Merck to pay US$41.1 billion for Schering-Plough

A definitive merger agreement has been unanimously approved by the Boards of Directors under which Merck & Co 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 US$10.50 in cash for each share of Schering-Plough. Each Merck share will automatically become a share of the combined company.

Based on the closing price of Merck stock on 6th March, the consideration to be received by Schering-Plough shareholders is valued at US$23.61 per share, or US$41.1 billion in the aggregate. This price represents a premium to Schering-Plough shareholders of approximately 34 per cent based on the closing price of Schering-Plough stock on 6th March. The consideration also represents a premium of approximately 44 per cent 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 per cent of the combined company and Schering-Plough shareholders are expected to own approximately 32 per cent. Merck anticipates that the transaction will be modestly accretive to non-GAAP EPS in the first full year following completion and significantly accretive thereafter.

The combination significantly broadens Merck's portfolio of medicines 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 oncology.

Schering-Plough's current oncology products, which include Caelyx (pegylated liposomal doxorubicin), Intron A (interferon alpha-2b recombinant for injection)/PegIntron (peginterferon alpha-2b) and Temodar/Temodal (temozolomide) Capsules, 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. Merck also expects to benefit from a solid portfolio of women's health products, which includes the cervical cancer vaccine, Gardasil (human papillomavirus quadrivalent types 6, 11, 16 and 18 vaccine, recombinant).

The transaction is subject to approval by Merck and Schering-Plough shareholders, and the satisfaction of customary closing conditions and regulatory approvals, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act, as well as clearance by the EC under the EC Merger Regulation and certain other foreign jurisdictions. Merck and Schering-Plough expect to complete the transaction in the fourth quarter of 2009, by which time there may well have been more such acquisitions, with Bristol-Myers Squibb being the current favourite target.

Matthew Dennis - Editor, Cancer Drug News