Merck buying Schering-Plough for $41.1 billion

TRENTON, N.J. – Merck & Co. is buying Schering-Plough Corp. for $41.1 billion in a deal that gives Merck key new businesses, access to a promising pipeline of new products and the chance to further cut costs, including eliminating about 16,000 jobs.

Merck hopes the cash-and-stock deal helps it better compete in a drug industry facing slumping sales, tough generic competition and intense pricing pressures.

The deal, announced Monday, would unite the maker of asthma drug Singulair with the maker of allergy medicine Nasonex and form the world’s second-largest prescription drugmaker. Merck and Schering are already partners in a pair of popular cholesterol fighters, Vytorin and Zetia, although concerns about safety and effectiveness have hurt sales.

Shares of the two companies traded furiously after the announcement, with Schering’s shares skyrocketing and Merck’s dropping, typical for a company doing a big acquisition.

The deal comes only a few weeks after Lipitor-maker Pfizer Inc. agreed to pay $68 billion for drugmaker Wyeth.

Merck and Schering-Plough, along with most of their rivals, are eliminating thousands of jobs and restructuring operations to cut costs.

“There’ll be no immediate changes” in staffing, Merck spokeswoman Amy Rose told The Associated Press. “Eventually, we anticipate an approximate 15 percent reduction in the combined company’s headcount,” implying nearly 16,000 fewer jobs.

The deal also would let Merck do the same thing Pfizer is trying to do with its acquisition – diversify into a more broad-based health care company.

Merck is a top maker of pills and vaccines, and acquiring Schering-Plough will add strength in the prized area of biologic drugs, which are made from living cells. It will also give Merck one of the world’s biggest animal health businesses and a sizable consumer health division that includes products such as allergy pill Claritin, Dr. Scholl’s foot products and the Coppertone sun-care line.

Merck Chairman and CEO Richard Clark told The Associated Press the company will be “well-positioned for sustainable growth through scientific innovation.”

Big drugmakers are facing slumping sales as the blockbuster drugs of the 1990s lose patent protection, complicated by a dearth of new drugs. Schering-Plough, however, has patent protection for key products until the middle of the next decade and what is considered one of the best product pipelines.

Still, analyst Steve Brozak of WBB Securities said the deal is mainly about Merck “buying revenue and buying earnings.”

“It’s a good short-term fix, but it unfortunately makes it more complicated for the long term,” Brozak said.

He said it will now be more difficult for Merck to continue its strategy of buying or licensing the few promising experimental compounds available from small biotech companies, many of which are on the verge of shutting down amid the recession and credit crunch.

Schering-Plough CEO Fred Hassan, 63, said in an interview that Nasonex, Pegintron for hepatitis, cancer drug Temodar, the NuvaRing contraceptive and the two cholesterol drugs all have patent protection until 2014 or later.

Merck has about 55,200 employees and Schering-Plough, which grew significantly with its November 2007 acquisition of Dutch biopharmaceutical company Organon BioSciences NV, has about 50,800.