Latin Finance - March/April 2009 - 28

bimbo strategy BBVA Bancomer, Citi, ING, HSBC and Santander is to be paired with a $1.7 billion syndication. As of mid-February, the portion of the deal headed for syndication was to include a $900 million three-year tranche and a $800 million five-year, according to bankers managing it. Participating lenders can choose dollars or pesos. Bankers expected margins on the shorter and longer loans of 250 and 300 basis points above Libor or the Mexican TIIE benchmark. As a successful investment-grade company with a compelling story, Bimbo was expected to set a benchmark for the LatAm bank market, which is desperately in need of new reference levels. There have been no transactions in 2009, which follows a period of increasing spreads on the few deals that managed to get done late last year. Bimbo has not yet devised a takeout plan. “We will have to find ways to refinance that this year,” Quiroz says of the $600 million bridge. “We expect to pay down as much as possible, and the rest will have to be refinanced.” Bimbo has a seven billion peso program for the sale of local certificados bursátiles, which could be used to raise cash this year if necessary, depending on market conditions. Bimbo’s national scale ratings are AA+ and Aa2 from S&P and Moody’s. The company detects appetite from Afores, Quiroz says, though he concedes that even the best Mexican corporates are having to pay much higher rates. Tenors have shortened significantly, as evidenced by 13-month issues placed by Coca-Cola Femsa in January and expected from Embotelladoras Arca late February. Though confident about borrowing plans, Quiroz concedes there could be a better moment for the acquisition. “We didn’t pick the time,” he says. “That was when the deal came and we had to do it then.” Weston had sold its US operations west of the Mississippi to Bimbo in 2002. The purchase of other units made sense for the Mexican baker, which has long had operations in Texas and California. Since then, the two firms shared some Bimbo Diversifies with Weston Shifting north LatAm (8%) US (5%) Ebitda before Mexico (87%) LatAm (6%) US (30%) Mexico (64%) Ebitda after No Plan B The company appears in wait-and-see mode for taking out the rest of the package. “As for the rest of the loans, we don’t yet know what we’ll do,” says Quiroz, referring to the $1.7 billion to be syndicated. “We’ll see how the company’s revenue behaves, and try to pay as fast as possible.” “We don’t have a plan B,” Quiroz says of the syndication. “We are expecting things to perform well.” If something unexpected does disrupt markets, he says Bimbo has an advantage in that it will only have to negotiate with a small group of banks. Source: Banamex operations, including distribution for Weston’s Thomas’ and Entenmann’s brands in the Western US. “Honestly it was shocking to us, for the conditions of the markets were not favorable,” says Quiroz. He adds that Bimbo sees integration of the combined entity as relatively easy given its position in the Western US. However, consolidation of Bimbo’s US operations with Weston’s in 2002 was “disappointing,” according to Banamex, which raises questions about potential complications this time around. However, the bank is encouraged in that Weston’s US management team will stay on, and that the operations do not overlap geographically this time. In addition, the baking sector is in better shape than in 2002-2003, it adds. When Bimbo completed the transaction, Quiroz says, the most recent enterprise value to Ebitda multiple was 8.6 times. Bimbo’s own at the time was 8.7 times, and the global consumer industry was 8.6 times, he says. “We don’t think it’s a cheap price,” Quiroz says. “We think it’s a fair price.” At the time of the transaction, Santander says the purchase price implied an enterprise value to Ebitda multiple of 8.7 times, an implied 17% premium to an existing estimate of 7.4 times. The bank adds that the premium was justified by Weston’s higher Ebitda margin, generation of synergies and reduction in Bimbo’s consolidated weighted average cost of capital due to a higher weighting of US operations. Bimbo anticipates synergies of $95 million per year, expected to be generated within five years from sales increase, administrative expenses, logistics, and centralized purchasing. The acquisition includes well-known brands such as Arnold, Boboli, Entenmann’s and Thomas. Bimbo now operates six out of the 12 top selling brands of baked goods in the US. The US market should contribute 40% of Bimbo’s revenues and 28% of operating cash flow going forward, according to Banamex. Weston wanted to sell assets where it did not have a market leading position, or at least the potential to get one, amid concern over a deteriorating economy. Weston has not said how it plans to use the proceeds, but notes that it sees major consolidation in the frozen baked-goods and supermarket segments in North America, and that cash could be important. Looking ahead, it is a difficult market for acquisitions, and Bimbo does not have its eye on anything specific. “We are not expecting any further large acquisitions,” Quiroz says. He adds though, that some might be possible on a much different scale, perhaps $20-$50 million in size. “Our highest priority for the next two years is going to be paying debt,” the official concludes. LF 28 LATINFINANCE March/April 2009

Latin Finance - March/April 2009

Table of Contents for the Digital Edition of Latin Finance - March/April 2009