Moody’s says Perrigo acquisition adds to Irish tax concerns

Debt ratings firm Moody’s has turned negative on the creditworthiness of over-the-counter medicines group Perrigo, saying a $2.1 billion (€1.78bn) acquisition agreed this week adds to concerns caused by a potentially large Irish tax settlement.

The Irish-headquartered, but US-run group said on Wednesday it has signed a binding offer to buy HRA Pharma, a specialist in wound care and women's health products, from private equity group Astorg and Goldman Sachs Asset Management for $2.1 billion in cash.

The deal comes as Perrigo continues to work towards settling the largest tax dispute between the Irish Revenue Commissioners and a company. Perrigo said in July that Revenue had accepted that the contested amount at stake is €970 million, down from an original demand of €1.64 billion.

Moody’s, which rates Perrigo’s debt as Ba1, or one level below what is considered investment grade, said that the group’s deals appetite is “aggressive”.

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It has moved its outlook for the rating to negative from stable, saying the HRA deal, together with an Irish tax settlement, will leave the group’s debt “well above” four times earnings before interest, tax, depreciation and amortisation (ebitda) over the next few years.

The Irish tax row stems from the 2013 sale by Elan of its intellectual property interests in multiple sclerosis drug Tysabri to Biogen for an upfront payment of $3.25 billion and a share of future royalties. That sale took place months before Perrigo bought what was left of Elan.

Capital transaction

Revenue decided, following a 2016 audit, to characterise Elan’s sale of Tysabri as a capital transaction, subject to capital gains tax at 33 per cent. Perrigo maintains that the cash received was properly declared as trading income, taxable at 12.5 per cent.

On the basis of its view Revenue said €1.64 billion was owed. However, following extensive exchanges of information between the two sides, the company said in July that Revenue accepts that the original figure is overstated.

Moody’s said Perrigo may have to tap a $1 billion credit facility, which is due to expire in 2023, to settle with Revenue as its $1.8 billion of cash balances are set to be largely depleted by the HRA deal.

While Perrigo is due a $412 million award from court arbitration relating to losses resulting from its 2015 acquisition of Omega Pharma, the timing of a payment is “uncertain”, Moody’s said.