J&J is the elephant in Merck's board room

Who holds the cards in the Merck/Schering-Plough deal? Johnson & Johnson. Yep, J&J partners with Schering on Remicade, and their deal has certain (ahem) provisions triggered by a Schering buyout. The company "not subject to such change in control" can simply terminate the agreement. Which means J&J would get the Remicade revenue--all $4 billion a year--and all the rights to an experimental follow-up drug.

Merck and Schering appear to have structured their deal as a "reverse merger" specifically to avoid that trigger, because Merck wants to keep Schering's share of Remicade intact. It was worth $2.12 billion to Schering last year, the New York Times reports, or about 16 percent of the international sales so attractive to Merck.

So J&J could foil the deal. Or it could step in and make a bid of its own. Don't dismiss the idea out of hand, said Sanford C. Bernstein analyst Tim Anderson in an investor note. "The fit between the two companies is as good as--if not better--than the fit between Schering-Plough-Merck," MarketWatch quotes.

- read the J&J deal fine print at In the Pipeline
- get more from MarketWatch
- check out the NYT's take