Fitch: Abbott Laboratories' Ratings Unchanged After Acquisition Announcement

CHICAGO--(BUSINESS WIRE)--Jan. 9, 2006--Fitch Ratings does not expect the ratings and Outlook for Abbott Laboratories (Abbott) to change in light of the company's announcement of its intention to acquire Guidant's (Guidant Corporation) vascular business for approximately $3.8 billion in cash in addition to providing Boston Scientific Corporation (Boston Scientific) with a $700 million five-year loan and milestone payments of $500 million upon regulatory approvals of Guidant's drug-eluting stent program. The transaction is contingent upon the closure of Boston Scientific's proposed purchase of Guidant. The ratings apply to approximately $6.58 billion of debentures and commercial paper. The Rating Outlook is Stable.

Fitch rates Abbott as follows:

-- Indicative default rating 'AA-';

-- Bank loan 'AA-';

-- Senior unsecured debt 'AA-';

-- Commercial paper rating 'F1+'.

The proposed acquisition of Guidant's vascular intervention and endovascular solutions businesses coincides with Abbott's strategy of bolstering revenue and earnings growth through corporate acquisitions and strategic alliance activities. The purchase includes intellectual property rights to Guidant's drug-eluting stent project, Xience, which is currently in clinical studies required for approval in Europe, the U.S., and Japan. The transaction also includes milestone payments to Boston Scientific of $250 million each for FDA and Japanese regulatory approvals of Xience. European regulatory approval is anticipated for the first half of 2006.

Although the purchase is larger than all previous acquisitions, other than the $7 billion BASF pharmaceuticals business (Knoll) acquisition in 2001, Abbott's credit profile is characterized by solid liquidity and a history of successful acquisitions. Abbott's liquidity is derived from a large domestic cash balance (supported by the repatriation of $4.3 billion of foreign earnings at a reduced tax rate under the Jobs Creation Act of 2004 during 2005), a $3 billion commercial paper program, and strong free cash flow generation. The company had cash and short-term securities totaling $2.93 billion at the end of the third quarter of 2005. Free cash flow for the latest 12-month (LTM) period ending Sept. 30, 2005 was $1.74 billion.

Abbott had significantly tempered its traditionally aggressive corporate acquisition strategy during 2005 after an active year in 2004 as the company was focused on integration of the assets purchased in 2004, including Therasense Inc. and i-Stat Corporation. Fitch anticipates that Abbott's credit profile will remain consistent with the current rating category despite an expected increase in total debt necessary to consummate the acquisition of the Guidant assets. At the end of the third quarter 2005, leverage (total debt to LTM EBITDA) was 1.2 times (x) and interest coverage (LTM EBITDA to interest incurred) was 22.7 times (x). Offsetting pressure to the credit profile is the continued attractive growth of well diversified product portfolio with offerings in human pharmaceuticals, medical technology, adult and pediatric nutritionals, and clinical laboratory diagnostics. Revenues grew 9% for the LTM period ending Sept. 30, 2005, supported by attractive growth of Humira, offset by generic competition for Synthroid and the immediate-release formulation of Biaxin.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria, and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance, and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. The ratings above have been initiated by Fitch as a service to investors. The issuer did not participate in the rating process other than through the medium of its public disclosure.