The scramble is on to lead the estimated $10 billion to $15 billion financing for Walt Disney Co.'s purchase of Capital Cities/ABC Inc.
"Anybody who believes they have a shot at leading this deal will move aggressively to bid for it," said one bank syndicator. "My guess is that people are sending blind commitments to the company today."
Bankers said that Citicorp apparently has the inside track, since it led a $1 billion credit to support a commercial paper offering for Disney in April. BankAmerica Corp. was also mentioned as likely to lead the deal. Any deal would involve many players in the loan syndication market.
Disney announced Monday a $19 billion acquisition of Cap Cities, in what would be the second-largest merger in U.S. history.
Disney apparently is expecting to line up $10 billion of new borrowings to fund the cash portion of the deal, and is planning to add $4.5 billion to $5 billion for a share repurchase, according to a statement of expected financing from the media giant.
"The combined companies' cash flow before synergies should be capable of paying off the debt in five years before repurchases, and eight years assuming repurchase," the statement said. "As a result we will probably fund the transaction with 50% fixed-rate and 50% floating-rate debt: bonds plus bank debts or interest rate swaps."
A company spokesman declined to elaborate. The share repurchases would offset any dilution resulting from Disney's issuance of 155 million shares to Cap Cities' shareholders, who will have the right to receive one share of Disney common stock and $65 in cash for each of their shares.
Financing had not already been secured, a Disney company spokesman explained, because talks with Cap Cities began only two weeks ago. But Disney's chief financial officer, Stephen Bollenbach, expressed confidence. In a television interview, he said this is the most credit-friendly environment he had seen, and the company's cost of capital was 7.25% to 7.5%.
Even though pricing was expected to be quite thin, participating in the deal could give bankers a leg up in servicing the new company.
