Ball to sell €1.5bn of bonds to fund Rexam deal

Ball Corporation could be forced to sell off more assets than originally anticipated to satisfy competition concerns over its £4.3bn takeover of Rexam, the UK drinks can maker.

US-based Ball announced on Monday that it would sell approximately €1.5bn of bonds denominated in euros and dollars to partly fund the cash portion of the deal. But the company also said that antitrust authorities from the EU, US and Brazil were pushing for it to divest can production facilities with total annual revenues of about $2.5bn.

Both companies made clear from the outset that the creation of the world’s biggest drinks can manufacturer with $15bn in annual revenues would raise regulatory issues and likely require disposals in some regions. But a question mark hung over exactly where those disposals would take place and the amount that would be necessary to raise.

Ball said possible divestitures under discussion with regulators in the US and EU covered assets with combined sales greater than a threshold of $1.58bn agreed with Rexam when the deal was first unveiled in February.

Above this level, a pact between the parties would allow Ball to withdraw its offer — although this would trigger a break payment to Rexam of £302m, equivalent to 7 per cent of the deal value.

Ball said it could not specify the final amount of required disposals as negotiations had not concluded, and that it had not yet made a decision whether to invoke the break clause. The company expects the deal to close in the first half of 2016, following regulatory approval.

Ball added that talks were under way with potential buyers for the assets and that it had identified annual cost savings higher than the $300m first outlined for the combined entity by its third year of operations. This will be achieved through a mixture of reducing back-office expenses, lowering purchasing costs and cutting logistics and warehouse charges.

The European Commission is market testing a package of divestments proposed by Ball and has extended its review deadline to January 22.

Ball said the timing and terms of its debt sale would depend on market conditions and other factors. It is paying 610p a share for its smaller rival, of which two-thirds will be in cash and the rest in shares.

Banks acting as joint bookrunners on the bond issuance are Goldman Sachs, Deutsche, Bank of America Merrill Lynch, KeyBanc Capital Markets, Mizuho Securities and Rabo Securities.