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Fitch downgrades Pfizer on $11.4B acquisition of Array BioPharma

Fitch Ratings downgraded Pfizer Inc.'s long-term issuer default rating to A from A+ following the company's $11.4 billion acquisition of Array BioPharma Inc.

The agency removed the company from rating watch negative while keeping a negative outlook on the ratings.

The ratings action came after Fitch recently declined to change Pfizer's rating on the pharmaceutical giant's move to combine its generics and off-patent drugs unit Upjohn with Mylan NV to create a new company.

Fitch said the strategic acquisition of Array BioPharma boosts Pfizer's presence in oncology. But it also pressures the company's financial profile and increases leverage as the transaction is expected to be funded with debt.

Fitch believes that Pfizer's consumer products venture with GlaxoSmithKline PLC and the Upjohn divestiture will result in a loss of diversification for the New York-based pharmaceutical company. However, Pfizer's progress in advancing its pipeline should provide for stronger growth in the intermediate term.

Pfizer is expected to reduce its debt with a portion of the $12 billion proceeds from the Upjohn divestiture in 2020. However, the leverage is expected to remain above 1.7x, the agency noted.

The agency expects Pfizer to continue generating free cash flows, but the company is anticipated to prioritize dividends, share repurchases and tuck-in acquisitions over its debt repayment.

Moody's recently placed Pfizer's A1 senior unsecured long-term rating under review for a downgrade after the Mylan deal announcement. S&P Global Ratings downgraded the company's issuer credit rating to AA- from AA and placed the rating on CreditWatch with negative implications.