Approximately $20 billion of rated debt
New York, May 01, 2013 -- Moody's Investors Service placed the long-term senior unsecured
ratings of Merck & Co., Inc. ("Merck")
under review for downgrade. At the same time, Moody's
affirmed Merck's Prime-1 commercial paper rating.
The rating review follows Merck's announcement that it will repurchase
approximately $7.5 billion of its shares over the next 12
months, to be funded in part with new debt. The repurchases
will be made under a newly authorized $15 billion share repurchase
program. The review is also prompted by pressures facing Merck's
business including a worse-than-expected impact from generic
competition and moderating growth in the Januvia franchise.
Ratings placed under review for downgrade:
Merck & Co., Inc.
Aa3 senior unsecured notes and bonds (guaranteed by Merck Sharp &
Dohme Corp.)
A1 senior unsecured notes and bonds (not guaranteed by Merck Sharp &
Dohme Corp.)
Merck Sharp & Dohme Corp.
Aa3 senior unsecured debentures, notes, medium term notes
and industrial revenue bonds
Ratings affirmed:
Merck & Co., Inc.
Prime-1 commercial paper
Merck Sharp & Dohme Corp.
VMIG-1 industrial revenue bonds
"Debt-financed share repurchases are outside our expectations
for Merck's previously conservative financial policies and could
result in a one-notch rating downgrade," stated Michael
Levesque, Moody's Senior Vice President.
RATINGS RATIONALE
Merck's Aa3 rating reflects the company's strong competitive position
in the global pharmaceutical industry, its excellent diversity,
its high profitability and its strong cash flow. A key challenge
for Merck will be to mitigate the ongoing earnings gap produced by the
US patent expiration of Singulair and several other products with growth
in newer products. The announcement of debt-financed share
repurchases alters Moody's view of Merck's previously conservative
financial policies. Although the exact pace and amount of debt
issuance is not yet known, Moody's projects that Merck's
debt/EBITDA will rise from 1.4 times currently to a range of 1.8
to 2.1 times over the next year, and that its CFO/debt will
deteriorate from 50% to a range of 35% to 40%.
Moody's rating review will consider Merck's financial policies
including the timing and pace of share repurchases, the amount of
incremental debt that will be incurred, and the impact on credit
metrics over the next several years. The review will also consider
Merck's ability to replenish revenue being lost due to patent expirations
with growth in new products, pipeline launches, and cost savings.
Moody's anticipates that the downgrade, if any, would
be limited to one notch.
Headquartered in Whitehouse Station, New Jersey, Merck &
Co., Inc. ("Merck") is one of the five largest global
pharmaceutical companies. Merck's 2012 revenues totaled $47.3
billion.
The principal methodology used in this rating was Global Pharmaceutical
Industry published in December 2012. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Michael Levesque, CFA
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's reviews Merck's ratings for downgrade