Fitch: Pfizer's Scrapped Split Decision Won't Hurt Ratings
On Monday, Pfizer said it would not be splitting into two companies, delivering its decision to investors as promised prior to the end of the year. However, relative operating prospects and valuations of the two segments could change over time, causing Pfizer to revisit a split.
It is not clear what the two resulting capital structures would be, but branded-generic businesses generally operate with credit profiles in the 'BBB' rating category, while most large innovative pharmaceutical companies operate with the 'A' credit ratings. Fitch believes that if a split were to occur, Pfizer could apportion an amount of debt to the divested business so that it maintains its rating while creating an initial capital structure for the divested business that supports a rating in the 'BBB' rating category.
Fitch believes that new product development will have a significant influence on capital deployment, as new products are the lifeblood of any innovative pharmaceutical manufacturer. The more successful and productive a company is at bringing new, innovative, value-added therapies to market, through both internal R&D and external collaborations, the lesser the need to pursue leveraging transactions to acquire such therapies. Strong new product flow also supports favorable prospects for an innovative drug maker's operating profile, which can reduce the impetus to pursue leveraging shareholder friendly actions.
The decision to scrap the split is the second major transaction involving Pfizer that was cancelled this year. Fitch affirmed Pfizer's Long-Term Issuer-Default Rating (IDR) at 'A+' with a Stable Rating Outlook, removing the ratings from Negative Watch on April 7 following Pfizer's announcement that it would terminate its merger agreement with Allergan plc. In addition, we affirmed Pfizer's Short-Term Issuer-Default Ratings at 'F1' and Commercial Paper ratings at 'F1'.