By Lynn Adler
NEW YORK (LPC) - Media company Comcast Corp’s record all-cash $65 billion (48.9 billion pounds) bid to buy Twenty-First Century Fox’s media assets, a day after AT&T’s long-sought acquisition of Time Warner received a green light, signals an oncoming wave of M&A that banks will aggressively compete to finance.
The federal judge’s ruling in favour of the $85 billion (64 billion pounds) AT&T/Time Warner tie-up, first announced in October 2016, without any conditions, removed an obstacle for debt markets after several huge, high profile technology and healthcare deals were scuttled by antitrust or national security concerns.
“After the AT&T news, people have a much more optimistic view on the regulatory front, and I think that will push bankers to pitch more on M&A,” said one senior banker. “There’s more of a willingness to look at vertical integrations,” in which a company buys a supplier.
Comcast, in announcing its Walt Disney Co-topping bid, said it had “highly confident” letters from Bank of America Merrill Lynch and Wells Fargo that the banks can secure the needed financing for the proposed acquisition.
A considerable amount of the needed financing was already put in place before this newly raised bid. In April, the company said it lined up £23 billion of loans led by BAML and Wells Fargo.
The existing credit comprises up to £16 billion of 364-day bridge loans and up to £7 billion of term loans, with the bridge expected to be replaced in part or in full by senior unsecured bonds, LPC previously reported.
BAML and Wells Fargo declined to comment.
The AT&T victory “does make people feel a bit more of a risk appetite for complex transactions on the regulatory front,” said another banker.
Vertical transactions tend to be better for the M&A market because they allow companies to get into complementary areas for growth, as opposed to horizontal deals which focus more on synergies and cost cutting, he said. “That can be pretty helpful to the overall M&A market.”
Corporations buying other companies for growth have helped drive total M&A lending up to US$326bn so far this year, a 39% leap above the same time last year, according to LPC data.
Attention shifts next to Disney, and whether it answers Comcast’s bid by increasing its US$52bn all-stock agreement to purchase Fox’s film, television and international businesses.
And still in the regulatory review queue is T-Mobile’s US$26bn proposed merger with Sprint, two leading wireless carrier competitors, in what is considered a horizontal deal.
As for Comcast’s new financing, banks typically provide "highly confident" letters as a tactic used for large hostile takeovers, that allows borrowers to avoid paying fees on funds committed by banks to a huge deal that may not take place.
Banks do not immediately tie up their balance sheets, as a result, while signalling to markets that financing will be there if the deal is approved.
Similarly, five initial banks indicated their confidence this way last November for chipmaker Broadcom’s unsolicited bid to buy rival Qualcomm. The lending group was later expanded and provided US$100bn of financing – the largest loan package ever – before the deal was ultimately cancelled as President Trump blocked the merger over national security concerns.
Banks remain eager to put money to work and see a more open dealmaking path after the AT&T/Time Warner merger outcome.
“Now that the judge has given the all-clear, without conditions, it’s basically a free ride, and this will open up other opportunities for companies in the space that need to position themselves,” a third banker said.
(Reporting by Lynn Adler. Additional reporting by Jonathan Schwarzberg; Editing by Michelle Sierra and Chris Mangham)