Fitch puts Pfizer on watch

Fitch Ratings said it placed Pfizer, Inc.'s long-term credit ratings on negative watch.

The negative watch placement follows news that Pfizer will merge with Allergan plc for about $143 billion in stock and an estimated $32 billion in Allergan debt outstanding.

Pfizer also will offer up to $12 billion cash for current Pfizer shares, assuming existing shareholders tender a minimum of $6 billion for cash settlement, the agency said.

The company expects the transaction to close in the second half of 2016.

Fitch also said it affirmed Pfizer’s short-term issuer default ratings at F1 and commercial-paper ratings at F1.

The combined company will likely have higher debt leverage at the close of the transaction, the agency said.

Fitch said it estimates that pro forma leverage without synergies and any additional debt reduction would be roughly 2.2x to 2.4x, although the combined company should be able to attain its projected $2 billion in synergies from cost savings by the third year following the acquisition.

Synergies alone, however, will not be sufficient to reduce leverage to less than 1.7x, which is at the upper end of the expected range for Pfizer’s A+ rating, the agency said.

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