Biotech Values

[DewDiligence]

The WSJ chimes in on the MRK-SGP deal. This merger has long been expected
by various Street analysts due to the companies’ shared cholesterol franchise.

http://online.wsj.com/article/SB123659326420569463.html

›Merck to Buy Schering-Plough in $41B Cash + Stock Deal

MARCH 9, 2009, 6:46 A.M. ET
By KEVIN KINGSBURY

New Jersey-based drug makers Merck & Co. and Schering-Plough Corp. announced plans to combine in a $41.1 billion cash-and-stock deal that comes six weeks after rivals Pfizer Inc. and Wyeth announced their engagement.

The announcements come as the world's biggest pharmaceutical companies face a litany of pressures -- from pipelines that likely won't be able to offset companies' blockbusters that will lose patent protection in the coming years to the potential of increased government pressure to lower prices.

"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."

Mr. Clark would oversee the combined company, which would retain the Merck name. Three Schering-Plough board members would join Merck's board. [Where does Hassan end up?]

Schering-Plough shareholders would get 0.5767 share of Merck and $10.50 in cash for each share they own. That values Schering-Plough at $23.61 a share, a 34% premium to Friday's closing price. Merck shareholders would own 68% of the combined company. Some 44% of the deal will be cash, with $9.8 billion coming from existing balances and $8.5 billion from committed financing from J.P. Morgan Chase & Co.

Some $3.5 billion a year in cost savings are anticipated beyond 2011. Schering-Plough is expected to "modestly" add to Merck's earnings, excluding charges related to the deal, in the first year after its completion and "significantly" thereafter.

Merck and Schering-Plough already have a relationship through their cholesterol-drug joint venture. That effort has been under pressure for a year following an early 2008 study raised questions about the effectiveness of Zetia. The results sent prescriptions of Zetia and sister drug Vytorin, which combines Zetia with Merck's Zocor, plummeting.

Fred Hassan took over Schering-Plough six years ago as chairman and CEO at a time when the company has dealt with manufacturing troubles which led to a $500 million fine. At the time, it was said taking over Schering-Plough would test his mettle as a turnaround expert.

Now while the company is in stronger financial shape, its stock sits at the same level it did when Mr. Hassan took charge amid 50% price drop the past 18 months.

Mr. Hassan "intends to participate in the integration planning until the close," a statement from the companies said.‹