Fitch Maintains CFR's IDRs on Rating Watch Positive

Fitch Ratings maintains CFR Pharmaceuticals S.A. and its subsidiary CFR International SpA on Rating Watch Positive in anticipation of their acquisition by Abbott Investments Luxembourg S.A.R.L., a subsidiary of Abbott Laboratories (Abbott; rated 'A+' by Fitch). A complete list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

Rating Watch Positive

Fitch initially placed the companies on Positive Watch in May following the announcement that Abbott's subsidiary had entered into a definitive agreement to acquire 72.62% of CFR's issued and outstanding shares from its controlling shareholder and would conduct a public cash tender offer for all of CFR's outstanding shares. Assuming all publicly-held shares are tendered, the total purchase price would be approximately USD2.9 billion, plus the assumption of net debt of approximately USD430 million.

Fitch expects the transaction to close in the fourth quarter at which time the Rating Watch Positive will be resolved. Assuming the transaction is consummated on the agreed upon terms, the outcome is expected to result in at least a one-notch upgrade of CFR's long-term Issuer Default Rating (IDR) and senior unsecured debt. The upgrade could be significantly more than one notch if CFR's debt is guaranteed by Abbott and if it successfully integrates CFR both financially and operationally.

Fitch believes Abbott's acquisition of CFR makes sense strategically, as it would increase Abbott's already strong position in the fast growing Latin American branded-generic pharmaceutical market. Developing markets such as Latin America are expected to provide the bulk of growth for this product segment. Abbott expects CFR to contribute approximately USD900 million to its annual sales by 2015. The acquisition does pose some integration risk, yet Abbott has stated that the financial success of this acquisition does not rely on anticipated significant cost reductions resulting from potential synergies.

Deleveraging Expected to Continue

CFR's net leverage has declined to 2.9x at March 31, 2014 since reaching its peak of 3.6x after acquiring Lafrancol, a Colombian pharmaceutical company, in 2012. A full year's consolidation of Lafrancol pushed net leverage down to 3.1x in 2013. The company's goal is to reach net leverage at or below 2.5x; Fitch expects CFR to lower its leverage to 2.5x by the end of 2015 after a full year of ownership by Abbott.

Strong Operational Performance

Revenues increased 34% to USD768 million in 2013 mainly as a result of Lafrancol's consolidation. Revenues were USD782 million as of the last 12 months (LTM) ended March 31, 2014. CFR's EBITDA was USD153 million in 2013, up almost 60% from 2012. CFR has been able to capture short-term cost savings in Colombia of approximately USD10 million to USD12 million from improving its distribution system and reducing its back office. EBITDA was USD150 million as of the March 31 LTM. Fitch expects continued strong performance as Abbott has a larger sales force and wishes to grow in emerging markets, and CFR will benefit from stronger negotiation power when purchasing raw materials.

Strong Business Position

CFR is a market leader in the branded-generics segment. It has a market share of 7% in Chile and 11% in Peru. Through the integration of Lafrancol's business, CFR was able to position itself as the leading pharmaceutical company in Colombia with a market share of 9%. In Argentina the company is the leader in complex injectable products. Abbott's acquisition of CFR should further solidify CFR's position in the region.

Geographic Diversification

CFR has operations in Colombia, Chile, Argentina, and Peru, and a commercial presence in about 20 emerging market countries. Nearly 70% of sales are generated in investment-grade countries such as Colombia, Chile, and Peru. CFR's ratings are constrained by the risks of operating in Argentina and Venezuela, each accounting for 12% of consolidated sales.

Fitch maintains the following ratings on Rating Watch Positive:

CFR Pharmaceuticals S.A.

--Long-term IDR 'BBB-';

--Local currency long-term IDR 'BBB-';

--National long-term rating 'A (cl)';

--National scale issue ratings and debt programs 'A (cl)'.

CFR International SpA

--Notes due in 2022 'BBB-'.

Fitch has affirmed the following rating:

CFR Pharmaceuticals S.A.

--National Equity Rating 'Primera Clase Nivel 3(cl)'

RATING SENSITIVITIES

--A positive rating action would likely coincide with the successful completion of the acquisition, at which time the linkage between CFR and its new parent will be analyzed under Fitch's parent-subsidiary methodology. If the linkage is viewed as strong, CFR's ratings could be upgraded significantly. A final decision will depend on the assessment of legal, operational and strategic ties between the two companies

--A negative rating action would result from the acquisition falling through. In this case, the Rating Watch Positive would be removed and the ratings affirmed at their current levels.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 2014);

--'National Scale Ratings Criteria' (Oct. 30, 2013).

Applicable Criteria and Related Research:

National Scale Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=861715

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