Moody's may downgrade Schering

Moody's Investors Service said it placed Schering AG's A2 long-term and Prime-1 short-term issuer ratings on review for possible downgrade following the offer launched by Merck KGaA to acquire 100% of the company.

The rating review reflects Moody's expectation that, while such a combination would improve Schering's position in relation to several factors such as scale and diversification and offers reasonable cost synergies to the combined entity, the proposed transaction will result in a significantly weakened capital structure and cash flow to debt ratios.

The impact of this transaction on Schering's credit ratings will be influenced by Merck's level of ownership, Schering's position in the new group and the combined group credit's profile. Moody's predicted that the issuer rating of Merck, as a combined entity, might be downgraded if the transaction is completed. However, 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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