NEW YORK (CNN/Money) -
Merck & Co. Tuesday abandoned a planned public offering of its Medco Health Solutions Inc. pharmacy benefits unit, saying instead it will spin off 100 percent of Medco to Merck shareholders by mid-year.
A company spokesman blamed the change on the weak IPO market. Only five companies have gone public this year, according to Thomson Financial, down from 148 offerings during the same period in 2000.
"The IPO market has been awfully weak and has never really recovered," Merck spokeswoman Janet Skidmore said.
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Merck, the world's No. 3 drugmaker, said it expects the one-step transaction to be tax free to Merck and its shareholders. The move was approved by the company's board Tuesday.
Merck has been trying to separate itself from the pharmacy benefits unit in a move that would focus the Whitehouse, N.J.-based company on developing and marketing drugs.
"With the separation, the market can now value each of the companies as 'pure plays' in the pharmaceutical and [pharmacy benefits management] businesses, respectively," Merck CEO Raymond V. Gilmartin said.
The IPO, like many others postponed last year, was shelved in 2002 as investor demand for new offerings dried up.
As part of the deal, Medco will raise debt financing around the time of the spinoff to pay Merck a cash dividend.
Merck (MRK: up $2.05 to $59.01, Research, Estimates) stock rose more than 3 percent Tuesday afternoon.