CANADA: DBRS places Nestle S.A. "under review with negative" implications
The AAA Senior Corporate Debt Rating for Nestle S.A. ("Nestle" or "the Company") is being placed "Under Review with Negative Implications" following today's announcement that the Company has entered into an agreement to acquire Ralston Purina Company ("Ralston") for a total purchase price of US$11.7 billion. Nestle's financial strength has been very strong with cash flow exceeding net debt levels for the past three years and EBITDA interest coverage rising to over 11 times in F1999. However, the acquisition is being largely debt financed and will reduce Nestle's overall financial flexibility in the near term. During the past five years, Nestle has maintained net debt levels in the Sfr6 billion range but the Ralston acquisition will cause this to rise significantly. The Company typically produces a high level of free cash flow (Sfr3.0 billion in F1999) and will discontinue share repurchases (Sfr2.3 billion in F1999), but it will take at least two years before net debt levels and cash flow to total debt recover back to historical levels. The recovery of financial strength could take longer as it is dependent upon strong earnings gains and a smooth integration of Ralston. Furthermore, the Company will likely continue to review all strategic acquisition opportunities as they arise.
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