NationsBank leads loan for Quaker's Snapple deal.

NationsBank is leading a $2.4 billion loan that will allow Quaker Oats Co. to purchase the Snapple Beverage Corp.

The superregional bank based in Charlotte, N.C., has scheduled a bank meeting for this morning in Chicago to syndicate the loan for the $1.7 billion purchase.

The acquisition of the trendy East Meadow, N.Y.-based Snapple by the maker of Gatorade will bolster Quaker's position in the soft drink industry.

The loan will be the second largest led by NationsBank this year, according to Loan Pricing Corp. The largest was a $3.25 billion loan the bank recently syndicated for LDDS Communications Inc.

Merger and acquisitions activity in other industries like communications and health care already have driven up bank loan volume this year. And analysts said the Snapple deal could foreshadow further lending opportunities in the historically cash-rich food and beverage industry.

"Companies are proactively searching for acquisitions," said Steven Galbraith, a food and beverage analyst at Sanford C. Bernstein & Co. "Management is much more exciting in this industry than it was a year ago."

Consolidation among food and beverage companies will create more value than the unsuccessful mergers of the past, in which such firms made deals outside the industry.

While management at Quaker insists the purchase strengthens its hold in the beverage market, others see it as an attempt to prevent a takeover of the cereal company.

The acquisition of Snapple should quiet the talk circulating in the last few months that Quaker itself would be the subject of a takeover.

A drop of nearly 10% in Quaker's stock price following the announcement, reflected these changing expectations, said analysts.

"If management clearly articulates why it is an offensive move that will enhance shareholder value, the stock will do better" in the months ahead, said Mr. Galbraith.

Quaker is under credit watch with negative implications by Standard & Poors, which currently rates its commercial paper A1.

NationsBank is prepared for a change in credit rating, however, and will price its loan accordingly.

"The price will reflect the ratings they receive post-acquisition," said Tom Bunn, managing director of syndications.

Half the loan ($1.2 billion) is a 364-day revolver with a twoyear, term-out option.

The other half is divided into two equal parts, with a $600 million, 364-day revolver, and a $600 million, five-year revolver.

Although Mr. Bunn would not comment on the size of NationsBank's commitment to the loan, some industry experts pointed out that the bank took a significant piece of a $350 million loan to Quaker last year. NationsBank hopes to close syndication of the new loan by Dec. 1.

The maturity on the loan is short because Quaker expects to divest from a European pet food business and a Mexican chocolate business, said Mr. Bunn.

"Even if Quaker can't divest anything, I don't think the banks will be at an inordinate risk, given the strong cash flow of Quaker's business," said Mr. Galbraith.

Observers note the benefits of consolidation within an industry, and low capital requirements, make food and beverage mergers attractive to financiers.

"This merger is a no-brainer," said Galbraith. "It is a sound corporate cash flow business that will continue to be so."

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