MOODY'S CONFIRMS ERIDANIA BEGHIN-SAY'S RATINGS (SENIOR DEBT AT A3)
Paris, 07-11-95 -- Moody's confirmed Eridania Béghin-Say's (EBS) long- and short-term debt ratings, following the announcement that EBS has renewed its proposal to acquire American Maize Products Company (American Maize) for cash consideration of $430 million in a debt-financed merger transaction. The confirmation is based on the good strategic fit of American Maize's starch operations, which should strengthen EBS's overall position in the global starch markets and reduce the volatility of earnings from this segment, notwithstanding the resulting increase in the company's leverage.
Ratings confirmed are:
Eridania Béghin-Say S.A. -- the company's A3 rating for senior unsecured debt and its Prime-2 rating for commercial paper.
Eridania Béghin-Say S.A./N.V. -- the company's Prime-2 rating for commercial paper guaranteed by Eridania Béghin-Say
Moody's said that the proposed acquisition of American Maize, the fifth-largest producer of starch products in the US, represents a strategic move for EBS, which had long sought to balance its European starch operations with a presence on the US market. The acquisition will only provide limited scope for costs savings, because of EBS's current absence from the US starch market. However, the acquisition of American Maize will reduce the cyclicality of EBS's starch business, because its product mix is predominantly geared towards the food and soft drinks industries, with products like glucose and high fructose corn syrup, while EBS's European starch operations have a substantial exposure to the more cyclical chemical and paper industries.
As part of EBS's renewed offer for American Maize, it will sell a 88% stake in a company comprising American Maize's tobacco business (cigars and smokeless tobacco) for US$ 165 million to a group led by William Ziegler III, the former chairman of American Maize. This activity represents approximately 30% of American Maize's revenues and a somewhat higher proportion of its profits and cash-flows. American Maize's operating performance has been weak over the past few years, particularly in starch, but the company has taken significant steps to rationalize its production facilities and cut costs.
Including American Maize's gross debt of approximately $172 million as of the end of March 1995, the debt-financed transaction will result in a significant increase in EBS's overall debt levels. However, EBS has, in the last 18 months, sold a number of assets, and increased its equity base through the conversion of bonds. These actions have restored EBS's financial flexibility, allowing a transaction of this magnitude without significantly altering its credit standing. However, Moody's added that further debt-financed acquisitions could place downward pressure on EBS's long-term ratings.
Based in Paris, France, Eridania Béghin-Say is a major processor of agricultural products, and had revenues of FF 51.2 billion in 1994.
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