What's the ace that Bega Cheese chairman Barry Irvin has up his sleeve?
It's the $250 million question on Bega investors' lips, following the company's $460 million acquisition of Vegemite announced last week.
Bega said it would initially fund the acquisition with a $500 million facility from existing lenders, taking its net debt to almost five-times expected earnings before interest, tax, depreciation and amortisation.
That's the sort of leverage investors would expect to see in a private equity buyout not from a normally conservative and agriculture sector exposed company that has never finished a financial year with more than $110 million long-term debt in its ASX-listed life.
Clearly something has got to give. And investors reckon Irvin's team is pretty close to pulling the trigger on its new plan.
The obvious option would be a sale and leaseback of properties. Bega has more than $200 million in property, plant and equipment on its balance sheet, making it the company's biggest asset.
However, it's understood a sale and leaseback is not the proposed solution, and neither are any other property sales.
Nor is an equity raising, apparently.
Street Talk has been told to expect something a little more innovative. Which has us - like investors - scratching our heads.
Whatever it is, investors and analysts expect it would need to be worth about $250 million to halve Bega's debt and get it into more comfortable territory.
Bell Potter analysts reckons Bega should peg its debt back to two-to-2.5-times EBITDA, with the simplest solution being an equity raising. Other options, it said, were a sale and leaseback or other property sales.
In the meantime, fund managers don't seem overly concerned, preferring to focus on the upside from the Vegemite deal rather than the balance sheet.
They reckon Bega had been planning to have the cash solution ready to be announced at the same time as the acquisition, however the timetables ended up going in slightly different directions. Bega itself referenced "near-term corporate opportunities" when talking about reducing the would-be pile of debt.
Bega's biggest shareholder, Perpetual Investments, has even been buying stock as recently as last week and now owns 10.52 per cent.
Bega shares closed up 1.9 per cent on Monday to $5.30. They were below $4.50 before the Vegemite deal was announced last week and trading at $4.13 this time last month.
