Unilever Prices $1.25 Billion Bond Offer, Borrows Over 10 Years at 2%

Unilever issues five-year and 10-year notes, borrowing at 1.37% and 2%, respectively.
By James Skinner ,

Unilever (UL) - Get Report , the personal goods giant, priced a $1.25 billion bond issue on Tuesday less than a week after revealing it would acquire Venice, Calif.-based Dollar Shave Club for a reported $1 billion. It did not say whether the transactions were connected.

The European Central Bank's decision in March to begin buying corporate bonds as part of its quantitative easing program drove many companies to increase debt issuance.

Unilever will borrow $550 million at 1.375% over five years and $700 million at 2% over ten years, according to the announcement.

This follows an April fund raising in which the group issued €300 million ($330 million) of zero-coupon four-year notes, joining a growing club of companies who have borrowed at ultra-low levels, or have seen secondary market yields pushed below zero. 

Unilever's competitor, Action Alerts PLUS holding Procter & Gamble (PG) - Get Report , raised $600 million of 10-year debt in January 2016 at a rate of 2.7%. Mondelez International also issued fixed-rate notes, over seven years, at 1.732% in January of this year. 

As a globally diversified manufacturer of consumer goods, Unilever stock and bonds have always been viewed as a relative safe haven for investors in times of uncertainty. 

The ECB began buying corporate bonds at the beginning of June, this helped drive yields to record lows, and pushed yields of many big names into negative territory in the secondary market for the first time.

In July, bonds of industrial giants BMW (BMWYY) , Daimler (DDAIF) , Engie (ENGIY) and Siemens (SIEGY) were among those whose yields fell into negative territory as investors began to price-in increased levels of purchases from the ECB in response to Britain's vote to leave the European Union.

Unilever shares have also performed strongly during 2016, rising by 21.2% to 3,555.0 pence ($46.63). Shares are up by 15% since the referendum. 

Unilever reported financial results for the second quarter last week, in which it detailed a modestly negative performance, missing analyst estimates. Turnover of €13.7 billion was slightly less than the consensus expectation for turnover of €13.9 billion, while for the first half, it missed expectations for both turnover and operating profits.

Analysts at Jefferies cut their rating for the stock in response to the earnings statement, from buy to hold and reduced their price target to 3,530.0 pence from 3,650.0 pence. They cite slower growth in emerging markets and concerns over margins for their less optimistic outlook.

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