ABBV AbbVie Inc

By Michael Dabaie

S&P Global Ratings put AbbVie Inc. (ABBV) ratings on Watch Negative after the company agreed to buy Allergan PLC (AGN) for about $63 billion.

S&P said the CreditWatch placement is based on an increase in leverage for the deal. The ratings agency said it believes the company will reduce debt over the next two years. But, by then, it will be closer to the entry of biosimilars in the U.S., affecting its rheumatoid-arthritis treatment Humira, S&P added.

"Even if the company continues to reduce debt somewhat in 2022 and 2023, we believe the company could also increase its acquisition spending at that point, providing greater uncertainty around prospects for significant leverage improvement," S&P said.

The combination adds immediate cash flow, increases therapeutic and payer diversity and reduces product concentration, S&P said. But the deal doesn't meaningfully improve the company's pipeline nor its competitive position in a therapeutic area, the ratings company said. There is some overlap in some of AbbVie's smaller segments, such as neuroscience and women's health, but the deal does little to augment AbbVie's immunology or hematologic oncology segments, the S&P note said.

Also, the deal would transform AbbVie from a focused biotechnology company with a strong position in immunology and hematologic oncology to a large, diversified pharmaceutical company. "Therefore, we believe there could be integration risk," S&P said.

S&P said when the deal has closed and based on the proposed financing terms, it expects to lower the issuer credit rating to 'BBB+' from 'A-' with a stable outlook.

S&P put Allergan on CreditWatch Positive as it intends to equalize ratings on Allergan with ratings on higher-rated AbbVie.

Write to Michael Dabaie at michael.dabaie@wsj.com

(END) Dow Jones Newswires

June 25, 2019 14:22 ET (18:22 GMT)

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