Merck Deal Mashes Mylan

Updated from 12:33 Monday EDT

Shares of Mylan Laboratories(MYL Quote) sank Monday, as investors expressed concern about the dramatic $6.63 billion bid for the generic-drug business of Germany's Merck KGaA.

By mid-afternoon, Mylan's shares were down $2.70, or 12% to $19.70. The stock fell as low as $19.08, as some analysts questioned whether Mylan paid too much and absorbed too much debt for the Merck unit. Volume was more than six times the average daily trade of 3.9 million shares for the last three months.

"There are some initial signs that Mylan overpaid," said Brian Laegeler, of the independent financial research firm Morningstar in a research note. "The purchase price was inflated in a hotly contested auction."

Laegeler added that Mylan's "financial capacity was already stretched" from its $756 million deal for a 71.5% stake in the Indian generics firm Matrix .

The offer for the Merck unit is larger than Mylan's market capitalization of $4.94 billion on Friday, the day before the deal was announced. The market cap fell to about $4.4 billion on Monday.

Standard & Poor's on Monday cut Mylan's rating one notch, to BB-plus from BBB-minus, removing Mylan from investment grade. It also placed Mylan on a negative credit watch, meaning that the rating could drop further.

Credit analyst Arthur Wong said his firm wanted to talk to Mylan management to get a better idea of how the company is financing the deal and how cost-saving will be achieved.