Glaxo Wellcome Ratings Placed on S&PWatch Positive
LONDON (Dow Jones)--Standard & Poor's Monday said it placed its
double-A long-term corporate credit rating and senior unsecured ratings of
Glaxo Wellcome PLC on CreditWatch with positive implications.
About $2 billion of rated debt is affected.
S&P also said that SmithKline Beecham PLC and related entities'
double-A-minus long-term corporate credit and senior unsecured ratings
remain on CreditWatch with positive implications, where they were placed
Jan. 20.
S&P added that it affirms both groups' and related entities' A-1-plus
short-term corporate credit ratings.
This follows Glaxo Wellcome's and SmithKline Beecham's announcement
that they are in discussions with a view to merging the two companies.
'The CreditWatch listing, with positive implications, reflects a significant
improvement in the combined group's business position in conjunction with
the conservative financing of the proposed transaction,' the ratings agency
said.
The CreditWatch listing also assumes that there will be no special dividend,
and ultimate ratings will depend on various approvals including the
European Commission and clearance from the U.S. Federal Trade
Commission, which could or not lead to material divestments.
S&P said from a business risk perspective the merger combines two
superior players in industries with 'generally favorable risk characteristics'
and gives the combined group the leading position globally in
pharmaceuticals with a market share of about 7% being more than 50%
bigger than the no. 2 in the industry;
The agency said the merges also improves the companies' business position
via a larger portfolio of ethical drugs, a better therapeutic coverage, and
improved critical mass in terms of marketing and R&D effort.
From a financial risk perspective, in contrast to most mergers in the industry
with the exception of Pharmacia AB's merger with The Upjohn Company
and the Novartis AG merger, the conservative all paper financing of the
transaction does not impair the combined group's already strong financial
posture, S&P said.
Both groups' funds from operations individually more than covered net debt
in the last financial year.
'Furthermore, both group's superior cash- generating ability and financial
posture, continuation of a conservative track record regarding financial
policies, merger synergies and cost-cutting potential, should enable the
combined group to maintain or improve its superior ratings, despite its role
as a consolidator in a still fragmented industry,' S&P said.
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