Oracle's Cerner acquisition sparks downgrade warnings from S&P, Fitch and Moody's

Three major U.S. ratings agencies may downgrade Oracle's investment-grade ratings if the software giant increases debt to finance its $28 billion acquisition of Cerner, Bloomberg reported Dec. 21. 

Oracle and Cerner announced their agreement Dec. 20 for Oracle to buy Cerner through an all-cash tender offer for $95 per share, or about $28.3 billion in equity value. 

Five details: 

1. S&P Global Ratings said Oracle could fall as many as two notches to BBB-, adding it is likely for the company to maintain its investment-grade rating through some curtailment of share buybacks.

2. S&P lowered Oracle's ratings from the single A tier to BBB in June, pointing to its increased leverage and "aggressive" share repurchases. In March, Fitch Ratings and Moody's Investors Services made similar moves to downgrade Oracle's ratings. 

3. Fitch said the acquisition "could result in [Oracle] deviating from its previous plan to reduce its debt," as the company repurchased $15 billion of its own shares in the first half of fiscal year 2021. 

4. Moody's also placed Oracle under review and said even before the acquisition, "Oracle did not have any publicly articulated medium or long-term financial policy goals." 

5. Oracle said it "anticipates retaining an investment-grade credit rating" in wake of the Cerner deal, according to the report. The company's long-term debt is more than $73 billion, according to data compiled by Bloomberg.

 

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