Merck to acquire Schering- Plough for $41 billion

09 March 2009

In a season of epic pharmaceutical mergers, drug major Merck & Co. is acquuiring Schering-Plough Corp. for $41.1 billion in cash and stock, giving it full rights to cholesterol pills Zetia and Vytorin and experimental treatments for blood clots, asthma and schizophrenia.

The deal comes less than two months after Pfizer Inc., the world's biggest drugmaker, agreed to buy Wyeth for about $62 billion. It may intensify pressure on other drugmakers, including Bristol-Myers Squibb Co, to broaden their product lines and combine their research efforts as big selling products lose patent protection. (See: Pfizer-Wyeth create $68-billion blockbuster deal)

The deal would make Merck the second-biggest US drugmaker after Merck. Schering-Plough holders will get $23.61 a share, a 34-per cent premium to the closing stock price last week, the companies said in a statement.

Merck had been looking to diversify for quite some time now, even as its ''blockbuster'' patents approach expiry deadlines and generic drug rivals nibble away at its profits. Schering-Plough was also vulnerable to consolidation because of its relatively high credit default spreads, making it tricky for the company to raise financing. So, the coming together of these two names was not entirely unexpected.

In fact, it may just be another in a long line of consolidation in the industry. Although so far the drug deal fervour has stayed within the US, that could change soon. Analysts opine that even though there was more pressure on American pharmaceutical icons to merge because of their comparatively high reliance on blockbuster-drug revenues, the wave of consolidation would eventually hit Europe.

Schering-Plough shareholders will receive 0.5767 Merck shares and $10.50 in cash for each share of Schering-Plough. Shares of Kenilworth, New Jersey-based Schering-Plough rose the most in a month in New York trading on 6 March as investors speculated on a possible bid.

Merck will finance the cash component of the deal with a combination of $9.8 billion of existing cash reserves and $8.5 billion from committed financing to be provided by JP Morgan. The companies said they expect to close the deal in the fourth quarter.