Merck & Co., the third largest U.S. prescription drug manufacturer, has settled a $2.3 billion tax dispute with the IRS from 1993-2001 over overseas tax havens and minority equity interest financing transactions -- for $1.5b less than the IRS had been seeking -- but one of the IRS largest settlements ever. The dispute reflects a broader crackdown by U.S. and Canadian authorities on pharmaceutical company's tax maneuvering. Merck rival GlaxoSmithKline settled its tax dispute with the IRS last year for $3.1 billion. Merck said the settlement would not affect their bottom line as they had set aside reserves for it. With $4.4b in profits last year, the company still has several current and potential legal battles ahead: A $1.76b tax dispute with Canadian authorities, multibillion dollar litigation over the recalled Vioxx painkiller and the recently discovered gastro-intestinal side-effects on children from its anti-Rotavirus medicine Rotateq. Merck shares were up $0.11 to $44.06 yesterday. The stock has risen 27% in the past 12 months and 1.1% in 2007.
Sources: Merck Press Releases I & II, NY Times, Bloomberg , MarketWatch, Business Week, The Street, St. Louis Dispatch
Commentary: Potential Mandatory Vaccination May Prove Healthy For Merck • Thinking Through Pfizer and Merck • Conference Call Transcript: Merck Q4 2006
Stocks/ETFs to watch: Merck (MRK). Competitors: GlaxoSmithKline plc (GSK), Teva Pharmaceuticals (TEVA). ETFs: iShares Dow Jones U.S. Pharmaceuticals (IHE)
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