How Its Bold Acquisition Made Schering a Takeover Target

Last Updated Apr 5, 2010 7:07 PM EDT

The Organon acquisition, which strengthened Schering and
gave it a more diversified drug pipeline, made Schering itself an appealing
takeover target. And so Schering did not stay on the shelf: In November 2009,
Merck bought Schering for $41.1 billion, a 34 percent premium of its stock
price at the time.

Billed as a merger, it sure looked like a takeover: Merck
shareholders would own more than two-thirds of the combined company, which
would take the name Merck. This was “the right transaction at the
right time,” Hassan told analysts of the deal with Merck. But that wasn’t
the idea when Schering acquired Organon. Hassan told the Wall Street Journal that a merger with another
drugmaker was unlikely.

Then the economy collapsed, and Schering-Plough ran into
trouble with Vytorin, a highly profitable cholesterol drug it manufactured in
an alliance with Merck, over allegations that the drug did not work any better
than the equivalent generic. Under the circumstances, a $41.1 billion offer
began to look attractive. The Organon deal was also the beginning of the most recent
wave of consolidation in the pharmaceutical industry, with Bayer, Pfizer, and
Merck all completing major deals in the last 18 months.

For Merck, the immediate result of buying Schering was that
it jumped up the ranks among U.S. pharmaceutical companies, from eighth place
to second (after Pfizer). It had also bought an enviable pipeline and research
capabilities. As a stanza of an “ href="http://www.fool.com/investing/general/2009/11/04/an-ode-to-schering-plough.aspx">Ode
to Schering” that circulated on the web put it:

But Schering's pipeline also has gusto. Merck's is a bit of a mess. Many weren't developed by Schering, though, but through Organon BioSciences' largesse.

On the other hand, Merck also inherited the Vytorin
difficulty. In addition, now its overseas rights to arthritis drugs Remicade
and Simponi are in dispute.

For its part, Akzo Nobel did not let the money it made selling
Organon sit for long. It made several small and middling buys in the paint and
chemical industries, and then spent more than 8 billion euros to buy Imperial
Chemical Industries.

And while analysts estimate Merck will shed 16,000 jobs as
it integrates with Schering-Plough, Hassan is doing just fine. He left Schering-Plough after its sale, and href="http://industry.bnet.com/pharma/10001309/schering-ceo-hassan-has-59-million-buyout-agreement-in-merck-merger/?tag=content;col1">BNET estimated his payout at $59 million. But
he is still busy. “I have not improved my golf game,” he
laughs, “or taken long trips.” Instead, he has since joined
the boards of Time Warner and Bausch & Lomb, and is also a senior
adviser with Warburg Pincus, a private equity firm.


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