Does J&J's Move on Remicade Pact Threaten Schering CEO Hassan's $51 Mil. Merger Payout?

(MoneyWatch)  Johnson & Johnson wants its Remicade back. It filed with an arbitrator on May 5 to unravel its distribution agreement with Schering-Plough, in light of the latter's merger with Merck, the WSJ reports. There's a clause in J&J's agreement with Schering that says if there's a "change of control" at Schering, J&J can end the agreement.

Thus Schering is forced to argue that the Merck merger is not a takeover of Schering. Interestingly, if Schering successfully establishes that Schering has not undergone a "change of control," that would seem to militate against the $51 million payout promised to Schering CEO Fred Hassan (pictured) in the event of a "change of control" at Schering. If there's officially no "change of control" Hassan only (!) gets $34.5 million.

It begs the question: In order to keep $2.1 billion in Remicade sales, will Merck CEO Richard Clark be forced to screw over Hassan?

BNET readers are familiar with Merck and Schering's ridiculous logic regarding this merger. Although Merck is acquiring Schering, "Schering" is the legal entity that will survive. Thus, Schering has not experienced a change of control, Merck's lawyers will argue, and thus the new company gets to keep $2.1 billion in sales Remicade and the successor brand, Simponi (golimumab).

Of course, if there's no change of control, then according to a plain-English reading of page 51 Hassan's payout contract, he can't collect his $51 million.

Here's J&J's response:

"The distribution agreement may be terminated by Centocor in the event Schering is acquired or otherwise falls under the control of another party," J&J said in a statement. "As its public statements make clear, Merck is acquiring Schering Plough. The acquisition constitutes a change of control and triggers Centocor's right to terminate."

Quite!

Here's Schering's case, in its own words:

Merck and Schering-Plough believe that the merger does not constitute a change of control as defined in the distribution agreement; therefore, Merck and Schering-Plough believe that completion of the merger will not entitle Centocor to terminate the distribution agreement.

Merck and Schering-Plough and the combined company would vigorously contest any attempt by Centocor to terminate the distribution agreement as a result of the transaction.

The company admits that J&J might win:

However, if the arbitrator required to hear a dispute under the distribution agreement were to conclude that Centocor is permitted to terminate the distribution agreement ... the combined company would not be able to distribute and commercialize Remicade, which generated sales for Schering-Plough of approximately $2.1 billion in 2008, and would not have the right to commercialize and distribute golimumab in the future.

Of course, this may just be a threat by J&J, which knows that Schering may be persuaded to give up money or rights to J&J in order to keep a portion of the Remicade sales. I call this the Darth Vader gambit, which readers will remember from The Empire Strikes Back, where Vader tells Lando Calrissian: "I have altered the deal. Pray I do not alter it further!"