Moody's may downgrade Merck

Moody's Investors Service said it placed Merck KGaA's Baa1 long-term and Prime-2 short-term issuer ratings on review for possible downgrade following the company's offer to acquire 100% of Schering AG.

The rating review reflects Moody's expectation that, while such an acquisition would improve Merck's position in relation to several factors such as scale and diversification and offers reasonable cost synergies, the proposed transaction would result in a significant deterioration of its capital structure and cash flow to debt ratios. Key factors influencing the outcome of the rating review will be the final acquisition price and capital structure and level of ownership of Schering AG.

Moody's noted that Merck's management has clearly indicated its intention to maintain an investment-grade rating and that it might possibly decide to adjust the financing package in order to achieve such a target.

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