Moody's affirmed GlaxoSmithKline PLC's A2/(P)A2 long-term and (P)Prime-1 ratings after GSK and Pfizer Inc. disclosed plans to combine their consumer health operations.
The outlook remains negative, the rating agency said in a Dec. 21 news release.
Although the transaction — an all-equity joint venture that would form the world's largest consumer health business — would further boost the U.K. pharmaceutical company's profit margins, the outlook remains negative "as uncertainties loom on GSK's credit profile as it progresses towards a less diversified business profile," according to Knut Slatten, Moody's vice president and lead analyst for GSK.
Moody's said the integration of Pfizer's assets into the joint venture would be moderately positive for GSK's credit profile over the next three years.
Within three years of closing the deal, GSK plans to separate the joint venture, which will operate under the GSK Consumer Healthcare name, through a demerger of its equity interest and a listing of the company in the U.K.
Moody's noted that the split would lead to a weakening of GSK's business profile as it becomes less diversified, increasing its exposure to the higher risks associated with research and development of new pharmaceuticals, a business that also has less stable cash flows.