January 25, 2016
Reuters and Forbes discussed the recent developments, with investors said to be “threatening not to fund” the huge loan to Staples for its $6.3 billion (€5.8 billion) merger with Office Depot, mostly because “pricing moved against the deal, which could delay the completion” of the merger without even taking the legal battles into account. Banks were said to have “committed to the financing” in February 2015, when the merger was announced.
Reuters notes that “when the deal was unable to be completed in a timely manner”, the banks’ commitment was extended to 4 February 2016 from 4 November 2015, but “market conditions have deteriorated” since and loan pricing “has increased significantly”. This led to some investors calling for higher pricing, and “highlights the risk of committing to fund loans in advance of deals closing in volatile markets”, according to the news outlet’s sources.
Barclays Bank is leading the arrangements, and asked investors to fund the loan, but the conference call in which it did so was said to be “contentious”, though “nothing has been announced yet” in terms of increases. Investors have argued “they did not commit to funding the loan” moving into a separate account “before the transaction received regulatory approval”, and want negotiations to take place with the deadline fast approaching.
The loan would be in an escrow account, which is one in which “money is held until a specific condition, such as the completion of an acquisition, is met”, and Forbes added in its reporting that Staples is to “sweeten pricing” to fund the escrow plan. The Federal Trade Commission filed a lawsuit last year to block the merger, with the suit seeing the companies offer to divest $1.25 billion (€1.14 billion) of commercial contracts in exchange for approval.
This was rejected by the FTC, leaving Staples to call it “misguided”, and was an upgrade from a previous offer of $600 million (€558 million). Both companies extended their merger agreement to May previously in January in light of the court case, after new developments earlier in 2016 had suggested “renewed optimism” in the merger being granted, but sources recently stated that “the odds of a settlement are near zero”.
The two companies previously called the decision to block their merger “flawed”, with a court case likely in March, while the European Commission is also investigating the deal, setting the deadline of 16 March for a decision, and it has already been approved in Australia, New Zealand and China.
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