Standard & Poor's Places Glaxo Wellcome and SmithKline Beecham Ratings on CreditWatch with Positive Implications

Strategic Insights -

The potential merger between Glaxo Wellcome PLC (GW) and SmithKline Beecham PLC (SB) has caught the attention of Standard & Poor's, which has placed their credit ratings on CreditWatch with positive implications. The proposed transaction, structured as a merger of equals, would combine two leading players in the pharmaceuticals industry, creating a market leader with a global market share of about 7%. Standard & Poor's affirms that the combined group's business position would improve, with a larger portfolio of ethical drugs, better therapeutic coverage, and improved critical mass in terms of marketing and R&D effort.

Key Takeaways:

  • The proposed merger between Glaxo Wellcome PLC and SmithKline Beecham PLC has been placed on CreditWatch by Standard & Poor's with positive implications.
  • The combined group's business position would improve, with a larger portfolio of ethical drugs, better therapeutic coverage, and improved critical mass in terms of marketing and R&D effort.
  • The merger would give the combined group the leading position globally in pharmaceuticals, with a market share of about 7%, being over 50% bigger than the number two in the industry.
  • Both groups' funds from operations individually more than covered net debt in the past financial year, and the combined group is expected to maintain or improve its superior ratings despite its role as a consolidator in a still fragmented industry.
  • The conservative all-paper financing of the transaction does not impair the combined group's already strong financial position.
  • The merger is subject to various approvals, including the European Commission and clearance from the U.S. Federal Trade Commission, which may or may not lead to material divestments.

Statistics:

  • Approximately $2 billion of rated debt is affected by the CreditWatch listing.
  • The combined market share of Glaxo Wellcome PLC and SmithKline Beecham PLC in the pharmaceuticals industry would be about 7%.
  • Both groups' funds from operations individually more than covered net debt in the past financial year.
  • The merger would give the combined group a superior position in the industry, with a portfolio of ethical drugs, better therapeutic coverage, and improved critical mass in terms of marketing and R&D effort.

Sources:

  • Standard & Poor's CreditWire
  • Standard & Poor's ([Web site: http://www.ratings.standardpoor.com/](http://www.ratings.standardpoor.com/))
  • [Contact: Christian Wenk, London, 011-44-171-826-3511, or David Lugg, New York, 212-208-1348, both of S&P]