As Long As We Are Speculating Rather Wantonly -- Let's Make ANOTHER Guess: EU Cash Vault Edition!

So. . . as is our usual way, here on sleepy Sunday mornings, we start with some fresh orange juice, hot coffee (extra cream and sugar), and a banana. . . croissants optional (maybe a little later). We also tend let our mind wander -- as our retinas are bathed -- in luminous dawn light. Some Sundays, the light makes things fuzzier -- but today that luminosity makes things. . . clearer. At least we hope so.

Let us assume for a moment that the Reuters-sourced Merck Consumer Health imminent sale rumors overnight, of a near $14 billion price tag. . . prove correct. Let me again remind that this figure -- to make any financial sense -- must mean that the buyer is taking on significant liabilities associated with the businesses, and that the $14 billion is a gross, not net number. [Net number should be at $7 billion or below, in my estimation.]

I do find it fascinating that Thursday Fitch's reaffirmed the debt ratings of Merck (outlook negative), at A+. The outlook negative, according to Fitch's itself -- has to do with concerns about debt levels relative to EBITDA, on a consolidated basis -- even though Whitehouse Station wasn't in the debt markets (at least not on a disclosed basis). So, sending debt out -- with an asset sale -- would help with this, no? Say. . . $7 billion of debt, transferred to either Reckitts or Bayer AG? Sure, the ratings are reviewed on a periodic basis, and reaffirmed or adjusted -- for all large issuers. But why last week, in particular?

Let us then take a stab at linking these up. . . it is possible that Merck will announce another large trauche of MSD non-parent guaranteed debt, on the continent of Europe (or in London, itself) -- (or outright transfer existing non-parent Merck debt to the buyer) at about the same time it sells Consumer Health to that same Euro buyer. Possible. But no one has said this yet -- this is a pure rumor scoop -- of mine alone. That is to say, 'tis is my conjecture, alone.

Why? Well, as I've long suggested, Merck has about $70 billion parked in Europe (and to a lesser extent, Japan), which it would like to re-deploy in a tax-efficient manner.

Last year, Merck structured several undrawn debt traunches which I suggested were laying the groundwork for a tax-advantaged repatriation strategy.

So -- just imagine for a moment that Merck will announce that it has agreed to sell the Consumer Health businesses to either Bayer AG or Reckitts on Tuesday morning. I predict that Whitehouse Station will also send some form of debt out with the package. And while it would be foolish, indeed, for me to guess at the exact structural nuances (there are just so, so many ways to do this!) -- I do think Merck may well be able to repatriate cash to the US, from Europe quite efficiently -- as it sheds the Consumer Health businesses. That might well explain the latest highly inflated price rumors: Merck is transferring debt -- non-parent backstopped debt (I am guessing) -- and in turn letting the payback flow to the US, but not as a "deemed dividend". . . thus it is a withdrawal (nearly US tax free!) from Merck's Euro cash vault. . . just as I've been saying for over a year, now. That is entirely a guess -- but we shall see -- come Tuesday.

Now do go enjoy all your own forms of Sunday deliciousness -- tonight is fresh sushi, edamami, miso soup and. . . icy Cherry Coke^® -- with real cane sugar! Heh.