Six weeks after Pfizer snapped up Wyeth, Merck said we can do that and put down $41 billion for Schering-Plough.
Merck and the Plough are hardly strangers. Their New Jersey-based HQs are close enough to be in the same touch football league, and they co-market Vytorin, the star-struck cholesterol buster now saddled with concerns about safety and efficacy.
As was the case in Pfizer-Wyeth, Merck is doing the deal to diversify its product portfolio and revenue sources. The Plough’s got animal health, biotech and consumer health divisions and derives 70% of its revenues from outside the US.
Plus, it has at least 2 potentially huge drugs—the clot buster TRA and the arthritis drug golimumab (aka Son of Remicade) in the pipeline with the latter getting pretty close to market.
By contrast, Merck’s blockbuster asthma drug, Singulair, which accounts for 18% of its revenues, loses patent protection 3 years hence.
Pfizer-Wyeth and Merck-Plough are attempts to emulate the success of Johnson & Johnson and Abbott, whose diverse product combinations have enabled reasonably steady quarterly performance even during the Great Economic Crisis.
The cash and stock deal “is about size, it’s about growth of in-line products and it’s about diversity from a global standpoint,” Merck’s CEO Richard Clark told analysts.
Plough shareholders get a 0.58 share of Merck and $10.50 cash for each share they tender. That values the Plough at $23.61 per share, a 34% premium according to the Wall Street Journal.
Merck shareholders come away with 68% of the new entity which will do $47 billion in annual revenue.
The new entity will retain the name Merck and Clark will run the place.