Merck to Buy Schering-Plough in $41.1 Billion Cash and Stock Deal

Includes: MRK, SGP
by: Eben Tessari

Not to be outdone by Pfizer (NYSE:PFE) / Wyeth (WYE), Merck (NYSE:MRK) and Schering-Plough (SGP) announced that their Boards of Directors have unanimously approved a merger. Schering has a strong pipeline and was my best of breed to be acquired in the medium sized pharmaceutical space. I think Merck just made a nice step forward in solidifying itself as a top 5 pharmaceutical company in the near future.

Under the terms of the agreement, Schering-Plough shareholders will receive 0.5767 shares and $10.50 in cash for each share of Schering-Plough. Each Merck share will automatically become a share of the combined company. Merck Chairman, President and Chief Executive Officer Richard T. Clark will lead the combined company.

Based on the closing price of Merck stock on March 6, 2009, the consideration to be received by Schering-Plough shareholders is valued at $23.61 per share, or $41.1 billion in the aggregate. This price represents a premium to Schering-Plough shareholders of approximately 34 percent based on the closing price of Schering-Plough stock on March 6, 2009. The consideration also represents a premium of approximately 44 percent based on the average closing price of the two stocks over the last 30 trading days.

Upon closing of the transaction, Merck shareholders are expected to own approximately 68 percent of the combined company, and Schering-Plough shareholders are expected to own approximately 32 percent.


  • 44% cash and 56% stock.
  • The cash portion will be financed with a combination of $9.8 billion from existing cash balances and $8.5 billion from committed financing to be provided by J.P. Morgan.

Transaction Structure

  • The transaction will be structured as a “reverse merger” in which Schering-Plough, renamed Merck, will continue as the surviving public corporation.
  • The exchange ratio was calculated based on an agreed price of $26.25, with $10.50 in cash and $15.75 in Merck stock, based on a trailing thirty day volume weighted average price of $27.3109.
  • Effective upon the merger, each Merck share will automatically become a share of the combined company.