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Rating Action:

MOODYS REVIEWS MONSANTO FOR POSSIBLE UPGRADE; REVIEWS PHARMACIA AND UPJOHN, OUTLOOK UNCERTAIN; SHORT TERM RATINGS CONFIRMED AT PRIME-1 FOR BOTH COMPANIES

21 Dec 1999
Moody's Investors Service said it placed on review for possible upgrade the A2 ratings on the long term debt of Monsanto Company, and placed on review, outlook uncertain, the A1 ratings on the long term debt of Pharmacia & Upjohn Company (PNU). These actions follow the companies' announcement that they have signed a definitive merger agreement. The merger has been approved by both boards, but is subject to approval by shareholders from both companies and regulatory reviews. Moody's short term ratings for commercial paper of both Monsanto and PNU have been confirmed at Prime-1.


Ratings placed on review for possible upgrade:

Monsanto Company and Monsanto Defined Contribution Employee Stock Ownership Trust -

notes, debentures, MTN program, and industrial revenue bonds; senior unsecured currently at A2


Searle (GD) & Co.

Industrial revenue bonds; senior unsecured currently at A2


Ratings placed on review, outlook uncertain:

Pharmacia & Upjohn Company (PNU) -

notes, medium-term notes, and industrial revenue bonds; senior unsecured currently at A1

The Upjohn Company Employee Stock Ownership Trust -- A1 for guaranteed amortizing notes.

Pharmacia & Upjohn, Inc. - senior unscured shelf at (P)A1


Ratings confirmed today:

Monsanto Company - Prime-1 commercial paper

Pharmacia & Upjohn, Inc. -- Prime-1 for commercial paper.

Pharmacia & Upjohn Treasury Services AB -- Prime-1 for guaranteed commercial paper.

Pharmacia Biotech Inc. -- Prime-1 for guaranteed industrial revenue bonds.

Monsanto Company --Prime- 1 for industrial revenue bonds


Moody's said that its review will focus on the business prospects for the combined entity, debt reduction and balance sheet targets, and the cost reduction and integration plan. Regarding the financial policies, Moody's said it will ascertain whether the previously conservative financial policies will be maintained. The A1 ratings at PNU are placed on review, outlook uncertain, due to the intial level of debt expected at the merged entity; the pace of debt reduction and possible impediments to strengthening the balance sheet will be among the key items explored as part of the review process.


The review will also focus on the legal structure and the apportionment of rated debt between the pharmaceutical and agricultural businesses. The current rating actions anticipate that none of the rated debt will be situated at the agricultural subsidiary level; if this turns out not to be the case, then it would be possible that the A2 ratings would be considered for downgrade as well, Moody's added.


Under the scenario where the rated debt stays with the pharma business, Moody's said upgrades of the A1 and A2 ratings on long term debt of PNU and Monsanto, respectively, would be possible since it believes the combined pharmaceutical businesses possess strong credit qualities, including the potential for improving debt protection measures, strong and growing positions in a number of therapeutic areas, a relatively full new product pipeline, limited patent expiration exposure, and good double-digit growth potential.


The favorable operating outlook in pharma reflects good growth potential from recently introduced products -- like Celebrex for arthritis, Xalatan for glaucoma, Detrol for urinary incontinence, and an array of oncology drugs -- and from new products with high expectations -- including Zyvox anti-infective, valdecoxib for arthritis and pain, and parexcoxib analgesic. In addition, the companies have identified $600 million in merger synergies achievable over three years. Moody's said it believes the merged entity will have cash from operations plus cash from future divestitures and the partial IPO of the ag business to facilitate debt reduction at a fairly rapid pace.


Headquartered in St. Louis Missouri, Monsanto is a roughly $10.8 Billion company with business lines in pharmaceuticals, agricultural chemcials, and food ingredients. Headquartered in Peapack, New Jersey, Pharmacia & Upjohn, Inc. is a roughly $6.9 billion global pharmaceutical compnay with other health-related products for humans and animals.

No Related Data.
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