Fitch: McKesson's 'BBB+' Rating Not Affected by Acquisition of Per-Se Technologies

CHICAGO--(BUSINESS WIRE)--The following ratings for McKesson (NYSE:MCK) are not affected by its intended acquisition of Per-Se Technologies (Per-Se).

--Issuer Default Rating (IDR) 'BBB+';

--Senior unsecured credit facility 'BBB+';

--Senior unsecured debt 'BBB+'.

The ratings apply to approximately $988 million of debt. The Rating Outlook is Stable.

MCK agreed to buy Per-Se Technologies for approximately $1.8 billion in cash, allocating $1.23 billion for equity and $570 million in assumed debt. Per-Se helps physicians, hospitals and retail pharmacies obtain reimbursement for the services they provide. This is a technology-based company, which fits strategically into MCK's Provider Technologies business segment.

Fitch believes the acquisition is strategically sound and will further strengthen MCK's position in assisting providers to become more efficient operators. The transaction broadens MCK's customer base and compliments the benefits MCK provides in improving patient care and safety.

While integration risk is present, MCK has demonstrated an ability to integrate and grow the businesses it acquires in the technology segment. The acquisition should increase leverage, but Fitch believes MCK will maintain leverage over the long-term to support its 'BBB+' rating.

The company continues to exercise discipline with acquisitions, focusing on targets that operate within areas of MCK's core competencies. Fitch expects MCK will continue with this strategy, financing targeted acquisitions with cash on hand and free cash flow. Larger acquisitions would likely require issuances of debt or equity.

At June 30, 2006, MCK had approximately $2.0 billion in cash and short-term investments, $1.3 billion availability under its bank facility, and $700 million availability on its receivables facility. MCK has approximately $385 million in debt maturing through 2011. At June 30, 2006, latest 12 months (LTM) interest coverage (EBITDA/interest) was 14.8 times (x) and leverage (total debt/EBITDA) was 0.73x or (adjusted debt/funds from operations) was 0.98x.

MCK is the largest pharmaceutical distribution company in the United States. The company and its two main competitors (Cardinal Health Inc. and AmerisourceBergen) account for approximately 90% of the U.S. market. The company also distributes medical-surgical supplies and provides technological solutions for health care providers.

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.