EU Nod for Merck-Schering Merger

Recently, the European Union (EU) approved the proposed $41.1 billion merger between Schering-Plough (SGP) and Merck & Co. (MRK - Analyst Report). The deal is awaiting approval from the U.S. Federal Trade Commission. The transaction is expected to close in the fourth quarter of this year.

While approving the merger, the EU clarified that the tie-up will not hinder effective competition significantly in Europe, even though both participants in the merger operate in the field of prescription pharmaceuticals. While checking for overlaps in Europe, particularly in the fields of asthma and allergic rhinitis, the European body did not find the products to be close competitors. Consequently, the merger would not be considered to hog the market and choke other companies.

As a reminder, Merck filed for EU approval last month after the completion of the sale of its 50% interest in animal health company Merial Limited (Merial) to Sanofi-Aventis (SNY - Analyst Report) for a cash consideration of $4 billion (US).

Merial, founded in 1997, was a 50/50 joint venture between Merck and Sanofi-Aventis, and is now a wholly owned subsidiary of the latter. In 2008, Merial was ranked third in the animal health market, with a market share estimated at 13.8% and sales of $2.7 billion. This was just behind Schering’s animal health business, which registered sales of approximately $3 billion.

The sale of Merck's interest in Merial was a prerequisite for the European approval of the deal because Schering-Plough also sells animal health products. As per the terms of the $4 billion deal, Sanofi-Aventis has the option to buy Schering-Plough's animal health business after the merger of Merck and Schering-Plough is completed. This will expand Sanofi’s animal health business considerably and expand its presence in the sector even further.

In general, the merger between Schering-Plough and Merck will enable the combined entity to have a more diverse portfolio across important therapeutic areas, including cardiovascular, respiratory, oncology, neuroscience, infectious disease, immunology, women’s health and other areas.

Top-selling products of both companies will come under one umbrella following the merger. The merger should enable the combined entity to become one of the top drugmakers in the world.
 
Currently, we are Neutral on both Schering-Plough and Merck.