Fitch Ratings said Monday that Express Scripts Inc.'s acquisition of pharmacy benefits management competitor Medco Health Solutions Inc. is "strategically sound," but said it will likely downgrade the combined company's credit rating if the deal goes through.

The firm placed both companies on rating watch negative. Fitch has investment-grade ratings of "BBB" on both companies and said it may downgrade Express Scripts one notch to "BBB-" if it acquires Medco.

That would put the company's rating only one level above noninvestment grade or "junk" status.

Fitch said the St. Louis company would take on $8 billion to $10 billion in new debt as part of the deal, but it said Express Scripts could significantly reduce that debt in the first year and a half after closing.

On Thursday, Express Scripts agreed to buy Medco for $29.1 billion, or $71.36 per share, in cash and stock. The sale is expected to close in the first half of 2012, pending approval from U.S. regulators and shareholders of both companies. Fitch said the deal makes sense because the companies share a focus, and Express Scripts' target of $1 billion in savings after the deal is achievable.

The firm added that it would revisit its ratings on Medco if the sale is not completed. The Franklin Lakes, N.J., company has disclosed several large contract losses lately, and Fitch said the deals account for about 15 percent of Medco's annual revenue. It said Medco would likely begin cutting costs to account for those losses if it remains an independent company.

Shares of Express Scripts lost 43 cents to $56.87 in afternoon trading, and Medco stock declined 10 cents to $65.86.