Oneok among top global deals; high-grade M&A pipeline slows; Campbell Soup targets year end

By Cristal Cody

Tupelo, Miss., Aug. 11 – Two major acquisitions entered the high-grade funding pipeline this week, while two energy issuers were in the primary market over the week to fund acquisitions.

Oneok Inc.’s $18.8 billion acquisition of Magellan Midstream Partners LP is the second top global deal announced in the second quarter and was the largest in the U.S. market, according to a S&P Global Ratings report.

Oneok on Thursday priced $5.25 billion of guaranteed senior notes (Baa2/BBB/BBB) in five parts about 30 basis points to 45 bps tighter than talk to help fund the merger.

The Tulsa, Okla.-based natural gas company’s notes are subject to a special mandatory redemption if the merger is not completed on or before May 14, 2024.

Proceeds from ConocoPhillips Co.’s $2.7 billion three-tranche offering of guaranteed notes (A2/A-/A) sold Tuesday will be used to fund the acquisition of a remaining interest in Surmont from TotalEnergies EP Canada Ltd. for about $3 billion. The transaction is expected to close in the second half of 2023, but if the acquisition has not closed by the outside date of Nov. 15, the bonds have a special mandatory redemption at 101 plus accrued interest.

The Houston-based energy company’s notes priced 25 bps tighter than talk across all three tranches, a source said.

In the secondary market, the bonds were mixed, sources said.

ConocoPhillips’ $700 million tranche of 5.7% notes due 2063 firmed 1 bp from issuance to 149 bps bid.

The other tranches traded flat to about 2 bps wider than issuance.

Oneok’s notes tightened anywhere from 0.5 bp to 10 bps, a source said.

The largest tranche, $1.75 billion of 6.625% notes due 2053, improved 1 bp to 239 bps bid.

Tapestry, Campbell in pipeline

The latest high-grade M&A deal announcement with funding potential entered the long-term pipeline on Thursday, a source said.

Coach and Kate Spade brands company Tapestry, Inc. (Baa2/BBB) announced plans to acquire Michael Kors, Jimmy Choo and Versace brands owner Capri Holdings Ltd. (BBB-/BBB-) for $57 per share in cash for a deal value of $8.5 billion. The acquisition is expected to be funded with a combination of senior notes, term loans and Tapestry cash. The merger is set to close in 2024.

Tapestry said Thursday it has engaged with the rating agencies and is committed to a “solid” investment-grade rating.

The company will post fourth-quarter and fiscal 2023 earnings results on Aug. 17.

Also this week, Campbell Soup Co. (Baa2/BBB-/BBB) announced Monday that it will acquire Sovos Brands Intermediate Inc. (B3/B) for $23 per share in cash for a deal value of $2.7 billion.

Campbell said the transaction will be financed through the issuance of new debt. The deal is expected to close by the end of December.

A blockbuster M&A offering remains in the wings, pending regulatory approval, sources report.

The deadline for Broadcom Inc. (Baa3/BBB-/BBB-) to complete its $61 billion acquisition of VMware (Baa3/BBB-/BBB) is Aug. 26, but the outside date may be extended to Nov. 26.

The deal received European Commission approval in July.

M&A activity declines

The M&A market posted a 44% decline in transaction value over the second quarter to $501 billion from nearly $902 billion in the same quarter last year, according to S&P’s report.

“Average transaction sizes also fell steeply across all sectors except energy,” S&P said.

In July, North American M&A announcements slowed to $121 billion from $153 billion in June and $193 billion in May, according to a BofA Securities note.

Also, the pipeline of announced deals with potential investment-grade funding implications declined to $330 billion in July from $334 billion in June, BofA said.

M&A-related high-grade issuance was $8.8 billion in July, up from $7.8 billion in June.

Meanwhile, the first half of the year also was slow for M&A deals in the bank space, according to a KBRA report.

About 40 bank transactions were announced in the first half of 2023, a drop from the five-year average of about 100 transactions reported in the same period.

Bank M&A activity has stalled amid higher interest rates, a tougher regulatory environment and increased uncertainty following the regional bank failures this spring, the agency said.

“The market will flip the other way when bond losses get back closer to zero,” Bob Wray, managing director at CC Capital Advisors, said in a note. "We think 2024 is going to be busy. We have a pipeline of at least 10 deals once these unrealized losses go down.”

The latest bank deal was announced June 27 from Piedmont Federal Savings Bank, which plans to acquire Wake Forest Federal Savings and Loan Association in a transaction valued at $36.75 billion.

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