Business

Tuesday March 10, 2009

Drugmakers in US$41b merger


Deal will unite Schering-Plough with Merck with combined sales of US$47bil

NEW YORK: Merck & Co Inc said yesterday that it would acquire Schering-Plough Corp for US$41.1bil, uniting the makers of cholesterol drugs Zetia and Vytorin in the second megadeal for Big Pharma in weeks.

The two New Jersey-based drugmakers, which announced significant job cuts last fall, have been striving to become more efficient amid setbacks to Vytorin and Zetia, whose combined fourth-quarter sales slumped 26%.

The transaction, which offers a premium of 34% for Schering-Plough shareholders based on Friday’s closing price, will double the number of potential medicines Merck has in late-stage development, bringing the total to 18.

It will also diversify Merck’s portfolio of medicines to include cardiovascular, respiratory, oncology, neuroscience, infectious disease and immunology.

The Merck/Schering-Plough marriage follows on the heels of Pfizer’s US$68bil purchase of Wyeth, another New Jersey-based pharmaceutical company.

Schering Plough Corp in Kenilworth, New Jersey - AP

It finally consummates a deal that has been speculated upon for years, given the marketing partnerships and cost savings opportunities between Merck and Schering-Plough.

Merck sees cost savings of about US$3.5bil annually beyond 2011 from the deal. The combined 2008 revenues of the two companies totalled US$47bil, and Merck believes it will maintain its current credit ratings.

“It seems somewhat inevitable,” said Jeffrey Holford, analyst at Jefferies in London.

“The industry needs to shrink because there is just not the same market for branded pharmaceuticals going forward as there has been over the last 10 years,” he said.

“There is overcapacity, and (Merck and Schering-Plough) need to take each other’s capacity out of the market.”

Under the agreement, which includes US$8.5bil in debt, Schering-Plough shareholders will receive 0.5767 shares of Merck and US$10.50 in cash for each of their shares. Each Merck share will automatically become a share of the combined company.

Merck chief executive Richard Clark will lead the combined company, with Merck shareholders owning a stake of about 68%.

The deal already has come under fire when it comes to price. “I think it should be at least US$12bil to US$15bil higher,” said Caris & Co analyst David Moskowitz. “I don’t think investors will be happy until the price comes up to the high – US$20 or US$30 (per share).”

He noted that Schering-Plough’s overseas rights to arthritis drugs Remicade and Golimumab were worth that much. — Reuters


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