Merck to Buy Schering-Plough for $41 Billion (Update3)
By Shannon Pettypiece
March 9 (Bloomberg) -- Merck & Co. agreed to buy 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 would make Merck the second-biggest U.S. drugmaker. Schering-Plough holders will get $23.61 a share, a 34 percent premium to the closing stock price last week, the companies said in a statement. Shares of Kenilworth, New Jersey- based Schering-Plough rose the most in a month in New York trading on March 6 as investors speculated on a possible bid.
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
“It clearly is a year of mergers for pharmaceutical companies,” said Philippe Lanone, an analyst at Natixis Securities in Paris, in a telephone interview. “They don’t have much of a choice if they are to guarantee EPS growth in the years to come.”
Schering-Plough has drugs in late-stage testing that may top $6 billion in annual sales, and already has a partnership with Merck to split sales of the Zetia and Vytorin cholesterol pills, which generated $4.6 billion last year.
Looking for Acquisitions
Merck Chief Executive Richard Clark has said he was looking for acquisitions after failing to win U.S. regulatory approval for cholesterol pill Cordaptive and declining sales of the Gardasil cervical cancer vaccine. Whitehouse Station, New Jersey-based Merck said in October it would cut 7,200 jobs and close plants in 2009 as it braces for generic competition to $8 billion in products within five years.
Schering-Plough shareholders will receive 0.5767 Merck shares and $10.50 in cash for each share of Schering-Plough. The cash portion will be financed with a combination of $9.8 billion from existing reserves and $8.5 billion from committed financing from JPMorgan Chase & Co.
The companies said they expect to close the deal in the fourth quarter.
After closing, Merck shareholders are expected to own about 68 percent of the combined company, and Schering-Plough shareholders are expected to own approximately 32 percent. Merck anticipates that the transaction will “modestly” add to earnings in the first full year following completion and “significantly” thereafter.
Clark to Lead
Merck’s Clark will lead the combined company, which will have about $42 billion in revenue. Merck said it’s committed to maintaining its dividend.
Schering-Plough rose 15 percent to $20.70 at 7:22 a.m. in trading before the New York Stock Exchange opened. Merck rose 60 cents, or 2.7 percent, to $22.74.
“The price seems way too low,” said David Moskowitz, an analyst with Caris & Co, in a telephone interview today. “It’s a tremendous deal for Merck. Every bank in the world should want to line up and fund this deal at this price. What makes Schering so attractive is the number of drugs in their pipeline and the lack of generic competition.”
Schering-Plough’s most promising treatment in development, called TRA, is designed to prevent blood clots with fewer side effects than older drugs and could come on the market as early as 2011. Merck and Schering-Plough also have an agreement to co- develop a combination of Zetia and Pfizer Inc.’s Lipitor when it loses patent protection in 2011.
Sinking Sales
As of Jan. 31, U.S. sales of Vytorin slid 43 percent and Zetia 33 percent since a January 2008 study questioned whether the drugs were better at unclogging arteries than an older generic pill.
Schering-Plough Chief Executive Officer Fred Hassan has been firing workers and closing factories to save $1.25 billion by 2010 to recoup some of the cholesterol pill losses.
Concerns over the falling cholesterol pill sales sent Schering’s stock price down 36 percent in 2008.
Hassan, who took the helm at Schering-Plough in 2003, rebuilt crippled Pharmacia Corp. and sold it to Pfizer Inc. for $58 billion, engineered the $37 billion takeover of Monsanto Co., and made Schering-Plough profitable after losses in 2003 and 2004. Hassan, 63, was born in Pakistan and began his career in 1970 as a drug salesman. Schering’s Remicade deal with Johnson & Johnson allows it to sell the medicine outside the U.S., Japan and parts of Asia.
Remicade Rising
Remicade, a treatment for rheumatoid arthritis, generated $2.19 billion for Schering-Plough last year, 16 percent of company revenue. It was also Johnson & Johnson’s top selling drug, with $3.75 billion in sales. The two companies share rights to golimumab, an experimental successor to Remicade, and their agreements give J&J sole rights to Remicade if Schering is sold, said Linda Bannister, an Edward Jones & Co. analyst in St. Louis, in an interview before the deal was announced.
The companies didn’t specify in the statement what will happen with the Johnson & Johnson partnership.
“Basically these mega mergers are going to come back because the revenue in the pharma sector have no chance of growing and cost cutting can’t go much further for many companies,” said Navid Malik, an analyst at London-based Matrix Corporate Capital LLP, in an interview. “Any company that misses out on this round of mega mergers runs the risk of losing market share.”
Merck’s financial adviser was J.P. Morgan and legal adviser was Fried, Frank, Harris, Shriver & Jacobson. Schering-Plough’s financial adviser was Goldman, Sachs & Co. and Morgan Stanley. Legal adviser was Wachtell, Lipton, Rosen & Katz.
To contact the reporter on this story: Phil Serafino in Paris at pserafino@bloomberg.net
Last Updated: March 9, 2009 07:49 EDT |
