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Astra wants out of Merck
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June 5, 1998: 6:45 a.m. ET
Swedish pharmaceutical giant may buy out Merck stake in U.S. venture
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NEW YORK (CNNfn) - Swedish pharmaceutical concern Astra AB confirmed Friday that it is in talks with Merck & Co. Inc. about taking over the companies' U.S. joint venture.
Astra, a major developer of drugs used to treat gastrointestinal, cardiovascular and respiratory disorders, told CNNfn that it is interested in buying its share of the venture, Astra Merck Inc., formed four years ago when Astra paid $820 million for a 50 percent stake in Merck's U.S. unit.
The initial relationship between the drug giants dates back to 1982, when Merck paid $60 million for the U.S. licensing rights to several drugs Astra had under development.
Conflicting reports pegged the value of a buyout at anywhere from $10 billion to $16.3 billion. Astra declined to comment on reports that an agreement may be reached as early as next week.
Under the terms of the four-year-old joint venture between the pharmaceutical concerns, which is owned equally by both partners and is based in Wayne, Pa., Merck is entitled to a 50-percent share of Astra's U.S. business.
This, industry observers say, has become a bone of contention in the partnership as Astra has mushroomed into a major global player, spurred by the phenomenal success of its antiulcer drug, Prilosec. Astra reported pre-tax profits of $1.8 billion in 1997, ranking it as one of Europe's premier drugmakers.
But U.S. patent protection for Prilosec will expire in 2001, and Astra is said to be scouting for strategic partners to keep its new-drug inventory strong. A buyout from Merck would allow Astra to replenish its drug pipeline by pursuing other strategic mergers.
One person close to the deal, quoted by London's Financial Times, said the deal would be one of the pharmaceutical sector's "biggest divorces of all time."
Under the buyout terms, Astra would make an initial cash payment to Merck ranging from $1.5 billion to $3 billion, and then stagger additional payments over ten years, according to Financial Times. Astra would not comment on the figures.
The move comes on the heels of this week's $34 billion merger between American Home Products and biotechnology concern Monsanto.
The pharmaceutical industry is undergoing a rapid consolidation, driven by fierce pressures to innovate and cut costs. For Merck, based in Whitehead, New Jersey, a deal would provide eagerly sought revenue for internal research needed to ensure a steady stream of new drugs in its thinning pipeline.
Shares of Astra (A) were up 8 percent in European trade early Friday. Merck (MRK) stock ended up 3-1/8 at 115-11/16 Thursday.
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