Fitch Places CareFusion's Ratings on Positive Watch on Acquisition by Becton Dickinson

CHICAGO--()--Fitch Ratings has placed the ratings of CareFusion Corp. (NYSE:CFN), including the 'BBB' Issuer Default Rating (IDR) and the senior unsecured debt ratings, on Rating Watch Positive. The action follows the announcement that CFN will be acquired by Becton, Dickinson & Co. (NYSE:BDX) for total consideration of approximately $12.2 billion. The deal is expected to close in first-half 2015.

The ratings apply to $2 billion of CFN's unsecured notes currently outstanding.

KEY RATING DRIVERS

-- There is strong strategic rationale for the proposed combination of BDX and CFN. The firms' product portfolios are complementary, particularly among medication management products, with little direct overlap.

-- Total debt outstanding at the combined firm will result in leverage meaningfully higher than current levels for either standalone company (according to BDX, 4.3x pro forma at deal close). But the anticipated solid and stable cash flow profile of the combined firm could facilitate well-paced debt repayment post-transaction.

-- Both standalone firms have solid organic growth profiles, including a significant dispensing backlog to be realized in fiscal 2015 at CFN. Opportunities to grow the CFN business in non-U.S. markets should further support growth and margins over the medium- to longer-term.

-- BDX is expected to assume CFN's $2 billion of unsecured notes. The notes' change of control repurchase provision is not expected to be triggered, since Fitch does not expect the notes to be downgraded to below investment grade.

-- Management at BDX has said publicly that it intends to suspend its share repurchase program and has stated that it is committed to maintaining strong investment grade ratings. However, Fitch does not yet know how BDX will structure its new debt in order to facilitate such repayment.

RATING SENSITIVITIES

Pro forma debt leverage at transaction close of 4.3x (per BDX) is meaningfully higher than the approximately 2x Fitch has outlined for CFN at its current 'BBB' ratings. However, the combined firm will be much larger and more diversified, likely accommodating a higher acceptable leverage target. Furthermore, the anticipated stable margins and cash flows of the continuing firm should facilitate well-paced debt repayment post-transaction.

Based on its preliminary review of the deal, Fitch thinks it is likely that the CFN ratings could remain at 'BBB'. An upgrade of CFN's ratings is also possible, but would likely be limited to one notch. Fitch's expectation for debt repayment and run-rate debt leverage post-transaction will be dependent on the structure and tenors of new debt to be issued by BDX.

A downgrade to 'BBB-' is unlikely given the operational strength and stability of the combined firm, Fitch's expectations that cash generation will be sufficient to accommodate appropriate debt repayment, and BDX's public commitment to maintaining strong investment grade ratings. However, a slower debt repayment horizon or integration-related setbacks could negatively pressure the ratings.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

-- 'Corporate Rating Methodology' (May 28, 2014);

-- 'Fitch Affirms CareFusion at 'BBB'; Outlook Stable' (Aug. 21, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=891295

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Contacts

Fitch Ratings
Primary Analyst
Jacob Bostwick, CPA
Director
Fitch Ratings, Inc.
+1-312-368-3169
70 W Madison Street
Chicago, IL 60602
or
Secondary Analyst
Bob Kirby, CFA
Director
+1-312-368-3147
or
Committee Chairperson
John Culver, CFA
Senior Director
+1-312-368-3216
or
Media Relations
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Jacob Bostwick, CPA
Director
Fitch Ratings, Inc.
+1-312-368-3169
70 W Madison Street
Chicago, IL 60602
or
Secondary Analyst
Bob Kirby, CFA
Director
+1-312-368-3147
or
Committee Chairperson
John Culver, CFA
Senior Director
+1-312-368-3216
or
Media Relations
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com