Grand Metropolitan planned to raise $600m through the international debt market to help finance the deal, but yesterday had to increase the interest rate for investors to attract them to buy it.
Fund managers, rocked by volatile markets following the Mexican economic crisis, were demanding a better rate of return. To give them this will cost Grand Metropolitan a further $35m (£21m).
Nick Rose, Grand Metropolitan's group treasurer, explained: "We launched the convertible offering last week at a rate of 5.5-6 per cent. But at the end of the week we did a number of roadshows both here and in the US and it became clear that a number of fund managers were nervous about market volatility. So in order to ensure a successful deal, we increased the price of the coupon [the annual interest payment] to 6.5 per cent."
Mr Rose denied that such a move was unprecedented and embarrassing. "From time to time these things do happen," he said. Eventually Grand Metropolitan raised $710m for the deal, but will end up paying more in interest charges.
Grand Metropolitan will also be paying sizeable fees to financial advisers working on the Pet acquisition.
Morgan Stanley, its main adviser, will net a total of $15m. SG Warburg, the other adviser, will be paid £1.3m plus expenses for its services. Grand Metropolitan said: "It's a lot of money, but for a deal this size, the fees are not unusual."
It also emerged yesterday that Pet, the US company Grand Metropolitan is seeking to acquire, is being sued by some of its shareholders, who feel the directors did not seek to obtain the best price for the shares. At least eight class actions have been filed against Pet directors. However, most industry observers say that the $26 per share that Grand Metropolitan paid was a full price considering the shares had been trading at $17 late last year. The company dismissed the actions as of little concern anda fact of life when doing business in the US.