Merck/Schering-Plough Merger Would Create Second-Largest Drug Company

Merck & Co. is buying Schering-Plough Corp., hoping a
combined company will have more firepower to compete in a drug industry that
faces slumping sales, tough generic competition and intense pricing pressures.

Merck also hopes to expand its presence in emerging markets
and bolster its pipeline of potential new medicines.

The move comes six weeks after the world’s largest drug maker,
Pfizer Inc., announced that it agreed to pay $68 billion for Wyeth.

Merck and Schering-Plough had a combined $47 billion in
revenue in 2008, nearly as much at Pfizer Inc., which posted $48.42 billion.
But Pfizer’s acquisition of Wyeth could add more than $20 billion to its
revenue.

“This is a uniquely complementary match,” Merck
Chairman and CEO Richard Clark told the Associated Press.

The combined company will be “well-positioned for
sustainable growth through scientific innovation” and have a strong,
diversified product portfolio, he said.

“We’ll double Merck medicines in (late-stage
development) to 18,” he added. Several Schering-Plough products won’t face
generic competition for several years.

The combined Merck/Schering-Plough company would have the
combined market presence of the popular asthma drug Singulair and allergy
medicine Nasonex. The companies are already partners in a pair of popular
cholesterol fighters, Vytorin and Zetia.

Both companies and many of their rivals are eliminating
thousands of jobs and restructuring operations to further cuts costs.

Across the pharmaceutical industry, companies face slumping
sales as the blockbuster drugs of the 1990s lose patent protection, complicated
by a dearth of major new drugs coming on the market.

Merck has about 55,200 employees and Schering-Plough, which
grew significantly with its 2007 acquisition of Dutch biopharmaceutical company
Organon BioSciences NV, has about 50,800 employees.

“There’ll be no immediate changes” in staffing
levels, Merck spokeswoman Amy Rose said, according to the AP. “Eventually,
we anticipate an approximate 15 percent reduction in the combined company’s
headcount,” implying nearly 16,000 fewer jobs.

Schering-Plough’s shareholders will get $10.50 in cash and
0.5767 Merck shares for each Schering-Plough share they own. That’s a 34
percent premium to Schering-Plough’s closing stock price on Friday.

Clark will lead the combined company, which will be a
dominant player in treatment areas including cholesterol, respiratory,
infectious disease and women’s drugs, as well as vaccines.

Schering also makes the biotech arthritis drug Remicade,
plus a host of popular consumer products such as the Coppertone suntan line and
Dr. Scholl’s foot products.

The transaction is to be structured as a reverse merger. As
a result, Schering-Plough will be the surviving corporation but will take the
name Merck. The new company will be based at Merck’s sprawling headquarters in
Whitehouse Station, N.J., but the “substantial majority” of employees
of Kenilworth, N.J.-based Schering-Plough will remain with the combined company,
according to the announcement.

The deal is expected to close in the fourth quarter.

“Of course when the market is in a mood of desolation,
this is often the best time to effect a merger or acquisition,” David Buik
of BGC Partners told the Wall Street Journal. He added the deal “seems to
make huge sense with a cost-cutting exercise imperative, with the Obama
administration hell bent on giving the drug companies a very hard time,
offering the generic operators a brilliant opportunity.”

Shares of Merck slid more than 10 percent in mid-day trading
Monday to $20.38. Schering-Plough was up more than 14 percent at $20.16.