Grupo Bimbo, Latin America's largest baker, is intent on owning a big chunk of the U.S. baked-goods market. And even in this anemic debt market, it is willing to borrow its way in.
In 2002, it paid $610 million for part of George Weston Ltd. of Canada. On Wednesday, it announced it was buying the rest of Weston's U.S. operations for $2.38 billion â€" all of it financed with debt. After the deal, Bimbo will own such U.S. brands as Entenmann's, Boboli, Brownberry, Orowheat and Thomas' English Muffins.
Moody's Investor's Service quickly said it wold review Bimbo's debt ratings for a possible downgrade. Standard & Poor's was already conducting such a review.
One reason Bimbo can pull off such a move in the current debt climate is that it dominates markets throughout Latin America -- with "nearly a monopoly" in Mexico's bread market, as the Wall Street Journal put it.
But that changes with this deal, which will result in 40 percent of the company's revenues coming from the United States, up from 26 percent now.
For most of its 10 years in the United States, the company's Bimbo Bakeries USA has struggled, losing 10s of millions every year until 2005, when it finally showed a profit.
Still, as long as cash flow holds up, Bimbo should be able to manage the new debt. Analyst reaction so far seem to range from mildly concerned about the debt load to not concerned at all.