Merck Plans $6.5 Billion Bond Offering for Stock Repurchases

Merck & Co., which yesterday had its unsecured debt rating cut one level by Moody’s Investors Service, plans to sell $6.5 billion of bonds in a six-part offering to fund share repurchases.

The drugmaker intends to issue $1.25 billion of 30-year notes that may pay 102 basis points more than similar-maturity Treasuries and $1.75 billion of 10-year bonds with a spread of 87 basis points, according to a person familiar with the offering who asked not to be identified, citing lack of authorization to speak publicly.

The deal also includes $1 billion portions of five-year debt yielding an extra 52 basis points, similar-maturity notes paying 36 basis points more than the London interbank offered rate, three-year securities with a spread of 32 basis points more than Treasuries and $500 million of similar-maturity floating debt paying 19 more than Libor, the person said.

A “substantial portion” of the proceeds will fund share repurchases that will reach about $7.5 billion over the next 12 months, Whitehouse Station, New Jersey-based Merck said today in a regulatory filing.

The company’s $1 billion of 2.4 percent bonds due September 2022 traded May 13 at 98.63 cents on the dollar to yield 2.57 percent, or 64.4 basis points more than similar-maturity Treasuries, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

“Merck’s credit ratios will steadily weaken but remain solid as the company executes a $15 billion share repurchase program over the next several years,” Michael Levesque, an analyst at Moody’s, wrote yesterday in a report that lowered Merck’s debt that isn’t guaranteed by its Merck Sharp & Dohme unit to A2 from A1.

Shares of Merck, which has a market value of more than $140 billion, traded at $46.89 at 1:53 p.m. in New York. Libor, the rate at which banks say they can borrow in dollars from each other, was set at 0.274 percent today.

Before it's here, it's on the Bloomberg Terminal.