By Paul Kilby
NEW YORK, June 17 (IFR) - Pfizer bonds were widening Monday on news the drug company would acquire Array BioPharma for US$10.64bn in cash - a transaction that will mostly be funded with new debt.
The company's 4% 2049s were trading at 110bp over Treasuries late morning, or some 6bp wider to Friday's levels, while its 3.45% 2029s were up to 3bp wider at 83bp, according to MarketAxess data.
The cash deal, which will give Pfizer access to Array's cancer drugs, involves paying US$48 per share, an approximately 62% premium to the stock's closing price on Friday, according to Reuters.
"Array BioPharma provides Pfizer with an approved melanoma drug regimen, with significant upside in other types of cancer with high unmet need," said Michael Levesque, a senior vice president at Moody's, which rates Pfizer A1.
"But the deal will be substantially debt-funded and brings ongoing product development risks. These include the risk of unsuccessful clinical trials in other potential indications or lower-than-expected commercial sales."
S&P meanwhile placed Pfizer's AA rating on credit watch negative, noting that the transaction will increase adjusted net leverage to around 2.5x, above prior expectations of 1.6x for 2019.
S&P said it expects to resolve the CreditWatch with a one notch downgrade to AA- once the acquisition is completed.
On a conference call earlier Monday, company representatives said most of the deal will be financed through new debt with the remainder coming from cash on the balance sheet.
"It's a good time to go out and borrow money and what I'll call very, very favorable interest rates, very, very low, almost historically low," said CFO Frank D'Amelio, in response to a question about debt financing and Pfizer's strong balance sheet.
"So from my perspective, we're just being opportunistic in terms of how we're going to finance the deal."
This comes at a time when Moody's analysts are predicting more M&A activity across the pharmaceutical sector as companies look for new drivers of growth and try to diversify away from drugs with patents that are expiring.
Guggenheim Securities and Morgan Stanley are acting as financial advisors for Pfizer on the transaction.
(Reporting By Paul Kilby Editing By David Bell)