Merck and Schering-Plough in $41B merger

The $68B drug deal

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NEW YORK (CNNMoney.com) -- Drugmaker Merck & Co. announced Monday that it has agreed to acquire rival Schering-Plough Corp. in a deal worth $41.1 billion.

The combined company will take the Merck name, and Merck Chief Executive Richard Clark will take the reins.

According to the agreement, Schering-Plough shareholders will receive 0.5767 share of Merck and $10.50 in cash for each Schering-Plough share. Merck stock holders will automatically have their shares converted into shares of the combined company.

Merck Chief Executive Richard Clark said, in a teleconference with reporters and analysts, that the merger "makes great strategic sense." He said the "combined strengths" of the companies will "create sustainable growth and meaningful value for shareholders."

Schering-Plough Chief Executive Fred Hassan called it "the right transaction at the right time." He said the combined pipeline of the two companies allows them "many, many shots at the goal," meaning greater chances of success in getting new drugs onto the market.

The deal is expected to close in the fourth quarter.

Les Funtleyder, pharmaceutical analyst for Miller Tabak, said the Merck-Schering merger puts these companies on par with Pfizer, which merged with Wyeth earlier this year.

Merck and Schering-Plough, with their combined resources, are better able to compete with Pfizer, the largest drugmaker in the world in terms of annual sales, he said.

"I think this helps diversify them," said Funtleyder, noting that the two companies have overlapping portfolios for cardiovascular, respiratory and anti-viral drugs and experimental drugs.

He also said that Schering-Plough will add animal health products and a consumer division to Merck's profile, while bolstering its women's health area, led by Merck's cervical cancer vaccine Gardasil.

The companies already had an agreement with their cholesterol treatment Vytorin, a combination of Schering-Plough's Zetia and Merck's generic drug Zocor. But a study released by the companies in January 2008 showed that the combination drug was no more effective in treating high cholesterol than the relatively low-cost Zocor, when taken alone.

Going forward, Funtleyder said that competing drugmakers Bristol-Myers Squibb and Eli Lilly & Co. might be pressured to merge.

Merck said its 2009 outlook has not changed, and it is committed to keeping its annual dividend at it's current level of $1.52 per share.

Both drugmakers reported better-than-expected quarterly results in early February, but announced steep job cuts. On a conference call with investors on Feb. 3, Clark said the drugmaker was open to a takeover of a large pharmaceutical company.

Monday's announcement was just the latest in a string of recent deals in the pharmaceutical world. Pfizer Inc. (PFE, Fortune 500) announced Jan. 26 that it is buying the smaller Wyeth (WYE, Fortune 500) for $68 billion, and Swiss drugmaker Roche Holding AG continues to pursue a $40 billion hostile bid of Genentech Inc. (DNA).

Shares of Merck (MRK, Fortune 500) fell about 11% and Schering-Plough (SGP, Fortune 500) shares were up about 11% in premarket trading.