The two banks that are making the big money in Canada's suddenly hyper-acquisitive grocery sector have one thing in common: the ability to make a huge lending commitment all on their own.
Bank of America Merrill Lynch, working with Loblaw Cos. Ltd. on its purchase of Shoppers Drug Mart Corp. for $12.4-billion, took on a $5.1-billion commitment. BAML set up a $3.5-billion term loan and a $1.6-billion bridge loan that will be taken out through bond sales.
Bank of Nova Scotia, which advised on Empire Co. Ltd.'s recent purchase of Safeway Inc.'s Canadian assets, committed about $6-billion to cover the full purchase price and any fees.
Neither bank made attempts to lower their own risk by syndicating the lending commitments out to other banks.
In both cases, one of the key motivations was secrecy. Both deals were kept very quiet, with no serious inklings of something imminent appearing in the press. Once the syndication process starts, the tent gets pretty big and the chances of a leak soar. Given that neither deal was the result of an auction, it would have been crucial that Loblaw's and Empire's competition not get any hint of what they were up to.
While balance sheets matter, so do relationships.
Bank of America Merrill Lynch has a tight tie to the George Weston corporate empire, which controls Loblaw, thanks to banker Dan Mida.
On the other side of the Shoppers deal, RBC Dominion Securities advised Shoppers Drug Mart. One of the top bankers at RBC in Canada, Andrew Federer, was part of the team that took Shoppers public in 2001. At that time, he was at the investment banking unit of Canadian Imperial Bank of Commerce. These days, he is head of corporate finance for Canada at RBC.
(Boyd Erman is a Globe and Mail Capital Markets Reporter & Streetwise Columnist.)
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