Merck to issue $9.5 billion of debt to acquire Cubist Pharmaceuticals

By Lisa Kerner

Charlotte, N.C., Dec. 8 – Merck & Co., Inc. said it will issue approximately $9.5 billion of short- and long-term debt to help finance its acquisition of Cubist Pharmaceuticals.

The company believes that “favorable market conditions provide attractive funding rates,” according to a presentation on the transaction.

Merck announced Monday that it has agreed to acquire Cubist for $102 per share in cash in a transaction valued at $9.5 billion including $1.1 billion of net debt.

Financing will come from available cash and new debt, the presentation disclosed. Committed financing is in place.

The transaction and the capital structure strategy is intended to be consistent with Merck’s current credit ratings, the company said.

Merck anticipates strong cash flow generation and within four years the acquired business will contribute above Merck’s internal hurdle rate. In 2015, the acquisition is expected to add $1 billion of revenue.

Cubist had $228.8 million of 2.5% convertible senior notes due 2017, $350 million of 1.125% convertible senior notes due 2018 and $450 million of 1.875% convertible senior notes due 2020 outstanding as of Sept. 30, according to the company’s most recent 10-Q filing with the Securities and Exchange agreement.

Under the terms of the companies’ agreement, Merck, through a subsidiary, will initiate a tender offer to acquire all outstanding shares of Cubist. Once the offer is complete, Merck will acquire all remaining shares through a second-step merger, according to a company news release.

Cubist is a Lexington, Mass.-based biopharmaceutical company. The company has its international headquarters in Zurich.

Merck is a health-care company is based in Kenilworth, N.J.

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