Merck & Co Inc said on Monday that it would acquire Schering-Plough Corp for $41.1 billion, uniting the makers of cholesterol drugs Zetia and Vytorin in the second megadeal for Big Pharma in weeks.
The transaction, which offers a premium of 34 percent for Schering-Plough shareholders based on Friday's closing price, will double the number of potential medicines Merck has in late-stage development, bringing the total to 18.
It will also diversify Merck's portfolio of medicines to include cardiovascular, respiratory, oncology, neuroscience, infectious disease and immunology.
Schering-Plough shares were up 22 percent at $21.50 before the market opened, while Merck shares were not yet begun trading.
The Merck/Schering-Plough marriage follows on the heels of Pfizer's $68 billion purchase of Wyeth, another New Jersey-based pharmaceutical company. It finally consummates a deal that has been speculated upon for years, given the marketing partnerships and cost savings opportunities between Merck and Schering-Plough.
Merck sees cost savings of about $3.5 billion annually beyond 2011 from the deal. The combined 2008 revenues of the two companies totaled $47 billion, and Merck believes it will maintain its current credit ratings.
It seems somewhat inevitable, said Jeffrey Holford, analyst at Jefferies in London.
The industry needs to shrink because there is just not the same market for branded pharmaceuticals going forward as there has been over the last 10 years, he said. There is overcapacity, and (Merck and Schering-Plough) need to take each other's capacity out of the market.
Under the agreement, Schering-Plough shareholders will receive 0.5767 shares of Merck and $10.50 in cash for each of their shares. Each Merck share will automatically become a share of the combined company.
Merck Chief Executive Richard Clark will lead the combined company, with Merck shareholders owning a stake of about 68 percent.
Merck expects the deal to add modestly to operating earnings in the first full year following completion and significantly after that.
Vytorin and Zetia sales plunged last year, along with the share prices of the two companies, after a pair of clinical trials led to questions about the safety and effectiveness of the medicines.
One of the studies contained data that suggested a possible association with increased cancer risk, but the drugmakers and some researchers have said that data was likely due to chance.
Vytorin combines Zetia with Merck's Zocor, which is now available in generic form as simvastatin.
Total combined U.S. monthly prescriptions have plunged since January 2008, when the first controversial study shook investors.
Analysts have said the cloud hanging over the medicines will likely remain until long-term data on their ability to prevent heart attacks becomes available from a major study in 2011 or 2012.
(Reporting by Edward Tobin in New York and Ben Hirschler in London; Editing by Lisa Von Ahn)