Merck (MRK) said on Monday that it would acquire Schering-Plough (SGP) for $41.1 billion. Schering-Plough shareholders will receive $23.61 (0.5767 shares of Merck at Friday's price and $10.50 in cash) a share, representing a premium of about 34 percent over Schering's Friday's close.
This would join the two cholesterol drug makers of Zetia and Vytorin after they both recently announced job cuts and a combined 26 percent slump in sales in the fourth quarter. Merck CEO Richard Clark will lead the combined company.
The press release says "The combined company will benefit from a formidable research and development pipeline, a significantly broader portfolio of medicines and an expanded presence in key international markets, particularly in high-growth emerging markets." It also mentions other strategic benefits as well as financial ones, including "substantial cost savings of approximately $3.5 billion annually beyond 2011."
Indeed, there has been much talk about pharmaceutical consolidation lately as many Big Pharma companies suffer from declining sales as their drugs come off patent and they strive to boost their pipeline of drugs. Also, in this economic environment, consolidation is another way to save money and cut costs.
The Merck-Schering-Plough mega-deal follows another one from a few weeks ago -- Pfizer's (PFE) purchase of Wyeth (WYE) for $68 billion. It may be followed by another mega-deal as on Friday Roche has increased its bid for the 44.2 percent of Genentech (DNA) it doesn't already own by 7.5 percent to $93 a share for a total value of $45.7 billion, and could boost it higher if Genentech again rejects the bid many say is still too low.
We're probably just seeing the beginning of these mega-mergers as pharmaceuticals find a hard time growing their revenues. There is only so much cost cutting a company can do. So acquisitions and combining R&D and pipelines could be their only way to achieve growth.