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Fitch places Bristol-Myers' ratings on negative watch over Celgene acquisition

Fitch Ratings placed Bristol-Myers Squibb Co.'s ratings on Negative Watch after the company announced plans to buy Celgene Corp. for about $74 billion.

New York-based Bristol-Myers will assume about $20 billion of Summit, N.J.-based Celgene's debt, and borrow roughly $32 billion in new debt to do so. Fitch estimates the company's leverage to range from 2.3x to 2.7x 24 months after the acquisition is completed.

The rating agency said the merged entity will be closer to Pfizer Inc. and Merck & Co. Inc. in terms of size and scale. Celgene is expected to fill Bristol-Myers' late-stage pipeline, with six potential new product launches in the near term.

Fitch said the deal will help reduce Bristol-Myers' reliance on blockbuster cancer treatment Opdivo and blood thinner Eliquis, which account for roughly 58% of its revenues.

However, Celgene also enters the deal with its own shortcomings, particularly a similar reliance on blood cancer therapy Revlimid, which accounts for about 63% of its total sales, and is expected to see generic competition in 2022.

Fitch expects Bristol-Myers' EBITDA margins to increase due to Celgene's higher margin product mix, and have an estimated post-transaction, post-dividend free cash flow of $7 billion to $8 billion, assuming generic competition to Revlimid does not enter the market until 2022.

The rating agency does not expect a positive rating action for Bristol-Myers following the Celgene acquisition, with a downgrade of one to two notches for the company's current A- rating as the most likely outcome. An upgrade to A may occur if Bristol-Myers sustains its leverage below 1.7x.

Bristol-Myers Chairman and CEO Giovanni Caforio said the Celgene merger provides an opportunity to build the number one franchise in oncology.