S&P: Watson Pharmaceuticals Inc. $1.75 Billion Acquisition Of Arrow Pharmaceuticals Group Will Not Affect Ratings

NEW YORK, June 17, 2009--Standard & Poor's Ratings Services said today that, upon its preliminary review of Corona, Cal.-based Watson Pharmaceutical Inc.'s (BBB-/Stable/--) plan to acquire privately held Arrow Pharmaceuticals Group for about $1.75 billion, it likely would affirm its ratings and outlook on Watson. The acquisition will be funded with about $500 million of stock and utilize about $500 million of existing cash. Accordingly, only about $780 million in incremental debt will be incurred. Given that Watson's financial metrics were stronger than Standard & Poor's guidelines for the 'BBB-' rating, this acquisition should not cause a deterioration in these measures sufficient to call into question the rating. We estimate that at the close of the transaction, debt to EBITDA will be 2.6x, well below the 3.0x threshold that would raise concerns. Moreover, Arrow appears to be well positioned to launch several new generic drug products over the next few years, potentially growing EBITDA significantly. Accordingly, even this moderate weakening of credit measures could be rapidly reversed over the short term.

Media Contact:

David Wargin, New York (1) 212.438.1579, david_wargin@standardandpoors.com

Analyst Contact:

David Lugg, New York (1) 212.438.7845

Posted: June 2009

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