RPT-Fitch: Pfizer, AstraZeneca Combo Would Achieve Strategic Aims

Tue Apr 29, 2014 9:12am EDT

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April 29 (Reuters) - (The following statement was released by the rating agency)

The acquisition of AstraZeneca Plc (AZ) would achieve Pfizer, Inc.'s strategic aims as the deal promises significant benefits for the combined entity, according to Fitch Ratings. The transaction would amass scale for Pfizer, broaden the company's portfolio and pipeline and could provide some tax advantages.

Pfizer, which is headquartered in New York, Monday confirmed it had approached London-based AZ in January 2014 regarding a possible merger, and again this month. AZ confirmed discussions with Pfizer but said there was no specific offer to acquire the company. Pfizer contends a completed transaction would combine highly complementary innovative and established pharmaceutical businesses, enhancing its ability to meet patients' needs.

Pfizer's interest in AZ represents a possible return to mega-deals not seen since the last decade. Recent consolidation in the pharmaceutical industry has been more targeted in nature. An AZ buy would broaden Pfizer's portfolio and pipeline, just as when the company acquired Wyeth in October of 2009. The AZ acquisition would cost Pfizer approximately $99 billion (compared to $68 billion for Wyeth), and underscores Pfizer's experience with larger acquisitions.

Pfizer's January proposal to the board of AZ included a combination of cash and shares in the combined entity which represented an indicative value of $76.62 per AZ share and a premium of approximately 30%. Pfizer said in a statement that it is considering its options with respect to AZ.

Importantly, a company of Pfizer's size with approximately $70 billion of cash tied up abroad would likely consider acquisition alternatives that are accompanied by some sort of tax advantage. A completed Pfizer/AZ transaction would likely result in a new U.K.-incorporated holding company, according to Pfizer, and would translate to a lower tax rate than in the US.

An AZ acquisition would likely have a negative to neutral effect on Pfizer's credit profile. However, the potential impact remains unclear until more specific transaction details become available. Fitch affirmed Pfizer's Issuer Default Rating (IDR) at 'A+' on April 4. The Rating Outlook is Stable.

We anticipate Pfizer will continue to generate strong free cash flow and maintain solid liquidity during the intermediate term, with significant international cash balances and adequate access to the credit markets. Fitch believes Pfizer will continue to aggressively deploy cash toward acquisitions and share repurchases.

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