By Hillary Flynn
NEW YORK, July 27 (IFR) - AB InBev bonds were slightlyweaker on Wednesday after news that SABMiller had asked itsemployees to pause the process of integrating its operationswith the brewer.
AB InBev sold a US$46bn bond in January - the second biggestin history - to help finance the acquisition.
But the company raised its US$100bn-plus bid this week in anattempt to quash investor dissent over its original offer thathas been made less attractive by a fall in the pound afterBritain's shock vote to leave the European Union.
On Wednesday, SABMiller asked employees to pause the processof integrating its operations with those of AB InBev as thebrewer's board weighs its sweetened takeover offer, two sourcesfamiliar with the matter told Reuters.
"With the pound materially lower post-Brexit, the value toUS shareholders is less than before," Matt Brill, a portfoliomanager at Invesco, told IFR.
Brill still expects the merger to go through.
Some of the AB InBev bonds, however, weakened in secondaryon the latest developments. The company's 3.65% 2026 bonds wereover a point lower at 105.78, while its 3.3% 2023s fell almost apoint to 104.43, according to MarketAxess.
Both of these bonds include a special mandatory redemption(SRM) clause which requires AB InBev to buy the debt back at acash price of 101 if the merger does not go through by November11 2016. The terms include an optional six-month extension ofthat deadline to May 11 2017.
The SMR provision also applies to the 1.9% 2019s, the 2.65%2021s and a five-year US$500m floating rate note. Only two ofthe seven tranches sold in January - the 4.7% 2036s and 4.9%2046s - will remain outstanding and those were trading higher onthe day.
Brill said bondholders may start to demand betterprotections after a number of M&A deals have been thrown intodoubt after the companies involved had raised debt.
Bonds issued by healthcare company Aetna have also comeunder pressure after the US Department of Justice filed a suitto block its merger with Humana earlier this month.
Aetna, which announced the merger last summer, had waiteduntil June 2 to come to the bond market to help finance the dealwith a US$13bn eight-tranche bond offering.
Oilfield services company Halliburton had to repay some ofthe bonds it issued to pay for its planned acquisition of BakerHughes after the merger was scrapped in May. That came afteropposition from antitrust regulators.
"These days M&A financings are prefunded well in advance,without regulatory or shareholder approval," said Brill.
"(But) if we see more of these deals not go through,bondholders may start demanding more than 101 mandatoryredemptions. They may want 102 or 103". (Reporting by Hillary Flynn; Editing by Natalie Harrison andShankar Ramakrishnan)
