Fitch Expects Bristol-Myers Squibb's Ratings to be Unaffected by ImClone Acquisition

2008-08-01 03:19:04 -

- Fitch Ratings does not expect Bristol-Myers Squibb's ratings and Outlook to be affected by the company's announcement of its intention to acquire remaining shares of ImClone Systems Inc. (ImClone) not already owned for $4.5 billion. Fitch rates Bristol-Myers Squibb's as follows:

--Issuer Default Rating (IDR) of 'A+';

--Senior unsecured debt rating of 'A+';

--Bank loan rating of 'A+';

--Commercial paper rating of 'F1'.

The ratings apply to $7.82 billion of outstanding debt. The Rating Outlook is Stable.

Today, Bristol-Myers Squibb announced its intention to purchase the remaining shares of ImClone beyond the 16.6% currently owned. Total payment for full ownership is approximately $4.5 billion, representing a premium of greater than 40% over the average share price over the past year, and a 30% premium over yesterday's closing price. Fitch anticipates that minimal, if any, incremental debt will be issued to complete the transaction at the current offer price.

Bristol-Myers Squibb is in the midst of transforming its operating model to a biologics company primarily focused on the physician specialist. As such, the company is divesting non-core businesses and completed the sale of its Medical Imaging business in the first quarter of 2008 which yielded proceeds of $525 million. Additionally, the company announced the sale of its ConvaTec business to private equity firms for $4.1 billion. The transaction is currently under review by European and U.S. regulators with an expected completion in August 2008. The divested businesses represented around 10% of total revenues and earnings. Finally, the company intends to offer 10-20% of the Mead Johnson nutritionals business to the public market in the second half of 2008, with expectation of receiving $1 billion from the transaction. Proceeds of the divestments may defray the cash outlay necessary to acquire ImClone.

As part of transforming its operating model, the company announced in December of 2007 a three-year restructuring program to reduce costs on the order of $1.5 billion by 2010. Incremental savings of $1 billion in 2011-2012 were announced at the company's second quarter conference call. Also important to the new operating model, Fitch expects Bristol-Myers Squibb to bolster its drug product and R&D portfolios through business development activities, including corporate and product acquisitions, licensing arrangements, co-development and co-marketing agreements, and joint ventures.

In 2007, Bristol-Myers Squibb was able to reverse the revenue decline in 2006 due to an unexpected generic Plavix launch. Revenue gains from the pharmaceutical and nutritional portfolio are expected through 2011as the company faces negligible drug patent losses during this time. Revenue growth will be led by Bristol-Myers Squibb's five top-selling products: Plavix, Avapro/Avalide, Abilify, Reyataz and Sustiva, offset by loss of sales from the divestment of non-core businesses. Bristol-Myers Squibb's patent cliff occurs in 2012-2013 concomitant with the market exclusivity losses of Plavix and Avapro, and the termination of the co-promotion contract with Otsuka for Abilify in the U.S. and Puerto Rico in November 2012.

Leverage (total debt to EBITDA), which increased dramatically in 2006 due to generic competition to Pravachol starting in April 2006 and to Plavix in August 2006, has fallen to 1.6x for the LTM period ending 6/30/08. Fitch expects leverage to decrease annually (including impact from divestitures) from operational improvement until the patent cliff in 2012. The company's long-debt maturity schedule does not include significant maturities around the time of the Plavix patent expiration.

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