The Acquisition Between Merck and Schering-Plough

On March 9, 2009, Merck & Co., Inc. and Schering-Plough Corporation announced that their Boards of Directors brook unanimously approved a definitive fuser agreement under which Merck and Schering-Plough pass on combine, under the name Merck in a stock and notes transaction. As the both companies combined 2008 revenues were $47 billion. The deal offici anyy closed on November 3, 2009.Background of the two partiesMerck & Co. (NYSE MRK) was initially formed in 1891 as a United States hyponym of the German chemicals and pharmaceutical company Merck KGaA. During World contend I, it was established as an independent company from confiscated assets. Since then, it has grown to become champion of the top seven largest pharmaceutical and biotech companies worldwide.Schering-Plough (NYSE SGP) is one of the medium-sized players in the pharmaceutical industry, with gross sales of $18.5 billion in 2008. Its two largest products are autoimmune medication infliximab, sell internationally, and Zetia & Vytorin, a joint venture taken with Merck that fights cholesterol. While growth of Remicade has been strong, Vytorin has taken a hit after studies questioned its efficacy compared to the older medicate it is based on and in treating blockage of the heart valve.The process of the learningThe Merck and Schering-Plough took the typical change state merger arrangement during the acquisition process.The Merck- Schering-Plough merger agreement contemplates a two- pure tone transaction involving Merck, Schering-Plough, and Scherings two special purpose, subsidiary holding companies, Blue, Inc. and Purple, Inc. In step one of the mergers, Blue result merge into Schering-Plough and each share of Schering-Plough depart be converted into the right to tempt (i) 0.5767 shares of the surviving Schering-Plough and (ii) $10.50 in cash. In step two of the merger, Purple pass on merge into Merck and each share of Merck depart be converted into 1 share of the surviving Schering-Pl ough.After the effect of these two steps, the surviving Merck will be a wholly owned subsidiary of the surviving Schering-Plough. Yet, the shareholders of pre-merger Merck will own approximately 68% of the surviving Schering-Plough and shareholders of pre-merger Schering-Plough will own near 32% of the surviving Schering-Plough. Although Merck will become a subsidiary of Schering-Plough Mercks pre-merger shareholders will together possess a majority of the voting and frugal rights (or ripe ownership) of Mercks new parent company, Schering-Plough.One peculiarity of the Merck-Schering reverse merger transaction structure is that between steps one and two Merck finds itself in a slightly precarious situation. After the completion of step one, Scherings pre-merger shareholders will have received shares of the surviving Schering-Plough and a cash payout, but Mercks pre-merger shareholders will not yet have seized attend over the management of the surviving Schering-Plough.The merger agreement has come up with a way to protect Mercks shareholders during this governance gap. Simultaneously with the completion of step one of the merger, Schering has agreed that its board will cause all of its directors (other than 3 specified exceptions) to resign and to elect the members of pre-merger Mercks board of directors as the directors of the surviving Schering corporation. Even before pre-merger Mercks shareholders acquire their supermajority share of the beneficial ownership of the surviving Schering corporation after step two, they indirectly will have already taken the helm of the surviving Schering corporation through with(predicate) the election of their own directors to the new parent companys board.The pauperism of the acquisitionMerck faces many of the challenges that face all pharmaceutical companies, including issues surrounding evident expiration and FDA approval. Patent expiration may affect 30% of sales through 2008. In addition, there is growing pressur e in the US and abroad to lower the price of medication.Schering-Plough has a particularly small pipeline, with very few drugs currently in development. In the near term, it does however have one of the safest profiles in the industry, with very few major patents coming up for expiration in the coming years.The newest merger will result in a strengthened product pipeline in areas such as cardiovascular and respiratory disease and oncology, and should eventually yield $3.5 billion per year in cost savings. Merck is also set to be hit by patent expiries of some of its top sellers in the next decade, while Schering-Plough is not.