Schering-Merck Plot Biggest Reverse Merger Ever
By David Feldman at 10 March, 2009, 6:37 am
Drug giant Merck is buying other drug giant Schering-Plough for $41.1 billion. This is good news for the beleaguered M&A world, and provides some good news for big pharma. Analysts have generally hailed the move as necessary consolidation given many challenges in the industry even though unfortunately it seems that thousands of jobs may be lost in the process.
Of great interest to you my dear blogees, it also happens to be structured as a reverse merger. Schering, while the target, will survive the merger and rename itself Merck, be run by Merck’s CEO, Richard Clark and be headquartered at Merck’s place in New Jersey.
According to the New York Times today, the reason for this structure is to permit Schering to “sidestep a change-of-control clause in a separate drug partnership it has with Johnson & Johnson.”
Marketwatch.com has speculated that J&J might try to stop the deal claiming there is a change of control, or that it might make a competing bid for Schering. According to Merck’s general counsel, the change-of-control provision does not refer to any change in stock ownership, only changes in the entity itself. Apparently any dispute would result in binding arbitration. Interesting stuff indeed.
This is not the first time two operating companies have combined in a reverse merger, even though some incorrectly think the term only applies to operating businesses combining with dormant public shell companies. In 2006 the New York Stock Exchange took itself public through a merger with much smaller Archipelago Holdings, a software supplier to the NYSE. No one could have imagined at the time that the NYSE would go public in any manner other than a traditional initial public offering.
Here the use of the technique is for a different purpose, but it sounds like it has a good chance of being effective. We are going to try to find the language in the J&J agreement if it is publicly available. Stay tuned.
By the way, thanks to this yesterday was the largest day for visitors ever on this site, by more than a 50% margin! I noticed almost all were visiting from either Schering or Merck, so I will do my best to keep you guys updated if I learn anything useful, and welcome to my humble blog!
Thanks for the info! I’m a schering employee in the caribbean territory and I’m clueless as to what is happening! I am still clueless as to what a reverse merger implies for the thousands of schering employees…..
It sounds like the reverse merger won’t really change things, and that Schering will continue to be your employer, although its name will change to Merck. Of course it sounds like a bunch of employees will be laid off due to the combination, unfortunately. Good luck Kamla.
David
Any idea how this will effect the two companies stocks?
No clue, wish I did!