Finance, tax & strategy in the Shire-Baxalta merger

The Shire-Baxalta merger moved another step toward completion when Shire PLC snagged investment grade ratings from two global rating agencies. The public ratings – Baa3 from Moody’s Investor Service and BBB- from Standard & Poor’s – indicate that the agencies consider that the combined entity can meet its credit commitments. A rating below investment grade would indicate that investment in the company is speculative, and any bonds the company issues would be considered “junk” bonds. The January 28 ratings are only slightly lower than Baxalta Inc’s ratings prior to the announcement of the merger. Shire has not previously obtained a public rating.

To finance the merger, Shire initially obtained bridge commitments of $18 billion from Barclays Bank PLC and Morgan Stanley Bank international Ltd. Now that Shire has obtained an investment-grade rating, it will be able to refinance those bank loans by issuing investment-grade corporate bonds.

The bank loans came with some strings, however. The banks have the right to limit Shire’s ability to react to regulatory requirements. The terms of the financing restrict Shire’s ability to sell off assets unless the banks approve. This language could complicate matters if competition authorities decide to require divestitures before they are willing to approve the merger. Shire’s recent acquisition of Dyax Corp, in November 2015, cleared the US antitrust authorities in just 30 days and did not require any divestitures.