company was able to negotiate “conditions that reflect the market in August, which are better than those in October though, obviously, much different from the ones we had two years ago.”

Through to November, Dufry’s share price was down more than 75% for the year. “It is not the most preferred type of stock today,” says Rossinyol. “We are involved in travel, retail and are a mid-cap without a lot of liquidity.” Nonetheless, the CFO is confident that the company’s strategy is sound and, with time, “if we keep delivering like we have in the past, things should return to normal.”

Until then, he will keep a close eye on cash flow and maintain frequent contact with his bankers. As for further deals, Rossinyol does not foresee much action any time soon. “Like everyone else, we need to see what’s in store for the coming months,” he says.

Indeed, for most companies deals of any description are likely to remain on ice for some time to come. A thaw is difficult to forecast, given the unprecedented severity of the freeze in credit markets. In a November survey of 115 finance chiefs by CFO, a sister magazine of CFO Europe, more than 70% of respondents expected banks to under-allocate the funds raised through government injections towards commercial lending.


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