Merck to buy Schering-Plough for $41.1B

In January 2009, Merck CEO Richard Clark (photo) indicated that dealmaking would be a priority for the company this year. The ideal purchase would, he said, increase Merck's revenue and beef up its pipeline. And Clark caught analysts attention a month later when he said that Merck was looking at an "entire spectrum" of deals, including a mega-merger.

That wasn't just talk. Merck announced today that it is paying $41.1 billion in a cash and stock deal for longtime partner Schering-Plough. The deal values Schering-Plough at $23.61 per share--a 34 percent premium based on the closing price of Schering-Plough stock on March 6, and a premium of about 44 percent based on the average closing price of the two stocks over the last 30 trading days. Schering-Plough shareholders will receive 0.5767 shares and $10.50 in cash for each share of Schering-Plough.

This is a major change for Merck, which has traditionally pursued internal expansion and smaller deals for growth. But Schering-Plough makes 70 percent of its money outside the U.S., including $2 billion in much-sought-after emerging markets. The company brings cardiovascular, respiratory and oncology drugs to Merck's pipeline. Additionally, Merck says the merger will boost its presence in the biologics market. "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," noted Peter S. Kim, Ph.D., Merck executive vice president.

"We are creating a strong, global healthcare leader built for sustainable growth and success," Richard 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." Merck expects to achieve substantial cost savings of approximately $3.5 billion annually beyond 2011.

When mega-mergers happen layoffs are usually quick to follow. But Merck and Schering-Plough already made major cuts in 2008, due mainly to a drop in Vytorin sales (the companies were numbers one and two on our list of the top layoffs last year). We'll know soon enough if more layoffs are needed to combine the two companies. Clark will, of course, will remain CEO of Merck. As for Schering-Plough CEO Fred Hassan, his future is less clear. According to the statement, " committed to continuing the strong operations at Schering-Plough and intends to participate in the integration planning until the close."

- see Merck's release
- here's the WSJ report