Belgacom Case Study

4232 WordsMay 5, 201317 Pages
Belgacom Case Question 1 a) Why did the share price of Belgacom increase following the announcement of the acquisition? b) Why did the ratings of Belgacom drop (S&P) or put on negative watch (Moody’s)? a) As Belgacom secured the purchase of the remaining 25% share of Proximus it did not own yet, the share price of the Belgian company increased by 0.92 % the same day and 9.8% over the following month. An announcement can lead to pre-event abnormal returns as markets react to this information to get a premium. Investors will try to assess the increase in expected earnings and dividends. The impact of this assessment will depend on how the merger is done, how the transaction is paid, the sector it concerns, etc. However,…show more content…
Yet there is another way to see a bridge loan as a temporary expensive loan serving the purpose of being an intermediate financing mean for the company that benefits from it (Fabozzi, 1991). Later on, this bridge loan is reimbursed with more advantageous types of loans. was in fact a syndicated loan underwritten in order to finance an acquisition. As a matter of facts, the loan was made by several lending institutions called the mandated lead arrangers i. In the case of Belgacom, the company took a bridge loan for several reasons that are detailed below. The bridge loan e. BNP Paribas, Citi, Fortis, ING and JP Morgan. For the investment banks that underwrite the syndicated loan, the main interest resides in the fact that they gain a fee. In this specific case, the bridge loan was arranged as a revolving credit instrument type. This meant Belgacom had to pay a fee plus interest expenses and can draw-repay-redraw as many times as needed. As said before, a first valid reason would be that the cash was needed quickly (maybe) and bridge loans are arranged more quickly. In any case it is in the best interest of the company (Belgacom here) to reimburse the bridge loan as quickly as possible because it is very expensive and the interest rate generally increases with the maturity.

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