Is It Worth Investing in the Merck / Schering Merger Now?

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 |  Includes: MRK, SGP
by: BioPharma Investor

I was doing some homework on the Merck (NYSE:MRK) - Schering (SGP) merger and thought what would you make if the deal took place today. Merck and Schering-Plough expect to complete the transaction in the fourth quarter of 2009. The details of the merger states for every 1 share Schering, shareholders would receive 0.5767 shares of Merck + 10.50 in cash. You have to look back at March to see Schering's price in the 15-20 range. Investors who got in early and had Schering stock then are doing ok with the deal, but for those looking at the prices today, be careful. I wouldn't buy up Schering shares right now just to get some Merck stock.

So let's calculate this at today's rates. Schering closed at 28.24 (however after hours has dropped to 27.38) and Merck closed at 32.56 (dropping to 32.21 afterhours). 100 shares bought of Schering is $2824. 0.5767 X 32.56 of Merck is 18.78. 18.78 x 100 is $1878. Plus $10.50 x 100 is $1050. So 1878 + 1050 is $2928, which means a net profit of (2928-2824) $104. So you are receiving considerably less equity with only 57.67 shares of Merck and 104 bucks in your pocket. For a thousand shares of Schering, you would make $1037.35 but would have to fork out $28,240. The deal would net you a profit of 3.67%. Hmmm... 3.67 percent is the going savings rate these days at the bank.

Is it worth the trouble here? I really don't know. Merck does have a higher yield dividend than Schering but unless you are a huge owner of Schering shares I don't see the value in buying up a ton of Schering stock at this price. If the stock for Schering goes any higher I can actually see some losing cash. So unless Merck's share price goes up considerably in the next few months, I'd say put your money in the bank or buy some nice bonds these days. Sure Schering's price was a lot lower in March in the lower 15 dollar range, but for investors getting in late on the deal, it's not worth it.