Pfizer sells US$31b of bonds in fourth-largest deal ever

(May 17): Pfizer Inc sold US$31 billion of debt in the fourth-largest US bond sale ever, according to a person with knowledge of the matter.

The pharmaceutical giant raked in over US$85 billion in orders for the eight part investment-grade deal, which will finance its purchase of Seagen Inc. Pfizer and its bankers were forced to modify terms of the deal on the fly Tuesday after the US sued to block a separate multibillion-dollar debt-funded acquisition by Amgen Inc.

Pfizer’s bond sale, its first since 2021, is the largest debt financing for a merger or acquisition this year, and comes amid a rush by companies to tap capital markets ahead of a potential jump in borrowing costs sparked by the US debt ceiling standoff. The longest portion of the deal, a 40-year bond, yielded 1.6 percentage point over Treasuries, lower than earlier discussions for 1.8 percentage point, said the person, who asked not to be identified as the transaction is private.

A jumbo investment grade deal is “a good test for the market in terms of gauging the strength of the demand side”, said Nicholas Elfner, co-head of research at Breckinridge Capital Advisors. With high-quality issuers in defensive sectors, there’s typically “solid execution, particularly in a more volatile market environment”, he said.

At US$31 billion, the deal surpasses the amount sold by AT&T Inc and Discovery Inc in 2022 to help pay for the combination of their media businesses, as well as AbbVie Inc’s 2019 offering for the acquisition of Allergan plc, Bloomberg-compiled data shows.

Pfizer’s mega bond sale comes as the Federal Trade Commission sued to block Amgen’s US$27.8 billion deal to buy Horizon Therapeutics plc Tuesday, arguing the tie-up would stifle competition for the development of treatments for serious illnesses, Bloomberg reported.

Amgen borrowed US$24 billion to help fund the deal and might need to redeem those notes if the deal gets blocked. Pfizer’s acquisition of Seagen bypasses Amgen’s as the largest purchase to come to market this year. Jefferies LLC analysts led by Akash Tewari said in a research note that the lack of overlap weakens the FTC’s case, noting it could make the Pfizer-Seagen deal “a more difficult pitch to the FTC”.

But some market participants think the deal will be well received no matter what, given the company’s history when handling debt after an acquisition, said Carol Levenson, director of research at Gimme Credit. And although the company has not yet made promises of paying down debt by a certain time, she added, “the tenor of the financing implies swift paydowns in the early years”.

“We have here a high quality, noncyclical credit with a balance sheet that can absorb a US$43 billion acquisition without material damage even without tapping its US$20 billion of cash and investments on hand at the end of the first quarter or selling its Haleon share,” Levenson said.

The so-called special mandatory redemption language in the Pfizer deal — which determines whether the bonds will be repurchased or not if the deal doesn’t go through — was changed Tuesday.

Representatives for Pfizer directed Bloomberg to existing public comments and had nothing further to add.

Pfizer began marketing the deal to investors on Monday. Bank of America Corp, Citigroup Inc, Goldman Sachs Group Inc and JPMorgan Chase & Co managed the sale. Goldman Sachs, JPMorgan and Citigroup declined to comment, while BofA didn’t immediately respond to a request for comment.

The New York-based company in March agreed to buy Seagen for US$229 per share in cash, bringing the total enterprise value to about US$43 billion. The acquisition is expected to close later this year or in early 2024.