Chemical Bank has committed to provide $1.2 billion for American Home Products Corp.'s hostile takeover offer for American Cyanamid Co., and has agreed to use its "best efforts" to raise another $7.8 billion from other banks.
In a regulatory filing this week, American Home said the total cost of the $95-a-share offer, including fees and expenses, would be about $9.2 billion. The tender offer was launched Tuesday.
Even before the filing of the tender offer documents, which disclosed Chemical's role in the financing, it had been widely assumed that the bank would win the assignment because of its close ties to American Home.
John R. Stafford, chairman and chief executive of Madison, N.J.-based American Home, is a member of Chemical's board of directors.
The $9 billion bank financing for the takeover offer is structured as a $6. billion, 364-day revolving credit, and a $3 billion, five-year revolver.
Chemical's commitment is conditioned on, among other things, the successful syndication of the entire financing. In a commitment letter dated Aug. 9, Chemical said it intended to start the syndication effort "promptly."
Officials at the bank declined to comment on their strategy in syndicating the huge credit, which would be the biggest so far this year, excluding refinancings of existing syndicated loans.
Tied to Credit Rating
Pricing of the $9 billion credit is tied to American Home's credit ratings. At the company's present rating of AAA, American Home would pay a facility fee of 5 basis points and a borrowing rate of 12.5 basis points over the Eurodollar rate.
American Home, though, appears likely to lose its sterling credit rating. Last week, following the initial disclosure of the company's offer for American Cyanamid, the AAA rating was placed under review for possible downgrade by Standard and Poor's Corp.
The rating agency said the all-cash acquisition would push American Home's debt leverage well above 50%. Right now, the company has more cash than debt. Deal at a Glance Borrower: American Home Products Corp.Amount: $9 billionAgent bank/arranger: Chemical BankPurpose: Acquisition loanStructure: $6 billion, 364-day $3 billion, 5-year