Biotech drugmaker Amgen said Monday that it plans to buy back up to $5 billion of its stock in a modified Dutch auction tender offer.
The Thousand Oaks, Calif., company will purchase the shares for between $54 and $60 each. Two credit ratings agencies, Moody's and Fitch, lowered their ratings on Amgen Inc. debt after the buyback announcement.
But Amgen shares climbed $2.46, or 4.5 percent, to $57.63 in late morning trading.
The modified Dutch auction tender offer allows shareholders to state the amount of shares they wish to tender and the price they are willing to pay within the company's range. Amgen then will determine the lowest per-share price that enables it to buy $5 billion in stock.
It will pay the same price for all shares purchased in the offer, so it may buy some stock at a higher price than the shareholder indicated. But the company said it will not make purchases from a shareholder at a price lower than the stockholder indicated he or she wanted.
"Our strong balance sheet and cash flow enable us to complete this transaction in an attractive interest rate environment while also preserving the flexibility to further accelerate the growth of our business through focused, strategic acquisitions," Chairman and CEO Kevin W. Sharer said in a statement.
Amgen Inc. will hold a public offering of senior notes to help pay for the tender offer. BofA Merrill Lynch, Morgan Stanley, J.P. Morgan and Citigroup are acting as joint book-running managers for the offering.
Both Moody's Investor Service and Fitch Ratings downgraded Amgen following the Monday announcement. Moody's dropped the company's senior unsecured rating one notch to "Baa1" from "A3." The new rating is still investment-grade.
Moody's said in a statement the downgrade reflected Amgen's "more aggressive financial policies," which are expected to lead to a big increase in debt over the next several years.
"The `Baa1' rating continues to reflect Amgen's strong position as the world's largest stand-alone biotechnology company, its high margins and its good cash flow," Moody's said, also citing the company's growing cash balance.
Fitch downgraded Amgen's issuer default, senior unsecured debt and bank loan ratings two notches to its second-lowest investment grade rating, "BBB," from "A-." Its rating outlook for the biotech is stable.
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