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Moody's predict wave of healthcare deals

Tuesday, April 29 14:54:12

The deal-making frenzy sweeping through the healthcare industry should continue apace in 2014, as companies look to stock up new drug pipelines, bolster existing businesses and diversify into new areas, Moody's Investors Service said today.

Deals totalling more than $153 billion have been struck in the sector so far this year, the highest year-to-date level since Thomson Reuters began tracking such data.

Credit ratings agency Moody's said acquisition activity should remain high as makers of branded drugs look to buy companies with complementary or high-potential pipelines, while generic drugmakers seek to build scale and diversify.

A complimentary trend is divestment, as drugmakers shake up their portfolios to weed out or beef up businesses that lack critical mass, Moody's said.

This was the driving factor behind a series of transactions announced by Novartis AG for instance. The Swiss drugmaker agreed to trade more than $20 billion worth of assets with GlaxoSmithKline Plc, with Novartis aiming to boost its cancer business while GSK sought to bolster its position in vaccines.

Novartis also sold off its animal health division to Eli Lily and Co.

Merck & Co Inc is also in the final stages of selling its consumer healthcare unit for close to $14 billion, with Bayer AG and Reckitt Benckiser Group Plc among contenders to clinch a deal, people familiar with the matter have told Reuters.

A desire to lower tax rates is also influencing dealmaking decisions, Moody's said, adding this could be positive for ratings of corporate debt in the sector when combined with high use of equity funding.

Pfizer Inc, which has approached Britain's AstraZeneca Plc on a potential $100 billion takeover, could benefit from lower tax rates if a deal were to go through.

Reported plans for a new bid by Botox-maker Allergan Inc - itself facing an unsolicited bid from Valeant Pharmaceuticals International Inc - to take over Britain's Shire Plc would also play into the trend. (Reuters)