Standard and Poor, a unit of McGraw Hill Companies yanked out Pfizer’s AAA-rating, the best rating the agency hands out to companies that are credit-worthy. Truly, AAA-rating has slowly disappeared before our eyes.
In the late 1994, there were 14 companies who had AAA-ratings. Today, there are only four companies who hold the highest rating – ExxonMobil, Johnson and Johnson, Automatic Data Processing and Microsoft. One of the more prestigious organizations, GE lost its AAA-rating just this March this year.
As S and P’s managing director Nicholas Riccio said in one of his interviews in March, the AAA credit rating is “almost impossible to attain at this point in Corporate America.”
Is it a strategy? I do believe so.
For Pfizer, they knew that the recent acquisition of rival pharmaceutical firm Wyeth means borrowing $22.5 million dollars. The total acquisition cost was estimated to be about $70 million dollars.
Although is it easy to blame the disappearance of top rating on the bad economic situations as well as the troubles in the health and insurance industry. In one way, this is also partly due to CEOs shifting their priorities in strategizing their companies for the long term run. As for Pfizer, they knew the acquisition will hurt, but still completed the deal as they see it as a more important action rather than the recommendation of the credit rating agencies.
If you were the CEO, would you do the same? I guess it will all depend upon the company goal. If in the first place your goals would be to maintain the AAA-rating, then they could have done something else. But if you are more concerned about what will happen in the long-term, then, the acquisition might just be the right choice. Neither way can be a good or bad decision.