Moody's affirms Johnson & Johnson

Moody's Investors Service said it affirmed the ratings of Johnson & Johnson following the announcement that it has entered a revised merger agreement with Guidant to acquire Guidant in a stock-and-cash financed transaction valued at about $19 billion.

Ratings affirmed include the company's Aaa issuer rating, debentures, senior unsecured bonds, medium-term notes and revolving credit facility ratings; Aaa senior shelf registration rating; Aa1 subordinated notes rating; Prime-1 short-term rating and ALZA Corp.'s Aa1 convertible subordinated notes.

The outlook is stable.

Based on the current share prices of the companies, Moody's expects Johnson & Johnson to fund the acquisition with about $11 billion in cash and $8 billion in stock.

The affirmation reflects Moody's belief that the acquisition remains strategically sound and consistent with Johnson & Johnson's Aaa rating based upon Guidant's good position in the implantable cardio-defibrillator market, the use of equity to fund approximately 50% of the transaction and Johnson & Johnson's extremely robust financial condition, which is based on excellent product diversity, extremely strong cash flow to gross debt coverage and a highly liquid balance sheet, the agency said.

Although the value of the acquisition has declined following recall problems affecting Guidant's implantable cardio defibrillators, Moody's believes that Johnson & Johnson 's excellent credit quality will not be substantially diminished as it addresses these issues and attempts to regain lost implantable cardio-defibrillator market share.

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