The M&A Wave: Risk & Reward 

A review of leverage, ratings and spread performance 

of recent USD High Grade deals

 The market is focused on the downside risks from the surge in M&A financing 

and jump in leverage, in our view. A review of past deals highlights the slow 

pace of deleveraging, even with the strong economic backdrop. However, we

believe most recent transactions have been successful and are making progress 

towards their goals.

 Since 2015, $752bn of HG corporate bonds has been issued to fund M&A, 

which is 29% of all non-Financial bond issuance.

 We review 32 M&A transactions since 2015, representing $381bn of bond 

issuance. On average, leverage increased from 2.4x to 4.0x for these deals.

 Six quarters later, average leverage had declined by just 0.4x. 

 Investing in the bonds issued for these M&A transactions has been profitable, 

with a median of 31bp spread outperformance versus the broader market one 

year later.

 Ratings downgrades at the time of the deals were modest, an average of 0.6

notch. Six quarters later ratings had been downgraded by another 0.1 notch, on 

average.

 In this note we review the leverage, ratings and spread performance trends of 

the 32 deals individually. Our Healthcare, TMT and Consumer analysts 

provide perspective on each transaction and on the M&A dynamic in their 

sectors more broadly.

North America Credit Research

21 September 2018

US High Grade Strategy & Credit 

Derivatives Research

Eric Beinstein AC

(1-212) 834-4211

eric.beinstein@jpmorgan.com

Dominique Toublan

(1-212) 834-2370

dominique.d.toublan@jpmorgan.com

Virginia Chambless, CFA

(1-212) 834-5481

virginia.chambless@jpmorgan.com

Brett G. Gibson

(1-212) 270-7484

brett.g.gibson@jpmorgan.com

Brian Turner

(1-212) 834-4035

brian.m.turner@jpmorgan.com

Jonathan Rau, CFA

(1-212) 834-5237

jonathan.d.rau@jpmorgan.com

Claire Barbour

(1-212) 270-6861

claire.barbour@jpmchase.com

Pavan D Talreja

(1-212) 834-2051

pavan.talreja@jpmchase.com

J.P. Morgan Securities LLC

Post M&A deleveraging trends have been weak despite the strong Buying bonds issued to fund recent M&A has been a good investment 

economic backdrop

Gross Leverage 45

4.0x 40

5.0x

10

5

25

2.0x

30

35

20

15

 

Jan-10 Jul-10 Jan-11

4.0x 3.8x 3.7x 3.8x 3.7x 3.6x 3.6x

1.6x

3.0x

2.4x

1.0x

0.0x

Pre- deal Post- +1Q +2Q +3Q +4Q +5Q +6Q 0

deal

Source: J.P. Morgan, Capital I.Q

Spread outperformance, bp All Sectors

+12 months +18 months Issue Date +6 months 

See page 46 for analyst certification and important disclosures.

J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the 

firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in 

making their investment decision.

www.jpmorganmarkets.com
 

 

 

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Table of Contents

M&A has been a key driver of HG supply and higher 

corporate leverage ...................................................................4

Healthcare & Pharma ...............................................................9

Consumer Noncyclicals.........................................................10

Telecom/Media/Technology...................................................11

Bayer acquires Merck consumer care unit ..........................15

Becton Dickinson acquires CareFusion Corp......................16

Actavis PLC acquires Allergan Inc .......................................17

AbbVie Inc acquires Pharmacyclics Inc ...............................18

UnitedHealth Group acquires Catamaran Corp ...................19

CVS Health Corp acquires Omnicare Inc .............................20

Teva acquires Allergan PLC’s generic drug business........21

Mylan NV acquires Meda AB .................................................22

Becton Dickinson acquires CR Bard Inc. .............................23

HJ Heinz Corp merges with Kraft Foods Group Inc. ...........24

Newell Rubbermaid and Jarden Corporation Merger..........25

Anheuser-Busch InBev acquires SABMiller ........................26

Molson Coors Brewing Co acquires MillerCoors LLC ........27

Reckitt Benckiser PLC acquires Mead Johnson..................28

British American Tobacco PLC acquires Reynolds 

American Inc...........................................................................29

Intel Corp acquires Altera Corp.............................................30

Avago acquires Broadcom....................................................31

Charter acquires Time Warner Cable....................................32

Dell Technologies Inc. acquires EMC Corp..........................33

Oracle Corp acquires NetSuite Inc........................................34

Microsoft Corp acquires LinkedIn Corp ...............................35

Analog Devices Inc acquires Linear Technology Corp.......36

Verizon Communicationsacquires Yahoo............................37

Amazon.com Inc. acquires Whole Foods Market Inc ..........38

Crown Castle International Corp acquires Lightower.........39

Discovery acquires Scripps Networks .................................40

AT&T acquires Time Warner Inc ...........................................41

2
 

 

 

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Siemens acquires Dresser-Rand Group...............................42

Lockheed Martin acquires Sikorsky Aircraft Corporation ..43

Southern Co acquires AGL resources..................................44

Sherwin Williams acquires Valspar ......................................45

3
 

 

 

 

 

Eric Beinstein

(1-212) 834-4211

eric.beinstein@jpmorgan.com

North America Credit Research

21 September 2018

M&A has been a key driver of HG supply 

and higher corporate leverage

The US High Grade corporate bond market has grown substantially over the 

past few years, helping companies fund their investment and growth needs. A 

key use of funding from the market recently has been for Mergers and Acquisitions 

(M&A). From 2015 to mid-2018 M&A funding represented 29% of the bond 

issuance for non-Financial companies. $752bn was raised for M&A by these issuers 

over the past 3 1⁄2 years. For this reason, understanding the success of these 

transactions is important for HG bond investors who own the bonds of these issuers, 

and to better understand the risks in the market more broadly. Defining what the 

‘success’ of a transaction means is not straightforward, however, and is what we aim 

to do from a credit investor’s perspective, in this note.

Exhibit 1: M&A related bond issuance has accounted for 29% of all non-Financial HG bond 

supply since 2015

1,000

800

600

400

200

0

258 212 143 139

458 494 622

255

733 715 765

398

2015 2016 2017 1H18

M&A issuance

Other Non-Financial issuance

$bn

Source: J.P. Morgan, Dealogic

In most cases in an M&A transaction a company increases its leverage and then 

aims to bring this leverage down by capturing revenue and/or cost synergies.

M&A is an inherently bullish transaction – a company is (usually) taking on more 

debt with a view that the combination of the market opportunity and their leadership 

will allow them to capture the benefits of the larger scale. At the time of most 

transactions a company will announce an estimate of the synergies they will capture. 

They usually provide a future leverage target (or other financial metrics) that they are 

aiming to achieve at some (sometimes) specified time period in the future. 

Exhibit 2: The leverage of US HG non-Financial companies has risen sharply over the past few 

years, in part due to significant M&A

Gross Leverage 3.1x

2.7x

2.3x

Gross Leverage ex Metals/Mining, Energy

1.9x

1Q10 1Q12 1Q14 1Q16 1Q18

Source: J.P. Morgan, Capital I.Q.

4
Eric Beinstein

(1-212) 834-4211

eric.beinstein@jpmorgan.com

North America Credit Research

21 September 2018

Exhibit 3: Leverage rose by 1.6x, on average, for the 32 transactions since 2015 which we review 

in this note

Gross Leverage 5.0x

4.0x 3.8x 3.7x 3.8x 3.7x

 

 

 

 

18

19

20

21

4.0x 3.6x 3.6x

3.0x 2.4x

2.0x

1.0x

0.0x

Pre- deal Post- deal +1Q +2Q +3Q +4Q +5Q +6Q

Source: J.P. Morgan, Capital I.Q.

The rating agencies play an important role 

in this dynamic

In many M&A transactions ratings are downgraded due to the increase in leverage 

and the increased uncertainty that comes with an untested integration between two 

previously distinct entities. As part of their review process the rating agencies often 

are assessing the announced integration/deleveraging plans of the combined entity. 

To the extent they believe the plan to be credible their rating will reflect this. The 

rating today typically will be higher than it would be were the current metrics alone 

being incorporated. 

This has raised concerns in the investment community that the ratings post some 

M&A transactions may be too high. Companies, in some cases, are starting out with 

leverage metrics well above those typical for the assigned rating, as the rating 

agencies are giving them credit for a plan to improve their leverage and/or other 

financial metrics going forward. If the deleveraging or other financial targets which 

were promised are not achieved, ratings downgrades would be expected in many 

cases.

Exhibit 4: Ratings were downgraded by an average of 0.6 notches for the M&A deals in our 

sample. This seems too modest a deterioration given the increase in leverage

A

Average rating

0.6 notch 

A- lower

BBB+

BBB

Pre-deal Post-deal

Source: J.P. Morgan, Moody’s, S&P and Fitch

The strong US economy has been a tailwind for recent M&A transactions. US 

nominal GDP has grown by 14% from YE14 to mid-2018. S&P500 revenue growth 

has been 13% over this time period, and S&P500 earnings have grown by 16%. 

Obviously this has been important for progress on deleveraging. The fact that the 

post M&A deleveraging has been pretty modest, as discussed further below, despite 

the strong macro economic backdrop, does raise concerns about the trend of post 

5
 

 

 

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

M&A deleveraging if/when the economy turns more negative. The prior M&A cycle 

pre-crisis was quite different from this one, with more heavily levered transactions, 

and more deals driven by financial sponsors rather than strategic alignments. Still, 

the extent of the stress in some of the pre-crisis transactions was driven by the strong 

US recession which followed. It is obviously difficult for a company to grow into a 

larger debt profile when the broader economy is shrinking. 

Exhibit 5: Strong GDP growth and corporate earnings performance have been tailwinds for 

companies in their deleveraging efforts

Nominal GDP, rebased 120

115

110

105

100

95

90

S&P revenue growth, rebased

S&P EBITDA growth, rebased

Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18

Source: J.P. Morgan, Bloomberg

Exhibit 6: List of deals reviewed

Date Closed Acquirer Acquired

15-Jun-18 AT&T Time Warner Inc

7-Mar-18 Discovery Scripps Network

29-Dec-17 Becton Dickinson CR Bard Inc

1-Nov-17 Crown Castle International Corp LTS Group Holdings LLC

29-Aug-17 Amazon.com Inc Whole Foods Market Inc

25-Jul-17 British American Tobacco PLC Reynolds American Inc

15-Jun-17 Reckitt Benckiser PLC Mead Johnson

1-Jun-17 Sherwin Williams Valspar

13-Mar-17 Analog Devices Inc Linear Technology Corp 

13-Mar-17 Verizon Communications Yahoo Holdings Inc

4-Jan-17 Abbott Laboratories St Jude Medical Inc

8-Dec-16 Microsoft Corp LinkedIn Corp 

7-Nov-16 Oracle Corp NetSuite Inc

11-Oct-16 Molson Coors Brewing Co MillerCoors LLC

10-Oct-16 Anheuser-Busch InBev SABMiller

7-Sep-16 Dell Technologies Inc EMC Corp 

24-Aug-16 Mylan NV Meda AB

2-Aug-16 Teva Allergan PLC’s generic drug business

1-Jul-16 Southern Co AGL resources

18-May-16 Charter Time Warner Cable

15-Apr-16 Newell Rubbermaid Jarden Corporation

2-Feb-16 Avago Broadcom

29-Dec-15 Intel Corp Altera Corp 

6-Nov-15 Lockheed Martin Sikorsky Aircraft Corporation

18-Aug-15 CVS Health Corp Omnicare Inc

28-Jul-15 UnitedHealth Group Catamaran Corp 

2-Jul-15 HJ Heinz Corp Kraft Foods Group Inc 

1-Jul-15 Siemens Dresser-Rand Group

27-May-15 AbbVie Inc Pharmacyclics Inc

17-Mar-15 Becton Dickinson CareFusion Corp 

17-Mar-15 Actavis PLC Allergan Inc

10-Oct-14 Bayer Merck consumer care unit

Source: J.P. Morgan 

Methodology: We review 32 large, debt funded M&A transactions involving High 

Grade bond issuers since 2015. For each company the leverage of the acquirer at the 

time of the deal announcement, the time of the deal closing, and for 6 subsequent 

quarters post the closing is shown. The goal is to understand the increase in leverage 

at the time of the deal and the post-closing progress on improving leverage. For the 

6
 

 

 

 

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

three main sectors with active debt-funded M&A over the three years (Healthcare, 

Telecommunications/Media/Technology (TMT), Consumer non-cyclical) there is a 

summary of the sector trends. For the summary metrics the leverage trend of each 

company is weighted by the amount of company debt at the time of the deal closing, 

so the larger capital structures impact the averages more heavily than the smaller 

ones. 

Most companies in our sample have given guidance as to their financial targets after 

the transaction, and these are shown in the table. JPM sector analysts also give a 

qualitative assessment as to the success of each company’s goal towards its stated 

post deal target. 

Results: most transactions have made 

progress on deleveraging, but modest 

progress

Of the 21 M&A transactions reviewed in this report where it is not too soon to draw 

a conclusion, our analysts conclude that 13 companies have succeeded in achieving 

their post merger financial target, 4 have made partial progress and 4 have not 

succeeded. That’s 62% success, 19% partial and 19% not succeeded. On average 

across the 32 deals in our analysis, leverage rose from a pre-deal level of 2.4x to 4.0x

at the time the transactions closed. Six quarters later leverage had declined to 3.6x, 

so about a quarter of the rise in leverage from the transaction had been unwound 1.5 

year later. As discussed above, this progress has occurred in the context of a strong 

economic backdrop and favorable financial markets for borrowing. There has been 

one obvious M&A failure with Teva, where post a large merger the company was 

downgraded to HY and the bonds which were issued to fund the transaction currently 

trade about 200bp wider than at issuance. 

Exhibit 7: M&A performance by sector

Gross leverage

Pre-Deal Post deal +6Q

Rating change

Post deal

 since pre-deal

+6Q

Outperformance of 10Y bond issued for

M&A deals 6 quarters after the close

Healthcare

& Pharma

TMT

Consumer

Noncyclicals

Other

2.0x

2.6x

2.7x

2.5x

3.8x

3.2x

5.4x

4.1x

3.5x

3.0x

4.7x

3.7x

0.8 lower

1.5 lower

0.1 higher

0.9 lower

1.1 lower

1.5 lower

0.1 higher

1.0 lower

9bp / 40bp (ex-Teva)

57bp / 10bp (ex-Dell)

10bp

22bp

Total 2.4x 4.0x 3.6x 0.6 lower 0.7 lower 23bp / 24bp (ex-Dell & Teva)

Source: J.P. Morgan 

Post deal ratings improvement of these transactions has been modest. After 6 

quarters 15 (71%) of the companies are rated the same as at the time of the deal 

closing, 2 (10%) are higher rated and 4 (19%) are lower rated. This is based on the 

21 deals where 6 quarters have passed since the closing of the deal. The fact that 

there has been such a modest rating upgrade trend reflects the high starting leverage 

for the rating bucket in many cases. The companies were already given credit for 

their deleveraging targets in the initial rating, so there was little room for rating 

improvement.

Results from a bond investor’s perspective: Buying the bonds issued to fund the 

M&A deals in our sample has been a very good investment. The median 

outperformance of these bonds versus the JULI has been 31bp one year later, and the 

deal weighted average has been 23bp of outperformance. There are two outlier 

results: Investors in Teva’s M&A bonds fared very poorly with the 10yr bond 177bp 

7
 

 

 

Jan-10 Jul-10 Jan-11

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

of underperformance six quarters post the deal. In contrast, investors in Dell’s M&A 

bonds did very well with 159bp of outperformance. Excluding these outliers, the 

average outperformance has been 24bp. This calculation is based on the benchmark 

10yr bond issued for the M&A funding, compared to the JULI 10yr spread 

performance. Due to this the outperformance average is comparing different time 

periods for each deal. 

Exhibit 8: Buying the bonds issued to fund the M&A deals in our sample has been a very good 

investment (Larger number indicates outperformance of M&A 10yr bond vs JULI 10yr)

0

5

10

15

20

25

30

35

40

45 All Sectors Spread outperformance, bp

+18 months Issue Date +6 months +12 months

Source: J.P. Morgan 

8
 

 

 

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Healthcare & Pharma

Brett G. Gibson AC – (212) 270-7484; brett.g.gibson@jpmorgan.com

Colton Ransom – (212) 834- 4684; colton.f.ransom@jpmorgan.com

Levering M&A transactions have been a major credit driver in the Healthcare sector, 

in our view. Over the past few years there has been a consistent presence of 

consolidation drivers across much of the pharmaceutical supply chain. Including 

transactions expected to be completed, since the beginning of 2014 High Grade 

Healthcare issuers have been part of 47 transactions above $4bn EV, including 12 

transactions above $20bn EV). 

The sector is supported by a very strong cash flow generation profile which has given 

companies the ability to take leverage up materially when they promise to pay down 

debt rapidly (this cash flow generation and comfort with delevering in recent years 

has led to rating agencies giving substantial leeway in allowing companies to take 

leverage higher than previously allowed ranges, with starting leverage of ~4.5-5.5x 

not uncommon). While many of these transactions resulted in modest initial rating 

deterioration, deleveraging post M&A in the Healthcare sector can be broadly seen 

as “successful” if you consider whether companies completed acquisition 

commitments. Of course all of this is underpinned by the very well-publicized 

challenges at Teva (the company was downgraded to HY less than 1.5 years after 

completing the acquisition of the Allergan Generics business) as well as a few 

companies completing subsequent sizable acquisitions and pushing out original 

delevering timelines. 

Looking at the subsectors within the Healthcare space, Medical Device company 

M&A deleveraging has been broadly successful, as most companies have improved 

leverage following large levering acquisitions. Large cap Pharma and Biotech 

companies have been less aggressive on bringing leverage down following 

transactions, but have also not executed deals that were relatively as large over the 

recent past. Health Insurers went through several iterations of levering transactions 

with the first set of horizontal mergers getting blocked by the DOJ and companies 

then turning to vertical deals where large bond issuances have occurred in 2018. On 

the other hand the two large Generics deals over the past few years have fallen 

behind original deleveraging targets as underlying fundamentals have been 

challenging in that subsector. 

Looking forward, we anticipate a pickup in M&A across the sector as many of the 

strongest drivers of consolidation are still present, especially for Pharma companies. 

In particular, despite significant cash balances being freed up from tax reform, we 

have not seen material levels of Pharma M&A thus far in 2018. Finally, with several 

large levering transactions occurring so far in 2018, we will monitor those companies 

closely as they deleverage and look to fulfill their commitments over the next 18-24 

months.

9
 

 

 

Jan-10 Jul-10 Jan-11

Eric Beinstein

(1-212) 834-4211

eric.beinstein@jpmorgan.com

North America Credit Research

21 September 2018

Exhibit 9: 10yr bonds issued to fund Healthcare & Pharma M&A deals have performed in line with 

JULI 10yr as underperformance of TEVA M&A bonds offset the outperformance of bonds from 

other M&A deals (Larger number indicates outperformance of M&A 10yr bond vs JULI 10yr)

Healthcare & Pharma - ex TEVA 70 Spread outperformance, bp

Healthcare & Pharma

60

50

40

30

20

10

+12 months +18 months 0

Issue Date +6 months

Source: J.P. Morgan 

Consumer Noncyclicals

Ginger Chambless AC – (212)834-5481; virginia,chambless@jpmorgan.com

Jenny Feng – (212) 834-5479; jenny.feng@jpmorgan.com

Consolidation in the consumer noncyclical sectors over the last several years has 

picked up due to a confluence of favorable economic and capital markets conditions 

and company strategies to boost growth. While each transaction has its specific 

rationale and circumstances, the combinations are typically expected to bring the 

acquirer some blend of faster growing product categories and geographies or a 

meaningful opportunity to streamline operations and take out costs. 

The financial characteristics of the consumer noncyclical sector include stable 

demand trends through economic cycles, relatively high EBITDA margins in the 15-

20% range, and strong cash generation. These attributes combined with the favorable 

macro and low interest rate backdrop have resulted in unprecedented leeway with pro 

forma leverage levels for strategic M&A within investment grade. Rating agencies 

have allowed leverage to rise into the 4.5-6x range as long as companies can 

demonstrate a willingness and ability to reduce leverage back to a more moderate 

3.5-4x range within a reasonable time frame, usually 1.5-3 years. 

While many of the M&A transactions analyzed in this report are still “in progress” 

with their deleveraging efforts, the majority are tracking behind original plan due to 

weaker than expected underlying results (rather than a change in financial policy). 

We also believe leniency on the part of the rating agencies, favorable capital markets 

conditions, and generally positive macro conditions, have contributed to a lower 

sense of urgency for companies to reduce their leverage. 

Consolidation across the food and beverages sectors has continued apace in 2018 

with several M&A transactions announced or recently closed. As a result, pro forma 

leverage is expected to rise into the 4-5.5x range for several companies with medium 

term (2-3 years) targets of 3-3.5x. One of these transactions, Campbell Soup’s 

acquisition of Snyder’s-Lance, which closed in March 2018, is already off to a rocky 

start due to weakness in legacy areas of Campbell’s business and previously acquired 

businesses which prompted a strategic review and decision to sell non-core assets to 

reduce leverage. S&P lowered CPB’s rating one notch to BBB- after lowering one 

10
 

 

 

Jan-10 Jul-10 Jan-11

Eric Beinstein

(1-212) 834-4211

eric.beinstein@jpmorgan.com

North America Credit Research

21 September 2018

notch in reaction to the acquisition announcement in December 2017. While we 

expect the pace of M&A activity across the food and beverage sectors to slow as the 

recent wave of transactions is digested, we think conditions are still supportive for 

strategic combinations in the household and personal care segments of consumer 

noncyclicals.

Exhibit 10: 10yr bonds issued to fund Consumer Noncyclicals M&A deals have outperformed the 

JULI index but underperformed bonds issued to fund M&A deals from other sectors (Larger 

number indicates outperformance of M&A 10yr bond vs JULI 10yr)

Spread outperformance, bp All Sectors

Consumer Noncyclicals

45

40

35

30

25

20

15

10

5

0 Issue Date +6 months +12 months +18 months 

Source: J.P. Morgan 

Telecom/Media/Technology

Brian Turner AC – (212) 834-4035; brian.m.turner@jpmorgan.com

Dean Ash – (212) 834- 2641; dean.l.ash@jpmorgan.com

M&A activity in TMT has generally resulted in positive results for the acquirers, 

with most transactions being financially accretive and positive diversifiers. Ample 

cash balances and free cash flow, coupled with a benign economic backdrop, have 

reduced concerns around leverage, in our view, and increased the rate of deleveraging across our sectors. While the Amazon/Whole Foods, 

Avago/Broadcom/Brocade, Intel/Altera, and Microsoft /Linkedin transactions 

account for nearly $100bn in transaction value, leverage remained at relatively 

conservative levels given the significant cash balances and FCF of the acquirers. 

Additionally, we view each transaction as having positively expanded and diversified 

each company’s product offerings, better positioning them in the fast moving 

technology sector. 

Unlike most of the technology transactions we have analyzed, the operating 

environment for Dell weakened post-transaction, creating significant headwinds, 

slowed cash generation, and delayed de-leveraging efforts. However, the operating 

environment has improved for Dell as the storage business has seen stronger 

profitability, which has helped drive cash flow and EBITDA growth leading to 

decreased leverage. 

We expect M&A to continue in the technology sector as companies continue to 

diversify into high growth areas such as autonomous driving, AI, data centers, and 

gaming. In Media, we continue to believe consolidation will remain the key theme in 

the sector as content companies continue to seek scale (Time Warner, Scripps, 21st 

Century Fox, Sky, and potentially CBS/VIAB). In the telecom sector, AT&T has 

already made its move for Time Warner, while Verizon has publicly expressed they 

have no need to acquire content assets and are focused on the buildout of a 5G 

11
 

 

 

Jan-10 Jul-10 Jan-11

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

network. We note Verizon has appeared in several public filings with low, all stock 

bids for the Fox and CBS assets. 

Exhibit 11: 10yr bonds issued to fund TMT M&A deals have outperformed the JULI index as well 

as bonds issued to fund M&A deals from other sectors. However, as shown below, most of the 

outperformance is driven by the strong performance of Dell 10yr bonds (Larger number indicates 

outperformance of M&A 10yr bond vs JULI 10yr)

0

10

20

30

40

50

60

70 TMT - ex DELL

TMT

Spread outperformance,bp

Issue Date +6 months +12 months +18 months

Source: J.P. Morgan 

12
 

 

 

Eric Beinstein North America Credit Research

(1-212) 834-4211

eric.beinstein@jpmorgan.com

21 September 2018

Exhibit 12: Gross leverage trend summary

Date Deal Pre-deal Post-deal Cumulative leverage change post close Leverage Goal

Closed Acquirer Acquired Debt $bn Leverage Leverage +1Q +2Q +3Q +4Q +5Q +6Q Target Achieved?

Healthcare & Pharma

10-Oct-14 Bayer Merck cons care unit 7.0 1.5x 2.4x 0.0x +0.1x -0.1x -0.5x -0.5x -0.6x Not specified n/m

17-Mar-15 Becton Dickinson CareFusion Corp 6.2 1.8x 3.8x -0.2x -0.4x -0.3x -0.5x -0.7x -0.8x 3.0x within 2 years Yes

17-Mar-15 Actavis PLC Allergan Inc 21.0 3.5x 5.2x -0.7x -0.7x -0.5x -0.2x -0.2x -1.0x 3.5x-4.0x within 12-18 months* Yes

27-May-15 AbbVie Inc Pharmacyclics Inc 16.7 1.3x 3.4x -0.2x -0.4x -0.6x -0.2x -0.3x -0.4x Not specified n/m

28-Jul-15 UnitedHealth Group Catamaran Corp 10.5 1.4x 2.3x +0.2x +0.3x +0.2x +0.1x 0.0x -0.1x Debt-to-Cap <40% Yes

18-Aug-15 CVS Health Corp Omnicare Inc 11.3 1.2x 3.4x -0.2x -0.2x -0.2x -0.5x -0.4x -0.3x 2.7x in the long-term Partially

2-Aug-16 Teva Allergan’s generic drug unit 15.0 1.7x 4.4x -0.4x -0.3x 0.0x +0.4x +0.9x +0.8x 3.5x in 18 months No

24-Aug-16 Mylan NV Meda AB 6.5 2.5x 4.0x -0.3x -0.4x -0.4x -0.2x -0.1x 0.0x <3.0x by YE17 No

4-Jan-17 Abbott Laboratories St Jude Medical Inc 15.1 1.9x 4.7x -0.7x -0.7x -0.6x -0.6x -1.5x - 3.5x in 2018 Yes

29-Dec-17 Becton Dickinson CR Bard Inc 9.7 3.2x 4.9x -0.2x -0.4x - - - - 3.0x within 3 years Too soon

Sector Summary (debt weighted) 122.7 2.0x 3.8x -0.3x -0.3x -0.3x -0.2x -0.3x -0.3x

Consumer Noncyclicals

2-Jul-15 HJ Heinz Corp Kraft Foods Group 10.0 3.6x 4.4x -0.6x -0.4x +0.1x -0.1x -0.2x -0.1x Mid 3x over medium term* Partially

15-Apr-16 Newell Rubbermaid Jarden Corporation 8.0 3.0x 4.5x 0.0x -0.5x -0.5x -0.6x -0.5x -0.6x 3.0-3.5x after 2 to 3 years Too soon

10-Oct-16 Anheuser-Busch InBev SABMiller 46.0 2.7x 6.2x 0.0x -0.4x -0.4x -0.8x -0.8x -0.8x Long term target 2.3-2.5x* Too soon

4.1-4.3x by FY18, 11-Oct-16 Molson Coors Brewing Co MillerCoors LLC 5.3 2.5x 5.3x -0.2x -0.4x -0.2x -0.7x -0.7x -0.8x Too soon 3.85-4.05x by mid-FY19*

15-Jun-17 Reckitt Benckiser PLC Mead Johnson 7.8 1.0x 4.9x -1.1x -1.1x -1.2x -1.2x - - Not specified Too soon

25-Jul-17 British American Tobacco Reynolds American 17.0 2.8x 4.6x 0.0x +0.3x +0.3x - - - 3.2-3.3x by FY19* Too soon

Sector Summary (debt weighted) 94.1 2.7x 5.4x -0.2x -0.3x -0.2x -0.7x -0.6x -0.6x

TMT

29-Dec-15 Intel Corp Altera Corp 7.0 0.6x 1.0x +0.1x +0.3x +0.1x +0.1x +0.1x +0.3x N/A Yes

2-Feb-16 Avago Broadcom 9.0 1.5x 2.9x -0.3x -0.5x -0.6x -0.8x -0.9x -0.6x 2x Yes

18-May-16 Charter Time Warner Cable 19.0 4.2x 4.4x -0.2x -0.3x -0.3x -0.3x -0.0x +0.1x 4.0x-4.5x Yes

7-Sep-16 Dell Technologies Inc EMC Corp 20.0 3.6x 5.4x +0.8x +0.7x +0.7x +0.4x -0.2x - IG rating in 2 years No

7-Nov-16 Oracle Corp NetSuite Inc 9.3 2.6x 3.2x 0.0x +0.1x -0.2x +0.2x +0.1x 0.0x N/A Yes

8-Dec-16 Microsoft Corp LinkedIn Corp 19.8 1.9x 2.4x -0.2x -0.3x -0.1x -0.3x -0.3x -0.7x N/A Yes

13-Mar-17 Analog Devices Inc Linear Technology 2.1 1.4x 3.7x -0.3x -0.6x -1.1x -1.3x - - 2.3x in 2 years Yes

13-Mar-17 Verizon Communications Yahoo Holdings Inc 4.5 2.4x 2.7x 0.0x -0.1x -0.1x -0.2x - - N/A Yes

29-Aug-17 Amazon.com Inc Whole Foods Market 13.7 1.9x 3.1x -0.3x -0.6x -0.9x - - - N/A Yes

1-Nov-17 Crown Castle Intl Corp Lightower 1.8 6.0x 6.5x 0.0x -0.6x -0.9x - - - 4.1-5.1x in the long term Partially

7-Mar-18 Discovery Scripps Network 6.3 3.3x 4.6x -0.2x - - - - - 4.1x by YE18, 3.6x by YE19 Too Soon

2.7x by the end of the 15-Jun-18 AT&T Time Warner Inc 22.5 2.8x 3.3x - - - - - - Too Soon first year after close

Sector Summary (debt weighted) 135.0 2.6x 3.2x -0.0x -0.1x -0.2x -0.1x -0.1x -0.2x

Other

1-Jul-15 Siemens Dresser-Rand Group 7.6 1.1x 1.9x -0.3x +0.2x +0.6x +0.1x -0.1x -0.1x <2x* Yes

6-Nov-15 Lockheed Martin Sikorsky Aircraft Corp 7.0 1.3x 2.4x -0.1x -0.1x -0.2x -0.2x -0.3x -0.5x Not specified Partially

1-Jul-16 Southern Co AGL resources 6.8 4.4x 6.2x +0.1x -0.2x -0.2x -0.3x -0.4x -0.4x 4.1x – 4.3x by YE16* No

1-Jun-17 Sherwin Williams Valspar 7.5 0.9x 4.2x +0.2x 0.0x 0.0x -0.2x - - 3x by 2018, 1.9x by 2020 Too soon

Sector Summary (debt weighted) 29.1 2.5x 4.1x -0.0x -0.1x -0.0x -0.2x -0.3x -0.4x

Overall Summary (debt weighted) 380.9 2.4x 4.0x -0.1x -0.2x -0.2x -0.3x -0.3x -0.4x

Source: J.P. Morgan, Capital I.Q. The AT&T M&A deal is excluded from summary calculations as the deal has just closed. The Avago M&A deal is excluded from the summary since there was no corporate bonds outstanding for the issuer at deal close

The company has provided a net leverage target – our gross leverage target estimate is based on this, but is not specifically mentioned by the company. Pre-deal leverage is pre-deal announcement leverage while post-deal leverage is post deal closing leverage

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Exhibit 13: Benchmark 10yr bond issued for the M&A funding, compared to the JULI 10yr spread performance (Larger number indicates 

outperformance of M&A 10yr bond vs JULI 10yr)

Date Closed Acquirer Acquired Debt $bn Sector 10yr M&A Bond

10yr 

6m

Bond outperformance

vs JULI 10yr

12m 18m

10/10/2014

3/17/2015

3/17/2015

5/27/2015

7/28/2015

8/18/2015

8/2/2016

8/24/2016

1/4/2017

12/29/2017

Bayer

Becton Dickinson

Actavis PLC

AbbVie Inc

UnitedHealth Group

CVS Health Corp 

Teva

Mylan NV

Abbott Laboratories

Becton Dickinson

Merck consumer care unit

CareFusion Corp 

Allergan Inc

Pharmacyclics Inc

Catamaran Corp 

Omnicare Inc 

Allergan’s generic drug business

Meda AB

St Jude Medical Inc

CR Bard Inc

7

6.2

21

16.7

10.5

11.3

15

6.5

15.1

9.7

Healthcare

Healthcare

Healthcare

Healthcare

Healthcare

Healthcare

Healthcare

Healthcare

Healthcare

Healthcare

BAYNGR 3 3/8 10/08/24

BDX 3.734 12/15/24

AGN 3.8 03/15/25

ABBV 3.6 05/14/25

UNH 3 3/4 07/15/25

CVS 3 7/8 07/20/25

TEVA 3.15 10/01/26

MYL 3.95 06/15/26

ABT 3 3/4 11/30/26

BDX 3.7 06/06/27

34

29

30

18

48

45

-31

-36

16

5

51 79

59 73

93 51

44 4

52 36

65 30

-19 -177

- -

19 45

3 -

7/2/2015

4/15/2016

10/10/2016

10/11/2016

6/15/2017

7/25/2017

HJ Heinz Corp 

Newell Rubbermaid

Anheuser-Busch InBev

Molson Coors Brewing Co

Reckitt Benckiser PLC 

British American Tobacco

Kraft Foods Group Inc 

Jarden Corporation

SABMiller

MillerCoors LLC

Mead Johnson

Reynolds American Inc

10

8

46

5.3

7.8

17

Consumer

Consumer

Consumer

Consumer

Consumer

Consumer

KHC 3.95 07/15/25

NWL 4.2 04/01/26

ABIBB 3.65 02/01/26

TAP 3 07/15/26

RBLN 3 06/26/27

BATSLN 3.557 08/15/27

32

62

16

-8

-20

7

42 -

72 59

-2 2

-6 7

-5 -

8 -

12/29/2015

2/2/2016

5/18/2016

9/7/2016

11/7/2016

12/8/2016

3/13/2017

3/13/2017

8/29/2017

11/1/2017

3/7/2018

6/15/2018

Intel Corp 

Avago

Charter 

Dell Technologies Inc

Oracle Corp

Microsoft Corp

Analog Devices Inc

Verizon Communications

Amazon.com Inc

Crown Castle International

Discovery

AT&T

Altera Corp

Broadcom

Time Warner Cable

EMC Corp

NetSuite Inc

LinkedIn Corp

Linear Technology Corp

Yahoo Holdings Inc

Whole Foods Market

LTS Group Holdings

Scripps Network

Time Warner Inc

7

9

19

20

9.3

19.8

2.1

4.5

13.7

1.8

6.3

22.5

TMT

TMT

TMT

TMT

TMT

TMT

TMT

TMT

TMT

TMT

TMT

TMT

INTC 3.7 07/29/25

-

-

DELL 6.02 06/15/26

ORCL 2.65 07/15/26

MSFT 2.4 08/08/26

ADI 3 1/2 12/05/26

VZ 4 1/8 03/16/27

AMZN 3.15 08/22/27

CCI 3.65 09/01/27

DISCA 3.95 03/20/28

-

73

-

-

99

2

-10

-4

-8

9

-2

21

-

63 56

- -

- -

158 159

0 4

-5 -10

-1 -2

26 47

28 -

-5 -

38 -

- -

7/1/2015

11/6/2015

7/1/2016

6/1/2017

Siemens

Lockheed Martin

Southern Co

Sherwin Williams

Dresser-Rand Group

Sikorsky Aircraft Corp

AGL resources

Valspar

7.8

7

6.8

7.5

Other

Other

Other

Other

SIEGR 3 1/4 05/27/25

LMT 3.55 01/15/26

-

SHW 3.45 06/01/27

44

36

-

14

62 31

20 18

- -

-9 -

Source: J.P. Morgan

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Bayer acquires Merck consumer care unit

Brett G. Gibson AC – (212) 270-7484; brett.g.gibson@jpmorgan.com

Colton Ransom – (212) 834- 4684; colton.f.ransom@jpmorgan.com

At the close of the Merck OTC acquisition, Bayer committed to maintaining a single-A rating, which aligned with having 

leverage sustained below 2.0x. The OTC business added scale and diversification to the company and was integrated on 

track with management expectations. Management initially delivered on deleveraging goals and keeping the single-A rating, 

but less than two years post-close the company signed an agreement to acquire MON for $66bn which resulted in multiple 

notches of downgrades. 

Purpose of Transaction: To build the company’s non-prescription medicines business. After close the company held the 

#2 Global market share and #1 US market share in the Consumer healthcare markets.

Deleveraging Targets at deal close: Committed to maintaining single A ratings

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number 

indicates outperformance of M&A 10yr bond vs JULI 10yr) Date announced: May 6th, 2014

Date funded:

Date closed:

Oct 1st, 2014

Oct 10th, 2014 230 JULI 10yr BAYNGR 3 3/8 10/08/24

Sizing

210

190

Deal size: $14.2bn 170

IG bond issuance: $7.0bn 150

130

110

90

70

Spread 

outperformance, bp

Issue Date 18 months later

Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

A+

A

ABBB+

BBB

BBBPre Deal Gross Leverage 3.0x

Post deal 2.5x 2.4x 2.4x June 5, 2018 2.3x +6Q 2.5x

Current 1.9x 1.9x 1.8x June 4, 2018 2.0x June 4, 2018 1.5x

1.5x

1.0x

0.5x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

Current Bayer downgrades reflect the close of the MON acquisition

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Becton Dickinson acquires CareFusion Corp 

Brett G. Gibson AC – (212) 270-7484; brett.g.gibson@jpmorgan.com

Colton Ransom – (212) 834- 4684; colton.f.ransom@jpmorgan.com

BDX’s $12.2bn acquisition of CareFusion led to a two notch downgrade from both S&P and Moody’s, as the company’s 

post acquisition target leverage was a full turn higher than the previously guided range. Over the next two years the 

company stayed on track to deliver on synergy expectations and hit its leverage target in March 2017. One month after 

achieving its leverage target BDX announced it would acquire CR Bard for $24.1bn. Following the close of the acquisition, 

Moody’s downgraded BDX’s credit rating another two notches to Ba1 due to three reasons: 1) the size of the deal, which 

quickly followed CFN; 2) very high pro-forma leverage; and 3) a view that deleveraging to IG levels will take longer than

what the rating agency feels is acceptable. S&P left the ratings at an Investment Grade level while Fitch, who previously did

not rate BDX, assigned a first time rating of BBB-. As of the 2Q18 earnings call, BDX has surpassed its $250mn synergy 

for CareFusion, recognizing $350mn of synergies and said it is on track with the integration of C.R. Bard and “delivering on 

financial commitments.”

Purpose of Transaction: Expand operations to include Medical Systems and Procedural Solutions. The combination was 

thought to enable a simpler more effective parenteral drug delivery.

Deleveraging Targets at deal close: 3.0x within 2 years

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Oct 5th, 2014 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: Dec 4th, 2014

JULI 10yr BDX 3.734 12/15/24 Date closed: Mar 17th, 2015 230 Spread

Sizing 210 outperformance, bp

190 Deal size: $12.2bn

170 IG bond issuance: $6.2bn

150

130

110

90

Issue Date 18 months later 70

Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

A

ABBB+

BBB

BBBBB+

BBPre Deal 3.8x Gross Leverage 4.0x Dec 4, 2014 Post deal 3.5x Mar 17, 2015 +6Q

3.0x Current

Dec 29, 2017 2.5x

2.0x

Dec 28, 1.5x 2017

1.0x

0.5x

0.0x

1.8x

3.6x 3.4x 3.5x 3.3x 3.1x 3.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

Fitch initiated the rating on 5/4/17

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Actavis PLC acquires Allergan Inc

Brett G. Gibson AC – (212) 270-7484; brett.g.gibson@jpmorgan.com

Colton Ransom – (212) 834- 4684; colton.f.ransom@jpmorgan.com

ACT used the transaction to change its name and ticker to Allergan and AGN as part of a broad re-branding effort. In 

addition, three months after the close of the transaction, AGN agreed to divest its generic drug business to TEVA for 

$39.6bn. With the divestiture the company’s deleveraging originally slowed as the company waited to close the transaction, 

though once closed net leverage dropped precipitously. As part of the generic drug business divestment to TEVA, the 

company used $8bn of proceeds to pay down debt. Note that the company’s leverage goal was on a net-basis and did 

achieve its 18 month target, but not its 12 month target that was pushed back until the close of the TEVA divestment that 

occurred 15 months post close of the original acquisition. Gross leverage further declined post the 6Q mark, as the company 

continued to pay down debt as it matured.

Purpose of Transaction: ACT acquired AGN to create a top 10 global growth pharmaceutical company. 

Deleveraging Targets at deal close: Net leverage of 3.5x 12 months post close & 3.0x 18 months post close.

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Nov 17th, 2014 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: Mar 3rd, 2015

JULI 10yr AGN 3.8 03/15/25 Date closed: Mar 17th, 2015 230 Spread

210

190

Sizing

Deal size: $65.0bn

170 IG bond issuance: $21.0bn

150

130

110

90

Issue Date 18 months later 70

outperformance, bp

Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

BBB+

BBB

BBBBB+

Pre Deal Gross Leverage 6.0x 5.2x Post deal 5.0x 5.0x 4.7x 5.0x 4.5x 4.5x +6Q 4.2x

Current 3.5x

Aug 8, 2016 3.0x

2.0x

1.0x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

4.0x

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

AbbVie Inc acquires Pharmacyclics Inc

Brett G. Gibson AC – (212) 270-7484; brett.g.gibson@jpmorgan.com

Colton Ransom – (212) 834- 4684; colton.f.ransom@jpmorgan.com

AbbVie acquired Pharmacyclics for roughly $20bn and gave the existing stockholders of Pharmacyclics an option to elect 

100% cash, 100% stock or a mix of cash and stock. Promptly after the close of the transaction the company completed a 

$5bn stock repurchase program to repurchase half of the equity issued in the transaction. The debt financing was used to 

support both the share repurchase as well as the original debt financing. Pharmacyclics, manufacturer of oncology drug 

IMBRUVICA, was acquired to add diversity to ABBV’s Humira concentration. Management never set out a leverage target 

or deleverging path but the company’s ratings at the time were sustained due to the significant EBITDA growth ABBV was 

experiencing. This growth allowed the company to delever from the PF leverage of 4.4x (LTM 12/31/2014) to 3.4x by the 

end of 2Q15. In April 2016, ABBV announced an agreement to acquire Stemcentrx for $5.8bn, funding the acquisition 

100% in debt. Subsequent to the announced transaction both Moody’s and S&P downgraded ABBV’s credit rating by one 

notch. 

Purpose of Transaction: To grow AbbVie’s late-stage pipeline in the hematological oncology space.

Deleveraging Targets at deal close: NA

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Mar 4th, 2015 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: May 5th, 2015 JULI 10yr ABBV 3.6 05/14/25

230

Date closed: May 27th, 2015 210

Sizing 190

Deal size: 170 $19.8bn

150 IG bond issuance: $16.7bn

130

110

90

Issue Date 18 months later 70

Spread 

outperformance, bp

May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

A+

A

ABBB+

BBB

BBBBB+

BB

Pre Deal Gross Leverage 4.0x

Post deal 3.4x 3.2x 3.2x Apr 28, 2016 3.5x 3.1x 3.0x 3.0x +6Q 2.8x 3.0x Current

2.5x Jun 1, 2016

2.0x

1.3x 1.5x

1.0x

0.5x

NR 0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

UnitedHealth Group acquires Catamaran Corp

Brett G. Gibson AC – (212) 270-7484; brett.g.gibson@jpmorgan.com

Colton Ransom – (212) 834- 4684; colton.f.ransom@jpmorgan.com

Catamaran was the largest acquisition in the company’s history and took leverage to never before seen levels. Unlike many 

other Healthcare companies, however, UNH has never focused on its debt/EBITDA ratio, rather managing towards a debtto-capital target ratio. Debt-to-capital increased from about 35% pre-deal to about 49% upon funding the deal. Over the next 

5 quarters, the company increased debt by about $2bn but saw their leverage ratio decline to about 46% by the end of 2016. 

In 2017 the company focused more fully on debt pay down and reduced debt-to-capital below 40% in 3Q17, two years post 

deal close, thus achieving the company's deleveraging goal. The acquisition has allowed for added scale to UNH and has 

helped maintain its spot as a leader in the ever changing Healthcare service industry.

Purpose of Transaction: The acquisition of PBM Catamaran increased UNH’s PBM scale, allowing it to gain greater 

purchasing/operating efficiencies.

Deleveraging Targets at deal close: Debt-to-cap below 40%

Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Timing indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date announced: Mar 30th, 2015

Date funded: Jul 20th, 2015

Date closed: Jul 28th, 2015

230

210

190

Sizing 170

Deal size: $13.2bn 150

IG bond issuance: $10.5bn 130

110

90

70

Spread 

outperformance, bp

Issue Date 18 months later

JULI 10yr UNH 3 3/4 07/15/25

Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

AAA+

A

ABBB+

Pre Deal Gross Leverage 3.0x

Post deal 2.6x 2.5x 2.5x 2.4x 2.3x 2.3x +6Q 2.5x 2.2x

Current 2.0x

1.4x 1.5x

1.0x

0.5x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

19
Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

CVS Health Corp acquires Omnicare Inc 

Brett G. Gibson AC – (212) 270-7484; brett.g.gibson@jpmorgan.com

Colton Ransom – (212) 834- 4684; colton.f.ransom@jpmorgan.com

In May 2015, CVS agreed to acquire Omnicare for $11.3bn and one month later announced it would acquire Target Corp's 

pharmacy and clinic businesses for $1.9bn. CVS funded both acquisitions collectively through a July 2015 issuance. 

Management targeted returning leverage to 2.7x in the long term and maintained a high-BBB rating. In 2016 due to stronger 

than anticipated FCF, management paid down debt ahead of schedule and therefore said it would leave leverage “constant” 

in 2017 and forego debt paydown until 2018. In December 2017, CVS announced the acquisition of AET, further delaying 

and changing the company’s plans to return rent adjusted leverage to the low-3.0x level. Overall, management was happy 

with the integration of businesses as they set up CVS’s pivot to healthcare ahead of noise around reform and AMZN 

concerns. In August 2018, CVS took a $3.9bn goodwill impairment charge reflecting Omnicare not growing at the original 

expected rate.

Purpose of Transaction: CVS acquired Omnicare, Inc. expanding its specialty pharmacy care to a new dispensing channel, 

long-term care pharmacy. One month later, CVS announced the acquisition of the pharmacy and clinic business of Target 

Corp, acquiring 1,672 pharmacies across 47 states, expanding its footprint in the United States.

Deleveraging Targets at deal close: Long-term 2.7x adjusted debt-to-EBITDA.

Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Timing indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date announced: May 21st, 2015 JULI 10yr CVS 3 7/8 07/20/25

230

Date funded: Jul 13th, 2015 210

Date closed: Aug 18th, 2015 190

Sizing 170

Deal size: $11.3bn 150

130 IG bond issuance: $11.3bn

110

90

Issue Date 18 months later 70

Spread 

outperformance, bp

Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

ABBB+

BBB

BBBPre Deal Gross Leverage 4.0x

Post deal 3.4x

3.5x 3.2x 3.2x 3.2x

 

 

 

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2.9x 3.1x 3.0x +6Q 3.0x Current

2.5x Mar 6, 2018

2.0x

1.5x 1.2x

1.0x

0.5x

0.0x NR

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P deal deal Fitch

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

Moody’s current rating is on review for downgrade pending the acquisition of AET and has said it will downgrade CVS’s rating upon completion of the acquisition. S&P’s current 

rating reflects the pending acquisition of AET.

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Teva acquires Allergan PLC’s generic drug business

Brett G. Gibson AC – (212) 270-7484; brett.g.gibson@jpmorgan.com

Colton Ransom – (212) 834- 4684; colton.f.ransom@jpmorgan.com

At the time of the transaction announcement Allergan's generic business was experiencing high growth and was anticipated 

to allow for significant synergies after combining with TEVA’s generics business. Immediately following the 

announcement of the acquisition, all three rating agencies announced they would downgrade the company one-notch to the 

mid-BBB equivalent upon closure. Due to regulatory hurdles, the acquisition did not close until 3Q16, delayed from the 

original 1Q16 target. In addition, during 2016 the generics market started to experience deteriorating market dynamics with 

significant pricing erosion. Therefore, Teva and the new acquired business significantly underperformed original 

expectations and saw EBITDA shortfalls lead to the company not hitting any of its deleveraging targets. Further 

compounding the issue, in October 2017 the FDA approved a generic competitor to 40mg Copaxone (TEVA’s largest 

concentration product) which led to forward expectations of EBITDA significantly declining. In November 2017, as the 

underlying business continued to face price erosion and leverage remained at elevated levels, Fitch Ratings downgraded 

Teva to HY with Moody’s and S&P following with downgrades of the company to HY in January and February 2018.

Purpose of Transaction: To build the company’s already large and global generics business with an anticipated $1.2bn of 

synergies.

Deleveraging Targets at deal close: 3.5x gross debt/EBITDA 18 months post close

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Jul 27th, 2015 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: Jul 19th, 2016 370 JULI 10yr TEVA 3.15 10/01/26

Spread Date closed: Aug 2nd, 2016 outperformance, bp 320

Sizing 270

Deal size: $40.5bn

220 IG bond issuance: $15.0bn

170

120

Issue Date 18 months later 70

Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

A

ABBB+

BBB

BBBBB+

BB

BBPre Deal Gross Leverage 6.0x 5.3x 5.2x Post deal 4.8x Jul 27, 2015 Jul 28, 2015 +6Q 5.0x 4.4x 4.4x

& & 4.0x 4.1x Jul 20, 2016 Current Aug 2, 2016 Jul 13, 2016 4.0x

3.0x Aug 4, 2017 Aug 3, Sep 19, & 1.7x 2.0x 2017 & 2017 & Nov 6, 2017 Jan 12, Feb 8, 1.0x 2018 2018

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

deal deal Moody S&P Fitch

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Mylan NV acquires Meda AB

Brett G. Gibson AC – (212) 270-7484; brett.g.gibson@jpmorgan.com

Colton Ransom – (212) 834- 4684; colton.f.ransom@jpmorgan.com

In the two years since the close of the transaction, MYL’s leverage has remained elevated. In 2017, management pushed 

back its 2017 YE goal of delevering to 3.0x due to weakness in the business as well as a delay in product launches and 

diverting $500mn of cash in 4Q17 towards share repurchases instead of debt paydown. At the end of 2017, with leverage at 

3.8x, management set a target of delevering to below 3.5x by year-end before continuing to delever towards its long term 

3.0x goal but quickly started the year with $432mn in share repurchases. During 2018 MYL experienced additional product 

launch delays and continued to see weak underlying trends leading to the company changing the language of deleveraging 

to “decreasing towards 3.5x by year end”. Management has identified $1.1bn in debt that it anticipates paying down to help 

delever over the next 12 months. Additionally the board of the company is currently in the process of conducting a strategic 

review and is evaluating a “wide range of alternatives”. 

Purpose of Transaction: To further enhance the Rottapharm and EPD acquisitions by leveraging the company’s 

infrastructure in Europe and Emerging Markets. Meda also expanded Mylan’s branded portfolio and created a $1bn OTC 

business. 

Deleveraging Targets at deal close: Below 3.0x by end of 2017

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Feb 10th, 2016 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: May 31st, 2016 270

outperformance, bp

JULI 10yr MYL 3.95 06/15/26

Spread Date closed: Aug 24th, 2016 250

230 Sizing 210

Deal size: $9.9bn 190

170 IG bond issuance: $6.5bn 150

130

110

90

Issue Date 18 months later 70

May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

Pre Deal Gross Leverage BBB 5.0x

Post deal 4.0x 4.0x 3.9x 3.8x +6Q 3.7x 4.0x 3.6x 3.6x

Current

3.0x 2.5x

BBB- 2.0x

1.0x

0.0x BB+ Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Becton Dickinson acquires CR Bard Inc

Brett G. Gibson AC – (212) 270-7484; brett.g.gibson@jpmorgan.com

Colton Ransom – (212) 834- 4684; colton.f.ransom@jpmorgan.com

BDX’s $12.2bn acquisition of CareFusion led to a two notch downgrade from both S&P and Moody’s, as the company’s 

post acquisition target leverage was a full turn higher than the previously guided range. Over the next two years the 

company stayed on track to deliver on synergy expectations and hit its leverage target in March 2017. One month after 

achieving its leverage target BDX announced it would acquire CR Bard for $24.1bn. Following the close of the acquisition, 

Moody’s downgraded BDX’s credit rating another two notches to Ba1 due to three reasons: 1) the size of the deal, which 

quickly followed CFN; 2) very high pro-forma leverage; and 3) a view that deleveraging to IG levels will take longer than

what the rating agency feels is acceptable. S&P left the ratings at an Investment Grade level while Fitch, who previously did

not rate BDX, assigned a first time rating of BBB-. As of the 2Q18 earnings call, BDX has surpassed its $250mn synergy 

for CareFusion, recognizing $350mn of synergies and said it is on track with the integration of C.R. Bard and “delivering on 

financial commitments.”

Purpose of Transaction: To expand the breadth and depth in medication management and infection prevention and enter in 

the high-growth therapy-oriented device segment. 

Deleveraging Targets at deal close: 3.0x within 3 years

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Apr 23rd, 2017 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: May 22nd, 2017 JULI 10yr BDX 3.7 06/06/27

170 Spread Date closed: Dec 29th, 2017 160 outperformance, bp 150 Sizing 140

Deal size: $24.1bn 130

120 IG bond issuance: $9.7bn 110

100

90

80

Issue Date 18 months later 70

May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

BBB+

BBB

BBBBB+

BB

Dec 28, 2017

Dec 29, 2017

Pre Deal Gross Leverage 6.0x

Post deal 4.9x 4.7x 5.0x 4.5x +2Q

Current 4.0x 3.2x

3.0x

2.0x

1.0x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

Fitch initiated the rating on 5/4/17

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

HJ Heinz Corp merges with Kraft Foods Group Inc 

Ginger Chambless AC – (212)834-5481; virginia,chambless@jpmorgan.com

Jenny Feng – (212) 834-5479; jenny.feng@jpmorgan.com

HJ Heinz and Kraft Foods Group merged in July 2015 with KRFT shareholders receiving a $16.50/share special cash 

dividend and equity in the combined company, representing 49% ownership. The $16.50 dividend was funded by a cash 

investment of $10bn by 3G and Berkshire, which own the other 51% of the combined company. There was no incremental 

debt added to the capital structure as part of the transaction, but combined leverage rose due to the higher leveraged Heinz 

capital structure. From a strategic standpoint, the merger transaction was expected to benefit both sides through increased 

revenue and EBITDA scale, cost synergy opportunities of $1.5bn within two years and strong cash flow generation. Other 

strategic benefits included the potential to expand Kraft’s brands internationally through Heinz’s infrastructure and a path to 

a more sustainable long term capital structure. Management provided a very clear commitment to an investment grade credit 

profile including plans to de-lever. The Kraft Foods dividend was held constant and there have been no share repurchases 

since the transaction closed. A debt pay down commitment of $2bn within two years was met, but some debt has been 

added back in over the last year. KHC’s medium term net leverage target of <3x compares with ~4x currently. 

Purpose of Transaction: Increased scale, cost synergies, international growth, and long term capital structure.

Deleveraging Targets at deal close: Repay $2bn of debt in first two years; medium term net leverage of <3x

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Mar 25th, 2015 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: Jun 23rd, 2015 230 Spread 

outperformance, bp

JULI 10yr KHC 3.95 07/15/25

Date closed: Jul 2nd, 2015 210

Sizing 190

Deal size: 170 $55.4bn

150 IG bond issuance: $10.0bn

130

110

90

Issue Date 18 months later 70

Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

BBB+

BBB

BBBBB+

Pre Deal 5.0x

Post deal

+6Q 4.0x

Jul 2, 2015 Jul 6, 2015 Mar 23, 2018 Current

Gross Leverage 4.5x 4.4x 4.3x 4.3x 4.2x 4.0x 3.8x 3.6x

Jun 25, 2015

2.0x

1.0x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q Moody S&P Fitch deal deal

3.0x

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Newell Rubbermaid and Jarden Corporation Merger

Ginger Chambless AC – (212)834-5481; virginia,chambless@jpmorgan.com

Jenny Feng – (212) 834-5479; jenny.feng@jpmorgan.com

When Newell announced its acquisition of Jarden in late 2015, the strategic rationale was for the combination to bring 

together two strong portfolios of branded household products, add significant scale and cost synergy opportunities. NWL 

expected the deal to be immediately accretive to normalized earnings and to deliver $500mn of run rate synergies within 

four years. The combined company was estimated to generate $16bn of revenue and approximately $3bn of EBITDA (post 

synergies). NWL’s leverage increased from 3x pre-deal to 4.5x post deal, and it committed to de-lever to 3-3.5x in two to 

three years, with planned repayment of $1.5bn of term loan borrowings and $900mn of maturities as well as capturing cost 

synergies. While NWL has reduced outstanding debt by $2.5bn since closing the transaction in April 2016 and was 

successful in achieving $568mn of cost synergies/savings in 2016-2017, leverage has not meaningfully improved due to 

weaker underlying business performance. In addition, NWL announced a major change in business strategy in March 2018 

including divestment of a significant portion of its portfolio (35% of revenues) for expected net cash proceeds of $10bn. 

NWL intends to use 45% of the asset sale proceeds to reduce debt and reach its leverage target of 3-3.5x by the end of 2019.

Purpose of Transaction: To add scale, diversification and cost synergy opportunities.

Deleveraging Targets at deal close: 3-3.5x gross debt/EBITDA two to three years after the close

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Dec 14th, 2015 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: Mar 18th, 2016 250

outperformance, bp

JULI 10yr NWL 4.2 04/01/26

Spread Date closed: Apr 15th, 2016 230

210 Sizing 190

Deal size: $17.9bn 170

IG bond issuance: $8.0bn 150

130

110

90

Issue Date 18 months later 70

Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

BBB+

BBB

BBBBB+

Pre Deal Gross Leverage 5.0x 4.5x 4.5x

Post deal 4.0x 4.0x 4.0x 3.9x 3.9x +6Q 4.0x

Current 3.0x

Mar 17, 2016 3.0x

2.0x

1.0x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Anheuser-Busch InBev acquires SABMiller

Ginger Chambless AC – (212)834-5481; virginia,chambless@jpmorgan.com

Jenny Feng – (212) 834-5479; jenny.feng@jpmorgan.com

Anheuser-Busch InBev closed on its $110bn acquisition of SAB Miller in October 2016 after a year long regulatory review 

process. The transaction was initially financed with $80bn of new debt including bridge and term loans and $46bn of new 

IG bonds, with $12bn of the bridge loans immediately replaced by proceeds from its divestment of its 58% stake in its 

MillerCoors JV to Molson Coors. Additional asset sale proceeds of approximately $6bn were achieved over the course of 

2017 which were also applied to net debt reduction. Cost synergy opportunities of $3.2bn are expected by October 2020, 

with $2.5bn already achieved as of 1H18. ABI articulates its “optimal capital structure” as having a net debt/EBITDA ratio 

of approximately 2x and its capital allocation priorities of 1) invest in organic growth, 2) deleverage, 3) selective M&A, and 

4) return cash to shareholders (growing dividend). Net debt/EBITDA currently stands at 4.87x versus 5.8x when the deal 

closed. ABIBB plans to repay ~$2bn of bonds maturing in 2H18 as part of $6bn maturing over the next twelve months.

Purpose of Transaction: To build the first truly global beer company, growth, cost synergy opportunities.

Deleveraging Targets at deal close: 2x net debt / EBITDA

Timing

Date announced: Oct 13th, 2015

Date funded: Jan 13th, 2016

Date closed: Oct 10th, 2016

Sizing

Deal size: $110.0bn

IG bond issuance: $46.0bn

Exhibit 2: Rating trends

Pre Deal A+

Post deal

+6Q

Current

A May 25, 2016 Nov 13, 2015

A- May 6, 2016

&

BBB+ Nov 9, 2016

BBB

BBBMoody S&P Fitch

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number 

indicates outperformance of M&A 10yr bond vs JULI 10yr)

JULI 10yr ABIBB 3.65 02/01/26

230

210

190

170

150

130

110

90

Issue Date 18 months later 70

Spread 

outperformance, bp

Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17

Exhibit 3: Gross Leverage trend

7.0x

6.0x

5.0x

4.0x

3.0x

2.0x

1.0x

0.0x

Gross Leverage 6.2x 6.2x 5.8x 5.8x 5.4x 5.4x 5.4x

2.7x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

deal deal

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Molson Coors Brewing Co acquires MillerCoors LLC

Ginger Chambless AC – (212)834-5481; virginia,chambless@jpmorgan.com

Jenny Feng – (212) 834-5479; jenny.feng@jpmorgan.com

Molson Coors acquired the 58% stake in its US JV MillerCoors it did not previously own for $12bn in October 2016. The 

transaction was related to Anheuser-Busch Inbev’s acquisition of SABMiller, and the need to divest SABMiller’s US 

business for anti-trust purposes. Molson Coors financed the purchase with $2.6bn of new equity, $3bn of term loans, and 

$5.3bn of new US$ bonds, an €800mn bond, and two CAD bonds totaling 1bn. Strategic and financial benefits of the deal 

were expected to include larger go to market scale in the US, cost synergy opportunities of $200mn by the fourth year and 

annualized cash tax savings of $250mn. Net debt/EBITDA rose from 2x to slightly over 5x on a pro forma basis, and credit 

ratings were lowered to low BBB from all three agencies. This was a one notch downgrade from Moody’s and Fitch and a 

two notch downgrade by S&P. TAP expressed a strong commitment to maintaining investment grade ratings, and guided for 

capital allocation to prioritize strengthening its balance sheet. TAP targets net debt/EBITDA of 4x by the end of 2018 (vs. 

4.5x mid-year), and 3.75x by mid-2019. TAP does not have an official long-term leverage target but expects to continue 

deleveraging below 3.75x.

Purpose of Transaction: Larger go to market scale in the US, cost synergy opportunities

Deleveraging Targets at deal close: 4x net debt / EBITDA by the end of 2018 and 3.75x by mid-2019

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Nov 11th, 2015 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: Jun 28th, 2016 170

outperformance, bp

JULI 10yr TAP 3 07/15/26

Spread Date closed: Oct 11th, 2016 160

150 Sizing 140

Deal size: $12.0bn 130

120 IG bond issuance: $5.3bn 110

100

90

80

Issue Date 18 months later 70

Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

ABBB+

BBB

BBBBB+

Nov 12, 2015

June 24, 2016 Jun 28, 2016

Pre Deal Gross Leverage 6.0x Post deal 5.3x 5.1x 5.1x 4.9x +6Q 5.0x 4.6x 4.6x 4.5x

Current

4.0x

3.0x 2.5x

2.0x

1.0x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Reckitt Benckiser PLC acquires Mead Johnson

Ginger Chambless AC – (212)834-5481; virginia,chambless@jpmorgan.com

Jenny Feng – (212) 834-5479; jenny.feng@jpmorgan.com

Reckitt Benckiser PLC acquired Mead Johnson for $16.6bn in cash on June 15, 2017, and assumed $3bn of existing MJN 

bonds. RB financed the transaction with $7.75bn of new USD bonds, a $4.5bn 3-year term loan and a $4.5bn 5-year term 

loan. Strategically, the deal adds Mead’s leading global infant nutrition business, scale in key geographies (China and other 

developing markets), and strong R&D, quality control and regulatory capabilities to Reckitt’s business. Financial benefits of

the deal are expected to include cost synergies of £200mn by the end of the third full year with £450mn of upfront costs to 

achieve. As a result of the transaction, pro forma leverage initially rose to 4.9x from 1x prior and credit ratings were 

lowered two notches to low single A. Shortly after closing the acquisition of Mead Johnson, Reckitt sold its food unit to 

McCormick for $4.2bn, and used the proceeds to repay a portion of its term loan borrowings in 2H17, lowering leverage to 

3.8x. De-leveraging is a top priority as evidenced by the significant portion of debt financing in term loans and suspension 

of share repurchases until “debt levels are materially lower.” Though management has not specified a leverage target, its 

medium and long term rating objectives are strong and stable “A” band credit ratings. Leverage at 1H18 was 3.7x, down 

meaningfully from its peak.

Purpose of Transaction: To enter the infant nutrition business, scale in key geographies, and add strong R&D, quality 

control & regulatory capabilities.

Deleveraging Targets at deal close: Not specified

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Feb 10th, 2017 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: Jun 21st, 2017 150 JULI 10yr RBLN 3 06/26/27

Spread Date closed: Jun 15th, 2017 140 outperformance, bp

Sizing 130

Deal size: 120 $16.6bn

110 IG bond issuance: $7.8bn

100

90

80

Issue Date 18 months later 70

Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

AAA+

A

ABBB+

Mar 15, 2017

NR

June 13, 2017

Pre Deal Gross Leverage 6.0x Post deal 4.9x +4Q 5.0x

Current 3.8x 3.8x 3.7x 3.7x 4.0x

3.0x

2.0x

1.0x

1.0x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

British American Tobacco PLC acquires Reynolds American 

Inc

Ginger Chambless AC – (212)834-5481; virginia,chambless@jpmorgan.com

Jenny Feng – (212) 834-5479; jenny.feng@jpmorgan.com

British American Tobacco acquired the 58% stake in Reynolds American it did not previously own in July 2017 for $49.4bn 

in cash and stock. The cash portion of the transaction was financed with $25bn of new debt including USD term loans of 

$5bn, new USD bonds of $17bn, new €3.1bn and £450mn of bonds. Strategically the deal gives British American Tobacco 

full ownership of Reynolds American, allowing the companies to combine product portfolios and leverage research and 

development investments, especially in Next Generation Products. Financial benefits of the deal are expected to include cost 

synergies of $400mn by the end of the third year. De-leveraging is a top priority in the near term with management targeting 

net leverage of approximately 3x by the end of 2019 and the higher end of the 1.5-2.5x range longer-term. Leverage at 1H18 

was 4.9x on a gross basis and 4.7x on a net basis. With regards to its $2.3bn of bond maturities in 2019, management plans 

for a combination of debt paydown, some refinancing along with higher utilization of commercial paper. BATS also 

indicated that it is on track to register its bonds as early as the end of this year (original timeline was 1Q19). BATS aims to 

get credit ratings back to Baa1/BBB+ in the medium term, up one notch from its current Baa2/BBB with Stable outlooks.

Purpose of Transaction: To combine product portfolios and leverage research and development investments.

Deleveraging Targets at deal close: Approximately 3x Net leverage by the end of 2019 and the higher end of the 1.5-2.5x 

range in the longer-term

Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Timing indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date announced: Jan 17th, 2017 JULI 10yr BATSLN 3.557 08/15/27

190

Date funded: Aug 8 Spread th, 2017 outperformance, bp

Date closed: Jul 25th, 2017 170

150 Sizing

Deal size: $49.4bn 130

IG bond issuance: $17.0bn 110

90

Issue Date 18 months later 70

Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

A

ABBB+

BBB

BBBJan 23, 2017

Aug 4, 2017

Jan 17, 2017

Pre Deal Gross Leverage 6.0x Post deal 4.9x 4.9x +3Q 4.6x 4.6x 5.0x

Current

4.0x

2.8x 3.0x

2.0x

1.0x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Intel Corp acquires Altera Corp

Brian Turner AC – (212) 834-4035; brian.m.turner@jpmorgan.com

Dean Ash – (212) 834- 2641; dean.l.ash@jpmorgan.com

Intel announced the acquisition of Altera on June 1st 2015 in an all cash transaction valued at approx. $16.7bn. The cash 

portion was funded with a combination of new debt and existing balance sheet cash. Both S&P and Moody’s affirmed Intel 

ratings following the acquisition, highlighting the positive business profile impact of the deal and Intel’s exceptional 

liquidity. Leverage increased to approx. 1x after the transaction. The acquisition of Altera was an important step for Intel to 

diversify away from the declining PC business, refocusing company efforts on cloud computing. Altera specializes in 

configurable field programmable gate arrays (FPGAs), which are an essential (and high margin) component in the very 

profitable data center market. We believe the Altera business is very well positioned to take advantage of the high growth 

and compute intensive IoT/autonomous driving applications amidst record levels of capex spending from cloud service 

providers. Leverage has remained relatively stable at Intel with the company acquiring Mobileye in 2017 using around 

$15bn of offshore cash.

Purpose of Transaction: Intel purchased Altera to diversify away from the declining PC business and focus on cloud 

computing

Deleveraging Targets at deal close: NA

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Jun 1st, 2015 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: Jul 22nd, 2015 250

outperformance, bp

JULI 10yr INTC 3.7 07/29/25

Spread Date closed: Dec 29th, 2015

200 Sizing

Deal size: $16.7bn 150

IG bond issuance: $7.0bn 100

50

Issue Date 18 months later 0

Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

AAA+

A

ABBB+

Pre Deal 1.4x

Post deal

1.2x +6Q

Current 1.0x

0.8x

0.6x

0.4x

1.3x Gross Leverage 1.3x

1.1x 1.1x 1.1x 1.1x

1.0x

0.6x

0.2x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

30
 

 

 

14

15

16

17

18

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Avago acquires Broadcom

Brian Turner AC – (212) 834-4035; brian.m.turner@jpmorgan.com

Dean Ash – (212) 834- 2641; dean.l.ash@jpmorgan.com

Avago announced on May 28, 2015, their intentions to acquire Broadcom for a total consideration of $37 billion. Financing 

for the deal included 140 million new shares valued at $20bn, $9bn of new debt, and $8bn of company cash. Avago initially 

issued term loans to fund the debt portion of the deal, which were then exchanged out for IG unsecured bonds. The 

acquisition would create the third largest semiconductor company, trailing only Intel and Qualcomm in revenue (LTM) at 

the time of acquisition. Importantly, Broadcom provided further diversification into the Infrastructure & Networking and 

Broadband & Connectivity product areas. The opportunity within Networking for Data Centers has proved to be extremely 

valuable for the combined companies as the area is one of the fastest growing within the semiconductor space. Pro forma for 

the transaction, leverage post close was 2.9x on a gross basis and 2.6x net. Avago announced intentions to de-lever to 

approximately 2x leverage. The acquisition has been very successful from both a business and financial perspective as the 

added densification of Broadcom has proven vital in driving growth in the ever-changing semiconductor industry. 

Furthermore, Avago successfully de-levered to the stated goal of approximately 2x. However, soon after de-levering from 

the Broadcom transaction, Avago announced the purchase of Brocade for $5.9bn. The acquisition ticked up leverage .3x to 

2.3x for a brief period before de-leveraging once again to approximately 1.9x. The Brocade transaction strengthened 

Avago’s position in enterprise data centers and enhanced the companies FCF profile.

Purpose of Transaction: Avago acquired Broadcom to provide diversification into the Infrastructure/Networking and 

Broadband/Connectivity product areas

Deleveraging Targets at deal close: Avago announced intentions to de-lever to approximately 2x gross leverage

Timing

Date announced: May 28th, 2015

Date funded: Aug 8th, 2015

Date closed: Feb 2nd, 2016

Sizing

Deal size: $37.0bn

IG bond issuance: $9.0bn

Exhibit 1: Rating trends Exhibit 2: Gross Leverage trend

BBB

BBBBB+

BB

BBMoody S&P Fitch

Post deal

Pre Deal

Jan 11,

Jan 11, 2017 +6Q 2017

Current Dec 22, Nov 3,

2016 2015

Nov 3,

2015

Gross Leverage 3.5x

2.9x 3.0x 2.6x 2.4x 2.3x 2.3x 2.5x 2.1x 2.0x

2.0x 1.5x

1.5x

1.0x

0.5x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

31
 

 

 

13

14

15

16

17

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Charter acquires Time Warner Cable

Brian Turner AC – (212) 834-4035; brian.m.turner@jpmorgan.com

Dean Ash – (212) 834- 2641; dean.l.ash@jpmorgan.com

Charter announced the acquisition of TWC on May 26, 2015, in a cash/stock deal valued at $78.7bn. Funding for the deal 

included $19bn in new senior secured debt, in addition to term loans and HY debt. Charter structured the capital structure 

for the deal with the intention of maintaining access to long-dated low-cost financing in the investment grade market. 

Additionally, the company committed to maintain IG index eligibility for the legacy TWC notes and new secured notes. 

Charter’s leverage post close was approx. 4.4x gross and has remained relatively flat since the acquisition, at the higher end 

of management’s initial target leverage guidance. The secured debt has also remained in line with management’s initial 

targets at slightly below 3.5x. The business case for acquiring TWC was focused on increased scale. With TWC, Charter 

significantly increased their geographical footprint, allowing new Charter to compete with national competitors. Pro forma 

for the transaction, Charter now would pass through approx. 48 million homes and become the second-largest U.S. cable 

company behind Comcast. Additionally, Charter/TWC stood to gain from growth in video and broadband as Charter’s 

penetration in both areas was previously hovering below industry levels. While the increased scale has been a positive for 

Charter, secular weakness in the cable business due to cord cutting has led to declining video subscriber numbers. However, 

the broadband side of the business has been strong as increased data usage and demand for higher internet speeds have 

driven better profitability.

Purpose of Transaction: Charter acquired TWC with the goal of achieving national scale and a competitive advantage in 

video and broadband, which would allow the company to increase product offerings with a wide array of consumer and 

commercial customers.

Deleveraging Targets at deal close: Target total leverage of 4.0x-4.5x, ±0.5x to enable strategic activity, and secured 

leverage of approximately 3.5x

Timing

Date announced: May 26th, 2015

Date funded: Jul 9th, 2015

Date closed: May 18th, 2016

Sizing

Deal size: $78.7bn

IG bond issuance: $19.0bn

Exhibit 1: Rating trends Exhibit 2: Gross Leverage trend

BBBBB+

BB

BBB+

NR

May 10, 2016

Moody S&P Fitch

Pre Deal Gross Leverage 4.6x Post deal 4.5x

+6Q 4.5x 4.4x 4.4x Current 4.4x

4.2x 4.3x 4.2x

4.2x 4.1x 4.1x 4.1x

4.1x

4.0x

3.9x

3.8x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

32
Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Dell Technologies Inc. acquires EMC Corp

Brian Turner AC – (212) 834-4035; brian.m.turner@jpmorgan.com

Dean Ash – (212) 834- 2641; dean.l.ash@jpmorgan.com

Dell announced the EMC acquisition in October 2015 in a cash/tracking stock deal valued at approx. $67bn. The rationale 

behind the transaction was that Dell was experiencing revenue and margin declines from 2010 to 2013 as worldwide PC 

sales slowed, increasing competition, and the introduction of new hardware technologies cannibalized traditional PC sales. 

With the acquisition of EMC, Dell became the largest privately owned tech company with leading market share in servers, 

storage, virtualization and PCs. Dell funded the acquisition with a combination of IG secured debt, term loans and HY 

unsecured debt. While Dell became more strategically complete, leverage (calculated using total debt through Dell Inc. 

excluding structured debt) spiked up significantly from 3.6x pre-deal to 5.4x post- deal. Initial expectations had been that 

Dell would rapidly de-lever through asset sales, strong cash flow, and heavy cost cuts with the goal of becoming an IG 

company within 2 years. However, Dell (post-merger) began to face a market environment of secular weakness in both its 

PC and storage business combined with significant component cost headwinds throughout fiscal 2017, which slowed cash 

generation and de-leveraging efforts. Leverage hovered around 6x as Dell worked to get its storage business into a better 

position, which started to show improvement in F4Q18 when management changes helped start a turnaround in the 

business. Improving profitability in the storage business has helped drive cash flow and EBITDA growth and leverage has 

since declined to approx. 5.2x.

Purpose of Transaction: With the PC business slowing down, Dell acquired EMC to diversify into the storage and server 

market

Deleveraging Targets at deal close: The target for Dell was to become an IG company within 2 years of the EMC 

acquisition

Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Timing indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date announced:

Date funded:

Date closed:

Oct 12th, 2015

May 17th, 2016

Sep 7th, 2016

500 Spread 450 outperformance, bp 400

JULI 10yr DELL 6.02 06/15/26

350

Sizing 300

Deal size: $67bn 250

200

IG bond issuance: $20.0bn 150

100

50

0 Issue Date 18 months later

May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

Pre Deal Gross Leverage BBB- 7.0x Post deal 6.2x 6.1x 6.1x

5.2x

Sept 7, 2016 Sept 7, 2016

 

 

 

14

15

16

17

5.8x

+6Q 6.0x 5.4x

Current 5.0x BB+

3.6x 4.0x

3.0x

BB 2.0x

1.0x

0.0x BB- Moody S&P Fitch Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch deal deal

33
 

 

 

 

19

20

21

22

23

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Oracle Corp acquires NetSuite Inc

Brian Turner AC – (212) 834-4035; brian.m.turner@jpmorgan.com

Dean Ash – (212) 834- 2641; dean.l.ash@jpmorgan.com

Oracle acquired NetSuite for $9.3bn on July 28, 2016, funded using cash on hand from a $14bn debt issuance in June 2016. 

Prior to tax reform, Oracle was one of the largest issuers in the Technology space, issuing debt for acquisitions, share 

repurchases, and dividends. The NetSuite purchase bolstered Oracle’s enterprise cloud offerings. The combination of 

NetSuite’s enterprise offerings and Oracle’s scale was an attractive opportunity for Oracle. While S&P affirmed the ratings 

of Oracle after the transaction, Moody’s noted the transaction was Credit Negative due to the steep price tag and 

expectations that Oracle would continue to issue debt to fund acquisitions and repurchases. Ultimately the transaction had a 

minimal impact on Oracle’s leverage.

Purpose of Transaction: Oracle acquired NetSuite as a complementary cloud addition to strengthen Oracle’s market 

position and share

Deleveraging Targets at deal close: NA

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Jul 28th, 2016 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: Jun 29th, 2016 180

outperformance, bp

JULI 10yr ORCL 2.65 07/15/26

Spread Date closed: Nov 7th, 2016 160

140 Sizing 120

Deal size: $9.3bn 100

IG bond issuance: $9.3bn 80

60

40

20

Issue Date 18 months later 0

Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

AAA+

A

ABBB+

Pre Deal Gross Leverage 4.0x

Post deal 3.4x 3.3x 3.3x 3.5x 3.2x 3.2x 3.2x 3.0x +6Q 3.0x 2.6x Current

2.5x

2.0x

1.5x

1.0x

0.5x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

34
 

 

 

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24

25

26

27

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Microsoft Corp acquires LinkedIn Corp 

Brian Turner AC – (212) 834-4035; brian.m.turner@jpmorgan.com

Dean Ash – (212) 834- 2641; dean.l.ash@jpmorgan.com

On June 13, 2016, Microsoft announced its largest ever acquisition, LinkedIn, valued at $26.2bn. S&P affirmed Microsoft’s 

AAA rating with a stable outlook, while Moody’s moved to a negative outlook. Moody’s outlook change was based on the 

view that Microsoft may continue with aggressive shareholder returns and/or more debt funded M&A. One year later, 

Moody’s revised the outlook to stable as Microsoft’s business continued to thrive while limiting debt funded acquisitions 

and moderating shareholder returns. Leverage post close was slightly above 2x, but Microsoft has quickly de-levered the 

balance sheet with robust cash generation and EBITDA growth. Looking at the transaction, the key selling point for 

acquiring LinkedIn was the ability to combine private data (Outlook/Exchange/Office 365) and public profiles (Linkedin) 

into a massive source of data that Microsoft would now own. Linkedin is also an asset that has proven difficult to replace 

given the lack of viable competitors in the networking space. While initially a drag on corporate margins, in FY2018 

Linkedin is ramping up with accelerated revenue growth amidst strong (and broad based) sales execution and is now 

accretive to EPS ahead of initial expectations. The general consensus is that the acquisition is exceeding expectations, with

management commenting LinkedIn appears to be even more of a strategic asset than it originally thought.

Purpose of Transaction: Purchasing Linkedin offered a treasure trove of data and an asset with few competitors to 

Microsoft

Deleveraging Targets at deal close: NA

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Jun 13th, 2016 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: Aug 1st, 2016 160 Spread JULI 10yr MSFT 2.4 08/08/26

outperformance, bp Date closed: Dec 8th, 2016 140

Sizing 120

Deal size: 100 $26.2bn

80 IG bond issuance: $19.8bn

60

40

20

Issue Date 18 months later 0

Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

Pre Deal Gross Leverage 3.0x

AAA

AA+

AA

AAPost deal

+6Q 2.5x

Current 2.0x

1.5x

1.0x

0.5x

0.0x

2.4x 2.3x 2.2x 2.1x 2.1x 2.1x

1.9x

1.7x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

35
Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Analog Devices Inc acquires Linear Technology Corp

Brian Turner AC – (212) 834-4035; brian.m.turner@jpmorgan.com

Dean Ash – (212) 834- 2641; dean.l.ash@jpmorgan.com

Analog Devices announced the Linear Technology acquisition on July 26, 2016, for a total consideration of $14.8bn funded 

with cash and stock. Funding included 58 million ADI shares, $7.3bn of debt, and cash on hand. The debt portion was 

funded with a mix of term loans and IG unsecured issuance. The acquisition was highly complementary; two analog 

semiconductor companies focused on the Industrial, Automotive, and Communications Infrastructure segments. 

Furthermore, Linear provided diversification into the Power Management product area. Leverage spiked to approx. 3.7x on 

a gross basis (from approx. 1.4x) and management pledged to suspend share buybacks until the target 2.0x net leverage was 

achieved. ADI was downgraded to BBB from A- by S&P and Baa1 from A3 by Moody’s. ADI announced on the 3Q18 

earnings call that the company’s strong cash generation allowed them to achieve the 2.0x net leverage goal three quarters 

ahead of plan and reinstated a share repurchase program.

Purpose of Transaction: Analog Devices’ acquisition of Linear Technology combined two analog semiconductor 

companies with very complimentary product offerings and provided

Deleveraging Targets at deal close: 2.0x leverage on a net basis or approx. 2.3x on a gross basis in 2 years

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Jul 26th, 2016 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: Nov 30th, 2016 140 Spread JULI 10yr ADI 3 1/2 12/05/26

outperformance, bp Date closed: Mar 13th, 2017 130

Sizing 120

Deal size: $14.8bn

110 IG bond issuance: $2.1bn

100

90

80 Issue Date 18 months later

Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

A

ABBB+

BBB

BBBBB+

Pre Deal Gross Leverage 4.0x 3.7x

Post deal

 

 

 

16

17

18

19

20

21

2.6x

3.1x

3.4x 3.5x +4Q

Current 3.0x

Mar 7, 2017

Jul 26, 2016 2.4x

2.5x

2.0x

1.4x

1.5x

1.0x

0.5x

0.0x

Moody S&P Fitch

NR

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

36
 

 

 

18

19

20

21

22

23

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Verizon Communications acquires Yahoo

Brian Turner AC – (212) 834-4035; brian.m.turner@jpmorgan.com

Dean Ash – (212) 834- 2641; dean.l.ash@jpmorgan.com

Verizon’s acquisition of Yahoo was part of the company’s plans to build out a mobile media/digital advertising platform. 

Verizon initially offered $4.83bn to acquire Yahoo, but after a significant cyber attack at Yahoo lowered the offer to 

$4.48bn. Leverage was relatively unmoved by the transaction, but the business impact of the deal was more pronounced. 

Verizon initially sought for a combination of Yahoo and AOL to compete with Google and Facebook and act as a revenue 

growth driver. However, the transaction has failed to reap significant results for Verizon. Both Yahoo and AOL are now 

viewed as outdated platforms compared to their competitors at Google and Facebook. Furthermore, Verizon has failed to 

attract significant content deals or advertisers, who similarly prefer the more tech savvy and far reaching competitors in 

Silicon Valley.

Purpose of Transaction: Verizon acquired Yahoo to build out a digital advertising and mobile internet business. Verizon 

planned to integrate Yahoo with AOL and compete in the mobile media space as an alternative offering for advertisers

Deleveraging Targets at deal close: NA

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Jul 25th, 2016 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: Mar 13th, 2017 180 Spread JULI 10yr VZ 4 1/8 03/16/27

outperformance, bp Date closed: Mar 13th, 2017 160

Sizing 140

120

Deal size: $4.5bn 100

IG bond issuance: $4.5bn 80

60

40

20

Issue Date 18 months later 0

Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

AAA+

A

ABBB+

BBB

Pre Deal Gross Leverage 3.0x

Post deal

+4Q 2.5x

Current 2.0x

1.5x

1.0x

0.5x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

2.4x

2.7x 2.7x 2.6x 2.6x 2.5x

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

37
 

 

 

18

19

20

21

22

23

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Amazon.com Inc. acquires Whole Foods Market Inc

Brian Turner AC – (212) 834-4035; brian.m.turner@jpmorgan.com

Dean Ash – (212) 834- 2641; dean.l.ash@jpmorgan.com

Amazon announced the Whole Foods acquisition on Jun 16, 2017, in an all-cash transaction valued at approximately 

$13.7bn. Amazon financed the deal with a $16bn bond issuance. As one of the largest technology companies and retailers, 

Amazon viewed Whole Foods as a unique opportunity to expand its brick and mortar footprint while integrating Amazon 

Prime with the Whole Foods customer base. Integration between the two companies has been ongoing with Prime discounts 

now available in stores, but more changes are expected in the future. Ratings on Amazon were affirmed by the agencies as 

the transaction had a marginal impact on leverage given Amazon's ability to de-lever.

Purpose of Transaction: Amazon acquired Whole Foods to expand into brick and mortar and integrate Amazon Prime 

with Whole Foods customers

Deleveraging Targets at deal close: NA

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Jun 16th, 2017 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: Aug 15th, 2017 Spread JULI 10yr AMZN 3.15 08/22/27

160 outperformance, bp Date closed: Aug 29th, 2017 140

Sizing 120

Deal size: 100 $13.7bn

80 IG bond issuance: $13.7bn

60

40

20

Issue Date 18 months later 0

Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

AAA+

A

ABBB+

BBB

Pre Deal Gross Leverage 3.5x 3.1x Post deal 2.8x 3.0x +3Q 2.5x

Current 2.5x 2.2x

1.9x 2.0x

1.5x

1.0x

0.5x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

38
 

 

 

15

16

17

18

19

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Crown Castle International Corp acquires Lightower

Brian Turner AC – (212) 834-4035; brian.m.turner@jpmorgan.com

Dean Ash – (212) 834- 2641; dean.l.ash@jpmorgan.com

Crown Castle acquired an attractive asset in Lightower with 32,000 miles of valuable fiber in the Northeast of the U.S. The 

fiber acquired is important for deploying small cells and building out next-generation wireless technologies. Crown Castle 

operates both towers and fiber cables and we note there is significantly more competition and lower barriers to entry in fiber 

than towers. The $7.1bn cash transaction was funded with debt and a significant equity portion of $3.25bn of common stock 

and $1.5bn of mandatory convertible preferred stock. Post-acquisition, we believe CCI remains well positioned to take 

advantage of the increased usage of its towers and fiber. Leverage has remained elevated despite strong cash flow growth 

due to acquisitions and capital spending, but is offset by the strength of Crown Castle’s business operations and outlook for 

continued growth.

Purpose of Transaction: Crown Castle acquired Lightower for access to the attractive fiber footprint in several top 

metropolitan markets. The deal brought 32,000 miles of fiber in the Northeast

Deleveraging Targets at deal close: Crown Castle management aimed for 4-5x net leverage as a long term target

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Jul 18th, 2017 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: July 25th, 2017 Spread JULI 10yr CCI 3.65 09/01/27

200 outperformance, bp Date closed: Nov 1st, 2017 180

160 Sizing 140

Deal size: $7.1bn 120

100 IG bond issuance: $1.8bn 80

60

40

20

Issue Date 18 months later 0

Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

BBB+

BBB

BBBBB+

BB

Pre Deal Gross Leverage 6.5x 6.5x

Post deal

7.0x 6.0x 5.9x 5.6x 6.0x +3Q

Current 5.0x

4.0x

3.0x

2.0x

1.0x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

39
 

 

 

15

16

17

18

19

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Discovery acquires Scripps Networks

Brian Turner AC – (212) 834-4035; brian.m.turner@jpmorgan.com

Dean Ash – (212) 834- 2641; dean.l.ash@jpmorgan.com

On July 31, 2017, Discovery announced the transaction to acquire Scripps Networks for a total consideration of $14.6bn 

funding with 70% cash and 30% equity. Discovery funded the debt portion of the deal with IG unsecured debt and a term 

loan. Discovery aimed to maintain investment grade ratings throughout the transaction, with a target normalized leverage 

level of 3.5x or less within the first two years after the transaction. Opening leverage post deal closing was 4.6x on a pro 

forma basis. Discovery pledged to use substantially all FCF to reduce pre-payable and/or short term debt. The transaction 

was compelling strategically as Scripps’ assets such as the Food Network, Travel Channel, and HGTV would add to the real 

life entertainment IP at Discovery. While the deal just recently closed earlier this year, Discovery is slightly ahead of 

schedule on their de-leveraging path. Discovery now expects net leverage to be at or below 4x by YE 2018 from original 

pronouncements of “around” 4x. Additionally, the company believes they will achieve their 3.5x net leverage target ahead 

of schedule (originally by YE2019) due to higher than expected free cash flow.

Purpose of Transaction: Expand content offerings and gain scale, specifically in the real life entertainment genre

Deleveraging Targets at deal close: Around 4x net leverage (now specifically 4x) by YE 2018 and 3.5x net leverage by 

YE2019 (now likely earlier) or approx. 4.1x gross and 3.6x gross

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Jul 31st, 2017 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: Sep 7th, 2017 Spread JULI 10yr DISCA 3.95 03/20/28

250 outperformance, bp Date closed: Mar 7th, 2018

200 Sizing

Deal size: $14.6bn 150

IG bond issuance: $6.3bn 100

50

Issue Date 18 months later 0

Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

BBB+

BBB

BBBBB+

BB

Pre Deal Gross Leverage 5.0x 4.6x 4.4x Post deal

+1Q 4.0x 3.3x Current

3.0x

2.0x

1.0x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

40
 

 

 

17

18

19

20

21

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

AT&T acquires Time Warner Inc

Brian Turner AC – (212) 834-4035; brian.m.turner@jpmorgan.com

Dean Ash – (212) 834- 2641; dean.l.ash@jpmorgan.com

AT&T announced the acquisition of Time Warner on October 22, 2016, in a 50/50 stock-and-cash transaction valued at 

$85bn. The cash portion was financed with new debt and cash from the balance sheet. In the announcement, AT&T 

committed to keeping a strong balance sheet and investment grade credit metrics. Expectations for leverage were 2.5x on a 

net basis by the end of the first year after close. The merger was challenged by the Department of Justice as being anticompetitive. Over 600 days later, Judge Richard Leon ruled the acquisition was not anti-competitive and allowed the 

transaction to close. Shortly after closing, the DOJ appealed Judge Leon’s decision, sending the case back to the courts. 

Both Moody’s and S&P downgraded AT&T to BBB/Baa2 from BBB+/Baa1 due to elevated leverage levels. The 

acquisition of Time Warner is highly complementary to the core AT&T businesses. The wide array of premium content 

assets at Time Warner (Warner Bros, HBO, Turner Networks) will allow AT&T to cross sell these assets between wireless 

and cable/satellite. Additionally, AT&T management believes with the addition of Time Warner content assets they will be 

able to build an ad platform ready to compete with the likes of Google and Facebook. We calculate PF leverage (based on 

recent AT&T filings) for the combined T/TWX to be 3.3x gross/3.2x net. We expect de-leveraging mainly through FCF and 

the sale of non-core assets. We don’t expect meaningful EBITDA growth. AT&T management now expects its net-debt-toadjusted EBITDA ratio to be in the 2.9x range by the end of 2018, dropping to the 2.5x range by the end of 2019 and 

reaching historical levels in the 1.8x range by the end of 2022.

Purpose of Transaction: Time Warner provides AT&T with revenue diversity and an opportunity to strengthen top line 

growth. AT&T hopes to cross sell Time Warner content with wireless/wireline offerings

Deleveraging Targets at deal close: AT&T targeted leverage of 2.5x on a net basis (~2.7x gross) by the end of the first 

year after close and reaching historical levels in the 1.8x range by the end of 2022

Timing

Date announced: Oct 22nd, 2016

Date funded: Jul 27th, 2017

Date closed: Jun 15th, 2018

Sizing

Deal size: $85bn

IG bond issuance: $22.5bn

Exhibit 1: Rating trends Exhibit 2: Gross Leverage trend

A

ABBB+

BBB

BBBPre Deal 3.3x Gross Leverage 3.5x

Post deal 2.8x 3.0x

Current 2.5x

2.0x

Moody S&P Fitch

Jun 15, 2018 1.5x

1.0x

0.5x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

deal deal

Jun 15, 2018

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Siemens acquires Dresser-Rand Group

Ginger Chambless AC – (212)834-5481; virginia,chambless@jpmorgan.com

Jenny Feng – (212) 834-5479; jenny.feng@jpmorgan.com

Siemens acquired Dresser Rand in mid-2015 in an all cash transaction for $7.6bn valuing the enterprise at 16x EBITDA. 

The acquisition was meant to strengthen Siemens' portfolio for the oil & gas industry and also distributed power and expand 

its presence in the US. While the timing of the acquisition was sub-optimal due to a downturn in oil & gas markets 

beginning in the second half of 2015, Siemens was able to increase its expected synergy target from more than €150 million 

in annual synergies by 2019 to €250 million. Leverage has declined modestly since the transaction was closed. Challenges 

in other business areas (power generation) and portfolio changes have altered the composition of the company since the 

Dresser Rand acquisition. Siemens continues to maintain a very strong credit profile with 0.6x net leverage at the Industrial 

company currently which is in line with its target of <1x. Siemens does not have a stated credit ratings target, but its 

leverage target of <1x is in line with a single A rating. 

Purpose of Transaction: To enhance Siemens product portfolio for the oil & gas industry, gain US exposure

Deleveraging Targets at deal close: <1x net leverage

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Sep 21st, 2014 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: May 18th, 2015 Spread JULI 10yr SIEGR 3 1/4 05/27/25

250 outperformance, bp Date closed: Jul 1st, 2015

200 Sizing

Deal size: $7.6bn 150

IG bond issuance: $7.6bn 100

50

Issue Date 18 months later 0

May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

AAA+

A

APre Deal Gross Leverage 3.0x

Post deal Feb 3, 2015 2.5x

+6Q 2.5x 2.1x 2.0x Current 1.9x 1.8x 1.8x 2.0x 1.6x

1.5x 1.1x

1.0x

0.5x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Lockheed Martin acquires Sikorsky Aircraft Corporation

Ginger Chambless AC – (212)834-5481; virginia,chambless@jpmorgan.com

Jenny Feng – (212) 834-5479; jenny.feng@jpmorgan.com

Lockheed Martin acquired Sikorsky from United Technologies in November 2015 for $9bn in cash. The transaction was 

initially funded with $6.0bn of borrowings under LMT’s 364-day revolver, commercial paper and cash on hand, which was 

later replaced with $7bn of IG issuance. The acquisition of Sikorsky was expected to benefit LMT through diversification 

and growth into the large helicopter market segment which had a mix of commercial and military customers both domestic 

and international. Although Lockheed took a one notch downgrade for the acquisition of Sikorsky and leverage increased 

~1x, management made a commitment to strong IG ratings at high BBB with a longer term goal of getting back to low A. 

Lockheed has repaid about $1bn of debt since the close of the Sikorsky transaction and plans to repay another $750mn that 

is maturing in 2018. Leverage has improved 1⁄2 turn to 1.9x on the debt reduction and also strong earnings growth over the 

last two years. LMT's improving credit profile has been reflected in positive rating actions by S&P and Fitch, which have 

raised their outlooks on Lockheed’s BBB+ ratings to Positive in April-May 2018.

Purpose of Transaction: To add diversification and expansion into the large helicopter market segment

Deleveraging Targets at deal close: Not specified, expect gradual deleveraging

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Jul 20th, 2015 indicates outperformance of M&A 10yr bond vs JULI 10yr)

Date funded: Nov 16th, 2015 250 Spread JULI 10yr LMT 3.55 01/15/26

outperformance, bp Date closed: Nov 6th, 2015

200 Sizing

Deal size: $9.0bn 150

IG bond issuance: $7.0bn 100

50

Issue Date 18 months later 0

Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

A

ABBB+

BBB

Pre Deal Gross Leverage 3.0x

Post deal 2.4x 2.3x 2.3x +6Q 2.5x 2.2x 2.2x 2.1x

Current 1.9x 2.0x Nov 2, 2015 Nov 6, 2015

1.3x 1.5x

1.0x

0.5x

0.0x

Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q Moody S&P Fitch deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Southern Co acquires AGL resources

Matt Anavy AC – (212) 834-3568; matt.anavy@jpmorgan.com

Claire Barbour - (212) 270-6861; claire.barbour@jpmorgan.com

The acquisition of AGL enabled SO to capture the changing dynamic of natural gas consumption, which facilitated 

additional growth opportunities for the utility. When the transaction was first announced, SO anticipated the debt financing 

portion of the deal would be approximately $5.0 billion. Ultimately, in May 2016, SO issued a total of $8.0 billion longterm debt, of which $6.75 billion was specifically allocated towards funding the AGL transaction. Prior to the new issuance, 

both Moody's and Fitch downgraded SO's rating, while S&P affirmed the rating but maintained their Negative outlook. 

While the transaction has improved SO's overall regulated earnings profile, the utility's credit metrics have remained weakly

positioned within their current ratings, due to cost overruns for the construction of Vogtle and the negative impact from tax 

reform. Recently, SO has taken various supportive measures to strengthen their balance sheet and mitigate ratings pressure, 

including asset sales, deleveraging, and commitment to raise a total of $7.0 billion of equity over 5 years. Despite these 

initiatives, SO’s credit metrics are expected to remain pressured over the next few years. Specifically, FFO/debt is expected

to average 14.5% through 2020.

Purpose of Transaction: The strategic rationale behind the transaction was growth driven. The acquisition of AGL enabled 

SO to capture the changing dynamic of natural gas consumption, which facilitated additional growth opportunities for the 

utility.

Deleveraging Targets at deal close: SO targeted a return to credit metrics commensurate with their ratings at the time the 

transaction was announced by 2019.

Timing

Date announced: Aug 24th, 2015

Date funded: May19th, 2016

Date closed: Jul 1st, 2016

Sizing

Deal size: $11.9bn

IG bond issuance: $6.8bn

Exhibit 1: Rating trends Exhibit 2: Gross Leverage trend

A 7.0x Gross Leverage

6.0x

A- 5.0x

4.0x

BBB+ 3.0x

BBB

2.0x

1.0x

0.0x BBBPre Deal

Post deal

+6Q

Current

May 12, 2016

Feb 28, 2018

May 13, 2016

Moody S&P Fitch

4.4x

6.2x 6.3x 6.0x 6.0x 5.9x 5.8x 5.8x

PredealPostdeal+1Q +2Q +3Q +4Q +5Q +6Q

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

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Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

Sherwin Williams acquires Valspar

Jonathan Rau, CFA AC – (212) 834-5237; jonathan.d.rau@jpmorgan.com

Sherwin Williams completed the acquisition of Valspar on 1-Jun-17. The combination expands the company’s footprint 

both geographically and by product. Since the close of the deal the company has made progress in terms of cost synergy 

realization and it has raised its expectations on that front (annual cost synergies are now expected to reach $320mm in 

2018). Debt/EBITDA leverage has remained elevated since the close of the deal (at 4.0x+). We estimate that SHW will need 

to pay down an incremental ~$1.1bn of debt by YE18 to reach its 3.0x leverage target (assuming 2018 Bloomberg 

consensus EBITDA of $3.1bn). Note that the company now targets longer term leverage in the 2.0x-2.5x range, a slight 

upward revision to the prior 1.9x 2020 target.

Purpose of Transaction: Expand geographic and product diversity

Deleveraging Targets at deal close: 3x by 2018, 1.9x by 2020

Timing Exhibit 1: 10 yr M&A funding deal bond vs JULI 10yr (Larger number Date announced: Mar 20th, 2016 indicates outperformance of M&A 10yr bond vs JULI 10yr)

May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18

Exhibit 2: Rating trends Exhibit 3: Gross Leverage trend

Pre Deal

Post deal Gross Leverage 5.0x 4.4x +4Q 4.2x 4.2x 4.2x 4.0x

Current 4.0x

Date funded: May 2nd, 2017 Spread JULI 10yr SHW 3.45 06/01/27

160 outperformance, bp Date closed: Jun 1st, 2017 140

Sizing 120

Deal size: 100 $11.2bn

80 IG bond issuance: $7.5bn

60

40

20

Issue Date 18 months later 0

A+

A

ABBB+

BBB

BBBMar 21, 2016

&

May 2, 2017

May 1, 2017

May 2, 2017

3.0x

2.0x

1.0x

0.0x

Moody S&P Fitch Pre- Post- +1Q +2Q +3Q +4Q +5Q +6Q

deal deal

Source: J.P. Morgan, Capital I.Q., Moody’s, S&P and Fitch

0.9x

45
 

 

 

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

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QIB Only

Eric Beinstein North America Credit Research

(1-212) 834-4211 21 September 2018

eric.beinstein@jpmorgan.com

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48

North America Credit Research

21 September 2018

Eric Beinstein

(1-212) 834-4211

eric.beinstein@jpmorgan.com

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Completed 21 Sep 2018 03:40 PM EDT Disseminated 21 Sep 2018 04:05 PM EDT

 

 

 

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