Three Wall Street firms have voted “no” on the big Quintiles-IMS Health merger so far by downgrading Quintiles stock. However, on Wednesday afternoon S&P Global Ratings weighed in with a positive review of the deal.

S&P foresees a “more favorable business position” for the merger of “two leaders in their respective markets.”

Standard & Poors, which recently renamed its report to S&P Global Ratings, focused on Quintiles and said it sees multiple benefits to the merger. As a result, S&P reaffirmed its credit rating for Quintiles, which is “BBB-.” S&P watches Quintiles’ variety of debt and credit that totals some $2.8 billion.

“The affirmation of Quintiles’ ratings, following the announcement of an all equity merger with IMS Health, reflects an increase in leverage that is balanced out by a more favorable business position from the combination of two leaders in their respective markets,” said S&P Global Ratings credit analyst Matthew Todd in a report.

Why the affirmation?

In its analysis, S&P noted five key points to support its reaffirmation while also noting that a merged Quintiles will be “a higher-leveraged entity:”

  • “While no debt was incurred, IMS Health has much higher leverage than Quintiles [some $4 billion in debt, the report points out], creating a higher-leveraged entity than Quintiles as a stand-alone business.
  • “We view the business more favorably because of the increase in revenue diversity and the improvement to competitive bidding position and trial execution from new access to vast healthcare and patient data.
  • “We believe the increase in leverage is offset by the improved business position, and we are affirming our ‘BBB-‘ corporate credit rating on Quintiles Transnational Holdings Inc.
  • “Additionally, we are affirming our ‘BBB-‘ issue level rating on borrower Quintiles Transnational Corp.’s senior secured debt and ‘BB+’ rating on its senior unsecured debt.
  • “The outlook remains stable, reflecting our expectation that the company will maintain leverage in the 3x to 4x range.”

S&P also points out that IMS “generates a more predictable revenue stream than Quintiles (NYSE: Q) because it is less reliant on individual customers and is not subject to the same trial cancellation risks.”

Plus, a merger “counters two challenging headwinds affecting CROs: difficulty in recruiting patients, and a heightened focus on value in pharmaceutical development and marketing.”

Given IMS’ strength as a “big data” company as touted by that firm over and over, S&P says access to IMS data “improves Quintiles’ ability to define the value of new treatments using an expansive, real-world data set, aiding services including, trial design, trial analytics, and contract sales.”

Negative Street view

However, investors are rejecting the potential upside as pitched by top executives at Durham-based Quintiles and Connecticut-based IMS who say they are creating a life science data powerhouse.

Quintiles shares are down some 6 percent since the $8.75 billion merger was announced early Tuesday. IMS will own slightly more than half of the business but the company will be called Quintiles IMS.

Wall Street might be looking for more cost savings, which Quntiles and IMS says will be about $100 million a year – three years post-merger.

But S&P takes a different view on so-called “synergies.”

“We do not include material synergies in our projections, as the merger is mainly driven by information sharing that has an uncertain benefit to the top line,” the report said.

Downgrading Quintiles were:

  • Citigroup to “neutral” from “buy”
  • Robert W. Baird to “neutral” from “buy”
  • Evercore ISI Group to “hold” from “buy”

Overall, however, the Street still holds a very positive view of Quintiles with either “strong buy” or “buy” ratings from virtually all the 19 analysts following the stock.