Moody's might cut McKesson

Moody's Investors Service said it placed McKesson Corp.'s Baa2 and Prime-2 ratings on review for downgrade following the company's announcement that it plans to acquire German drug wholesaler and operator of retail pharmacies, Celesio AG, for $8.3 billion, including the assumption of Celesio's outstanding debt.

Celesio is 50% owned by Franz Haniel & Cie. GmbH (Ba1, stable). The transaction is subject to regulatory approvals and is contingent upon acceptance of a tender offer for at least 75% of total shares.

Although the company has not determined how much debt it will use to fund this acquisition, Moody's said it believes McKesson will potentially add a significant amount of incremental debt, raising the likelihood that credit ratios will not meet Moody's expectations for its Baa2 rating.

"While the acquisition of Celesio will expand McKesson's scale and move it into new geographies, the company will take on increased regulatory and reimbursement risk," Moody's senior credit officer Diana Lee said in a news release.

"In addition, although Celesio's retail pharmacies offer better margins than drug distribution, they operate in highly competitive markets and represent a new business line for McKesson."

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