Merck to Buy Schering-Plough for $41.1 Billion
By DAVID JOLLY|
March 9, 2009
Merck, the American pharmaceutical giant, will pay $41 billion to acquire a rival Schering-Plough, the two companies said Monday.
The companies said in a joint statement that the merged company would keep the name Merck, and that the deal had been unanimously approved by their boards. Richard T. Clark, Merck?s chairman and chief executive, will lead the combined company.
With the move, Merck is expanding its franchise in cardiovascular, respiratory and oncology drugs, and shoring up its research pipeline. In addition, Merck will benefit from the worldwide reach of Schering-Plough, which generates about 70 percent of its sales outside of the United States, including more than $2 billion in a year from emerging markets.
The deal marks the second major pharmaceutical deal this year. In January, Pfizer, the world?s biggest drug maker, bid $68 billion bid for Wyeth. And Roche, the Swiss pharmaceutical company, is pursuing a full acquisition of the biotechnology company Genentech, in which it already owns a majority stake. On Friday, Roche raised the price of its hostile offer for Genentech to $93 a share, from $86.50.
Merck is among the big pharmaceutical companies that are facing patent expirations on top-selling drugs in the next decade with few promising prospects to replace them.
Most pressing is the expiration in 2012 of its Singulair asthma drug, its top-selling product, said Richard Purkiss, a drug sector analyst at Atlantic Securities in London. Worldwide sales of Singulair were $4.3 billion last year, about 18 percent of Merck?s total sales.
In contrast, "Schering-Plough doesn?t have much exposure to patent expiries in the same time frame," Mr. Purkiss said, adding: "This is really about combining to protect earnings."
Shares of Schering-Plough rose more than 8 percent Friday amid speculation that the company was being pursued by either Johnson & Johnson or Merck.
Under the terms of the deal, Schering-Plough shareholders will receive 0.5767 shares and $10.50 in cash for each share of Schering-Plough. Each Merck share will become a share of the combined company. The deal values Schering-Plough at $23.61 a share, or $41.1 billion, a premium of about 34 percent based on Friday?s closing price for Schering-Plough.
The 44 percent of the deal that is being paid in cash will be financed with a combination of $9.8 billion from existing cash balances and $8.5 billion from financing provided by JPMorgan Chase.
Merck shareholders will own about 68 percent of the merged company, and Schering-Plough shareholders will own the rest. Merck said it expected the deal to contribute "modestly" to its earnings in the first year and "significantly" thereafter.
"We are creating a strong, global health care leader built for sustainable growth and success," Mr. Clark said in a statement. "The combined company will benefit from a formidable research and development pipeline, a significantly broader portfolio of medicines and an expanded presence in key international markets, particularly in high-growth emerging markets. The efficiencies we gain will allow us to invest in strategic opportunities, while creating meaningful value for shareholders."
The transaction will be structured as a "reverse merger" in which Schering-Plough, renamed Merck, will continue as the surviving public corporation.
Merck said it expected annual cost savings of about $3.5 billion after 2011.. The savings "are expected to come from all areas across the combined company and from the full integration of the Merck/Schering-Plough Pharmaceuticals cholesterol joint venture," it said, and are in addition to previously announced cost-cutting measures at the two companies.
David Moskowitz, an analyst at Caris & Company in New York, suggested that the companies might have to raise the price further above $23.61.
"I think it should be at least $12 billion to $15 billion higher," he told Reuters, as investors might not be happy until the share price reaches "the high-$20?s or $30."
Merck to buy Schering-Plough for $41.1 billion
Mon Mar 9, 2009 6:43am EDT
"We are creating a strong, global healthcare leader built for sustainable growth and success," said Merck Chairman and Chief Executive Richard T. Clark. "The combined company will benefit from a formidable research and development pipeline, a significantly broader portfolio of medicines and an expanded presence in key international markets, particularly in high-growth emerging markets."
* Deal offers 34 pct premium for Schering-Plough holders
* Deal doubles Merck late-stage drugs to 18
* Cost savings of about $3.5 billion annually beyond 2011
* Combined 2008 revenues total $47 billion
* Schering-Plough shares up 22 pct in premarket (Adds details, stock activity)
NEW YORK, March 9 (Reuters) - Merck & Co Inc (MRK.N) said on Monday that it would acquire Schering-Plough Corp (SGP.N) for $41.1 billion, 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 percent..
The transaction, which offers a premium of 34 percent 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.
Schering-Plough shares were up 22 percent at $21.50 before the market opened, while Merck shares were not yet begun trading.
The Merck/Schering-Plough marriage follows on the heels of Pfizer's (PFE.N) $68 billion purchase of Wyeth (WYE.N), another New Jersey-based pharmaceutical company. 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 $3.5 billion annually beyond 2011 from the deal. The combined 2008 revenues of the two companies totaled $47 billion, 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, Schering-Plough shareholders will receive 0.5767 shares of Merck and $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 percent.
Merck expects the deal to add modestly to operating earnings in the first full year following completion and "significantly" after that.
Vytorin and Zetia sales plunged last year, along with the share prices of the two companies, after a pair of clinical trials led to questions about the safety and effectiveness of the medicines.
One of the studies contained data that suggested a possible association with increased cancer risk, but the drugmakers and some researchers have said that data was likely due to chance.
Vytorin combines Zetia with Merck's Zocor, which is now available in generic form as simvastatin.
Total combined U.S. monthly prescriptions have plunged since January 2008, when the first controversial study shook investors.
Analysts have said the cloud hanging over the medicines will likely remain until long-term data on their ability to prevent heart attacks becomes available from a major study in 2011 or 2012. (Reporting by Edward Tobin in New York and Ben Hirschler in London; Editing by Lisa Von Ahn)
Merck, Schering-Plough Statement
Merck & Co. and Schering-Plough Corp., already partners in a joint venture, are planning to merge under the name Merck in a stock-and-cash deal worth about $41.1 billion.
WHITEHOUSE STATION, N.J. & KENILWORTH, N.J.--March 09, 2009-- Merck & Co., Inc. (NYSE: MRK) and Schering-Plough Corporation (NYSE: SGP) today announced that their Boards of Directors have unanimously approved a definitive merger agreement under which Merck and Schering-Plough will combine, under the name Merck, in a stock and cash transaction. Under the terms of the agreement, Schering-Plough shareholders will receive 0.5767 shares and $10.50 in cash for each share of Schering-Plough. Each Merck share will automatically become a share of the combined company. Merck Chairman, President and Chief Executive Officer Richard T. Clark will lead the combined company.
Based on the closing price of Merck stock on March 6, 2009, the consideration to be received by Schering-Plough shareholders is valued at $23.61 per share, or $41.1 billion in the aggregate. This price represents a premium to Schering-Plough shareholders of approximately 34% based on the closing price of Schering-Plough stock on March 6, 2009. The consideration also represents a premium of approximately 44% based on the average closing price of the two stocks over the last 30 trading days.
Upon closing of the transaction, Merck shareholders are expected to own approximately 68% of the combined company, and Schering-Plough shareholders are expected to own approximately 32%. Merck anticipates that the transaction will be modestly accretive to non-GAAP EPS1 in the first full year following completion and significantly accretive thereafter.
"We are creating a strong, global healthcare leader built for sustainable growth and success," said Mr. Clark. "The combined company will benefit from a formidable research and development pipeline, a significantly broader portfolio of medicines and an expanded presence in key international markets, particularly in high-growth emerging markets. The efficiencies we gain will allow us to invest in strategic opportunities, while creating meaningful value for shareholders.
"We look forward to joining forces with an outstanding partner we know well and that shares our commitment to patients, employees and the communities where we work and live. Through their talent and dedication, Schering-Plough employees have built an industry leading R&D engine and late-stage pipeline that is complementary to our own. We are confident that, together, Merck and Schering-Plough will make a meaningful difference in the future of global healthcare," Mr. Clark added.
Fred Hassan, chairman and chief executive officer of Schering-Plough, said, "Over the last six years, Schering-Plough colleagues have transformed our company into a strong competitor in the global pharmaceutical industry. We have built a strong, diverse business and a robust pipeline that offers hope to patients who are waiting for new medicines. I am proud of what we have accomplished. Our success is a testament to the hard work and dedication of our colleagues in every country. We are joining forces with Merck, our long-term partner in our cholesterol joint venture, to create a dynamic new leader in the pharmaceutical industry. By harnessing the strengths of both companies, the combined entity will be well-positioned to further deliver on our shared goal of discovering new therapies for patients to help them live healthier, happier lives."
"The talent and dedication of Schering-Plough scientists has helped to build an outstanding clinical development pipeline," said Peter S. Kim, Ph.D.., Merck executive vice president, and president of Merck Research Laboratories. "Schering-Plough's considerable biologics expertise will complement Merck's novel proprietary biologics platform and aligns with our commitment to build a powerful biologics presence. The Schering-Plough and Merck pipelines are remarkably complementary and will greatly increase our ability to deliver important new medicines to patients. I believe the combined pipeline will be the best in the industry, by far."
Strategic Benefits of the Transaction
-- Complementary Product Portfolios and Pipelines Focused on Key Therapeutic Areas: The combination significantly broadens Merck's portfolio of medicines -- an engine for consistent, sustainable growth -- driven in part by the addition of valuable products with long periods of exclusivity. By leveraging the combined company's expanded product offerings, Merck expects to benefit from additional revenue growth opportunities. For example, the combined company will have expanded opportunities for life-cycle management through the introduction of potential new combinations and formulations of existing products. In addition, Merck and Schering-Plough together have high-potential early-, mid- and late-stage pipeline candidates. The transaction will double the number of potential medicines Merck has in Phase III development, bringing the total to 18. The combined company will have a more diverse portfolio across important therapeutic areas, including cardiovascular, respiratory, oncology, neuroscience, infectious disease, immunology, women's health and other areas:
-- Cardiovascular: This transaction reinforces Merck's 50-year commitment to the cardiovascular therapeutic area. The consolidation of the cholesterol drugs ZETIA (ezetimibe) and VYTORIN2 (ezetimibe/simvastatin) into Merck's cardiovascular portfolio will simplify the combined company's approach to the cardiovascular market and create new opportunities to leverage the cholesterol franchise through new medicine combinations.
Finally, the addition of Schering-Plough's Thrombin Receptor Antagonist, a potential first-in-class antiplatelet therapy, among other late-stage development candidates, further complements Merck's Phase III cardiovascular development portfolio and will position the combined company to continue offering meaningful products for patients in this important therapeutic area.
-- Respiratory: The combination with Schering-Plough expands Merck's strong respiratory franchise with multiple complementary products including those for the treatment of asthma and allergic rhinitis.
-- Oncology: Schering-Plough's current oncology products will enable Merck to expand its presence in this area and provide the necessary foundation to take advantage of the combined company's promising pipeline.
-- Neuroscience: Schering-Plough's strong R&D capabilities in this area complement Merck's ongoing neuroscience development efforts, which include both migraine and sleep product candidates. In addition to the two companies' currently marketed neuroscience products, Schering-Plough brings several promising late-stage candidates, including SAPHRIS (asenapine), an antipsychotic drug for the treatment of schizophrenia and bipolar disorder, and BRIDION (suggamadex), a novel anesthesia reversal agent.
-- Infectious Disease: Schering-Plough and Merck have complementary efforts in infectious disease. The combined company will leverage the scientific and commercial strengths of both Schering-Plough and Merck in the treatment of Human Immunodeficiency Virus (HIV) and Hepatitis C Virus (HCV). Schering-Plough's strong portfolio of HCV candidates, including boceprevir, is well-aligned with Merck's programs in this critical disease area..
-- Immunology: Schering-Plough brings distribution rights outside the United States to REMICADE (infliximab), its well-established biologic product for inflammatory/immunological diseases, and SIMPONI (golimumab), which was filed in Europe in March 2008, as well as a number of other promising products in development.
-- Women's Health: Merck expects to benefit from a solid portfolio of women's health products including GARDASIL [human papillomavirus quadrivalent (types 6, 11, 16 and 18) vaccine, recombinant], a broad range of contraceptive options and biologic and small molecule fertility drugs, which will allow it to strengthen relationships with women's healthcare providers.
-- Other Areas: Schering-Plough brings to the combined company a leading Animal Health business with strength in vaccines and small molecules, as well as many attractive consumer health brands such as CLARITIN, COPPERTONE, DR. SCHOLL'S and MIRALAX.
-- Robust R&D to Deliver Innovative Medicines for Patients: Merck and Schering-Plough both have proven track records of breakthrough research and scientific discovery. The combined company will have a product pipeline with greater depth and breadth, and numerous promising drug candidates. With greater resources, the combined company will have the financial flexibility to invest in these candidates as well as external R&D opportunities and to build on the strong legacies of both companies.
-- Stronger Commercial Organization: Both Merck and Schering-Plough have proven teams of talented and experienced employees with strong customer relationships. The progress Merck and Schering-Plough have made in implementing new customer-centric selling models will help ensure the smooth and efficient integration of the two commercial operations. The combined company's broader product portfolio will help its sales force to be more effective, increasing its ability to help physicians and healthcare systems improve patient outcomes. Schering-Plough brings key advantages to Merck through its focus on specialty therapeutic areas and its strength in international markets.
-- Expanded Global Presence with Geographically Diverse Revenue Base: Schering-Plough generates about 70% of its revenue outside of the United States, including more than $2 billion in annual revenue from emerging markets. This will dramatically accelerate Merck's own international growth efforts, including the company's goal of reaching top five market share in targeted emerging markets. The combined company will have an industry-leading global team of marketing and sales professionals. In addition, with a more geographically diverse mix of business, the combined company is expected to generate more than 50 percent of its revenue3 outside the United States.
-- Increased Manufacturing Capabilities: The combined manufacturing operations of Merck and Schering-Plough will considerably increase manufacturing capabilities, adding more capacity to support anticipated growth in biologics and sterile medicines. Merck will achieve even greater synergies by applying its lean manufacturing and sourcing strategies to the expanded operations.
Financial Benefits of the Transaction
-- Strong Financial Profile: The combined 2008 revenues3 of the two companies totaled $47 billion. Post-transaction, the combined company will have a strong balance sheet with a cash and investments balance of approximately $8 billion. Merck believes it will maintain its current credit ratings. In addition, the combined company's broad product portfolio is expected to generate robust cash flow.
-- Commitment to Maintain Merck Dividend: Merck's Board of Directors is committed to maintaining the dividend at the current level following the closing of the transaction. Merck currently pays an annual dividend of $1.52 per share, which, on an as-converted basis, represents a three fold increase for Schering-Plough shareholders. In addition, the combined company will continue Merck's share repurchase program after the closing of the transaction.
-- Substantial Cost Savings: Merck expects to achieve substantial cost savings of approximately$3.5 billion annually beyond 2011. These cost savings are expected to come from all areas across the combined company and from the full integration of the Merck/Schering-Plough Pharmaceuticals cholesterol joint venture. These cost savings are in addition to the previously announced ongoing cost reduction initiatives at both companies.
-- Accretive to Earnings: The transaction is anticipated to be modestly accretive to non-GAAP EPS(1) in the first full year following completion and significantly accretive thereafter.
-- Ability to Optimize Investments for Maximum Benefit: The substantial cost savings expected to be achieved through this combination will be allocated to the best investment opportunities, including pipeline candidates with the greatest probability of success, as well as licensing opportunities. By optimizing its investments, the combined company will maximize the benefits of strategic growth initiatives and R&D efforts to solidify its position at the forefront of innovation and enhance its scientific and technological leadership.
Leadership and Integration
Following the close of the transaction, the Board of Directors of the combined company will be comprised of the Merck Board and three representatives from Schering-Plough's Board. Richard T. Clark will serve as chairman, president and chief executive officer of the combined company. Fred Hassan, chairman and chief executive officer of Schering-Plough, is committed to continuing the strong operations at Schering-Plough and intends to participate in the integration planning until the close.
Merck's integration team will be led by Adam Schechter, president of Global Pharmaceuticals, who will report to Mr. Clark. Schering-Plough's integration team will be led by Brent Saunders, senior vice president and president, Consumer Health Care, who will report to Mr. Hassan. A key priority is keeping the best talent from both companies. Recognizing that the combination will result in a much larger organization, Merck expects that the substantial majority of Schering-Plough employees will remain with the combined company. In addition, both Merck and Schering-Plough will institute hiring freezes immediately.
The combined company will have its corporate headquarters in Whitehouse Station, NJ.
The aggregate consideration will be comprised of a combination of approximately 44% cash and 56% stock. The cash portion will be financed with a combination of $9.8 billion from existing cash balances and $8.5 billion from committed financing to be provided by J.P. Morgan.
Source: Merck & Co., Inc. and Schering-Plough Corporation via Business Wire