BNP Paribas, HSBC, Natixis and Société Générale were bookrunners.
SEB has issued straight bonds before, and has an A-2 short term rating from Standard & Poor’s. Its brands include Moulinex, Tefal and Krups.
It has no intention of raising equity — the deal was intended to raise cheap funding to refinance part of the €1bn SEB is paying to buy WMF, a German company that makes professional coffee machines and cookware.
SEB made it clear in the press release announcing the deal that “No dilution in terms of capital ownership may result from the exercise of the exchange right.”
The bond is not equity-neutral in the same way as structures where the issuer buys back the call option embedded in the bond from banks. SEB’s bonds may be settled in any mixture of cash or existing SEB shares, at the issuer’s choice.
“They do have treasury shares, and there is a possibility of using those, but they don’t especially plan to,” said a banker on the deal. “They could settle the principal in cash and the performance in shares, for example.”
SEB’s share price has risen 35% this year, including a 9% jump when it announced the acquisition.
“It’s become a pretty big company, in the €6bn market cap range, and it’s launching this transaction basically at a historic high for the stock,” the banker said. “It’s a way of diversifying its sources. They have an existing bond but issuers can get great terms — the convertible investor base is bringing a lot of value.”
The deal was launched on Tuesday morning at terms that the banker said were “relatively punchy”.
It is a five year, zero coupon bond, and was offered at an issue price of 100.75 to 103.5, giving a yield range of -0.15% to -0.69%. The conversion premium range was 40% to 45%.
“Even if it came at -0.15%, not many issuers have reached a deeper negative rate than that,” said another banker on the deal during the bookbuild. “Those that have are Safran, LVMH, Veolia — bigger companies. But SEB has a lot of attractions — it’s got a great equity story and it’s French, which is always good, given the demographics of the investors.”
Both French and non-French investors participated.
At about 10am Paris time, the leads said the book was covered within the range. “An hour later we indicated that the book was covered at the mids and would close at midday,” the second banker said.
Allocations took some time in the afternoon, but late in the day pricing at the middles of the ranges was announced: 102.125, giving a yield of -0.42%, and a 42.5% premium.
The nominal value per bond was set at €181.62, implying that the reference price, set as the volume-weighted average share price during the bookbuild, was €127.45, basically flat to Monday’s close of €127.50.
The share price performed very well on Tuesday, trading above the previous close during the bookbuild before dipping afterwards, and then closing up, at €128. The bond was quoted on Thursday at €185.
The bond has dividend protection both up and down, from a baseline of €1.75 a share, increasing by 8% a year.
SEB’s 2022 straight bond, a six year, was trading at about 100bp over mid-swaps so the leads used a credit spread “slightly below that”, one banker said.
The stock’s historic volatility is about 27% over 250 days, but has dropped recently, so was about 21% for 100 days and less over 50 days.
SEB is paying €1.02bn for WMF, plus €565m of assumed net debt. SEB said it would finance the acquisition with debt, leading to a rise in its pro forma net debt/Ebitda ratio to below 3 at the end of 2016. It would aim to return to a ratio below 2 by the end of 2018.
SEB also said the acquisition would be more than 20% accretive to earnings a share in the first full year.
WMF is a global leader in coffee machines and a German leader in cookware, with 200 shops in the country.