Sometimes, speculation is more than just an intellectual exercise. After months of encouragement from would-be corporate matchmakers, Merck agreed to pair up with Schering-Plough in a deal worth $41.1 billion. That's $23.61 per share, or a 34 percent premium on Schering's closing price Friday. Merck will fund the cash portion of the transaction with cash on hand and a $9.8 billion loan from J.P. Morgan.
When the deal's done, Merck shareholders will boast 68 percent of the combined company--which will go under the Merck moniker-- and Schering's will control the remaining 32 percent. Merck chief Richard Clark (photo) will run it; Schering CEO Fred Hassan (photo) will stick around till the merger's done.
As you know, the two companies are already partners--or have been partners--on several drugs. Most notably, Merck and Schering work together on the cholesterol meds Vytorin and Zetia, which ran headlong into a fountain of controversy last year with the release of two sets of debatable data. Combined, sales of the drugs fell more than 20 percent during the fourth quarter on continued concern about safety and effectiveness.
Their previous partnership might have jump-started the combo, but the reasoning behind it is far more extensive. Schering-Plough will give Merck greater access to emerging markets; the company gins up about 70 percent of its sales outside the U.S., including more than $2 billion a year in up-and-coming countries. Indeed, the combined firm is projected to generate half its revenues outside the U.S. Plus, as the New York Times notes, Schering will beef up Merck's business in cardiovascular, respiratory and oncology drugs.
Schering also brings some promising R&D to the table--but as a recognized research leader, Merck probably has a better shot at actually bringing drug candidates to fruition, analysts said. "Schering-Plough wasn't necessarily in the best position to develop some of these drugs," Stephen Pope, chief global market strategist at Cantor Fitzgerald Europe, told MarketWatch. "Overall it's a very sensible move."
Now for the question on Merck and Schering employees' minds: Will the merged company shed jobs? Both firms already have cut thousands from their payrolls, including almost 2,000 sales reps. Clark said in a statement that he expected to see $3.5 billion in savings from the deal, most of it from the full integration of its Vytorin/Zetia operations. No word on layoffs. But stay tuned.