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Moody's, S&P place Bristol-Myers under review for downgrade on $74B Celgene deal

Moody's and S&P Global Ratings placed the ratings of Bristol-Myers Squibb Co. under review for downgrade after the company announced that it would acquire Celgene Corp. in a cash and stock deal with an equity value of about $74 billion.

The acquisition, which is valued at $95 billion including equity, assumed current liabilities and net of current assets, is expected to be completed in the third quarter of 2019. The deal includes the assumption of about $20 billion in debt from Celgene.

Moody's said the ratings under review for downgrade include Bristol-Myers' A2 senior unsecured long-term rating and Prime-1 commercial paper rating. Meanwhile, S&P said it was placing Bristol-Myers' ratings, including the A+ issuer credit rating, A-1+ short-term rating and A+ issue-level rating, on CreditWatch with negative implications.

The rating agencies said their decision to place the ratings under review is based on higher financial leverage as a result of the acquisition.

Moody's said its review will consider risks involving product concentration, pipeline execution and integration, and currently expects the outcome of the review to be a one-notch downgrade of the long-term rating to A3 from A2. It added that its review will focus on the benefits of the acquisition, which constitute a bolstered position in the oncology space, a better revenue growth outlook, a strengthened pipeline and cost synergies.

The rating agency noted that Bristol-Myers' products Opdivo, Eliquis and Orencia have solid growth outlooks, but noted that there is rising revenue concentration in Opdivo and Eliquis, which currently comprise over half of the company's revenue.

Moody's added that Bristol-Myers faces tough competition for its drugs like Opdivo from Merck & Co. Inc.'s Keytruda and as well as patent expirations for several antiviral drugs, which will dampen the company's overall growth and reduce diversity.

In addition, Moody's placed Celgene's Baa2 senior-unsecured long-term rating under review for upgrade, reflecting its high margins and cash flow, its robust growth prospects and its strong market position in multiple myeloma.

S&P believes the combined business has strengthened, adding that the company will be a leader in the oncology space with several blockbuster drugs and a strong pipeline targeting liquid and solid tumors. It expects the company to limit business development activity to a moderate level and share repurchases to mostly offset dilution. It also expects that the debt assumed from Celgene and new debt incurred as a result of the transaction will be structured such that substantially all debt will be pari passu.

In addition, S&P believes the combined company will have cardiovascular and immunology blockbuster drugs. The agency expects to lower the issuer credit rating to A and assign a stable outlook, lower the issue-level ratings to A and lower the short-term rating to A-1.

S&P affirmed the BBB+ issuer credit and senior unsecured debt ratings on Celgene and placed all the ratings on CreditWatch with positive implications based on its view that Celgene is a core holding of higher-rated Bristol-Myers.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.