Complementary Product Portfolios and Pipelines Focused on Key Therapeutic Areas: The combination significantly broadens Merck's portfolio of medicines - an engine for consistent, sustainable growth - driven in part by the addition of valuable products with long periods of exclusivity. By leveraging the combined company's expanded product offerings, Merck expects to benefit from additional revenue growth opportunities. For example, the combined company will have expanded opportunities for life-cycle management through the introduction of potential new combinations and formulations of existing products. In addition, Merck and Schering-Plough together have high-potential early-, mid- and late-stage pipeline candidates. The transaction will double the number of potential medicines Merck has in Phase III development, bringing the total to 18.
Robust R&D to Deliver Innovative Medicines for Patients: Merck and Schering-Plough both have proven track records of breakthrough research and scientific discovery. The combined company will have a product pipeline with greater depth and breadth, and numerous promising drug candidates. With greater resources, the combined company will have the financial flexibility to invest in these candidates as well as external R&D opportunities and to build on the strong legacies of both companies.
Stronger Commercial Organization: Both Merck and Schering-Plough have proven teams of talented and experienced employees with strong customer relationships. The progress Merck and Schering-Plough have made in implementing new customer-centric selling models will help ensure the smooth and efficient integration of the two commercial operations. The combined company's broader product portfolio will help its sales force to be more effective, increasing its ability to help physicians and healthcare systems improve patient outcomes. Schering-Plough brings key advantages to Merck through its focus on specialty therapeutic areas and its strength in international markets.
Expanded Global Presence with Geographically Diverse Revenue Base: Schering-Plough generates about 70 percent of its revenue outside of the United States, including more than $2 billion in annual revenue from emerging markets. This will dramatically accelerate Merck's own international growth efforts, including the company's goal of reaching top five market share in targeted emerging markets. The combined company will have an industry-leading global team of marketing and sales professionals. In addition, with a more geographically diverse mix of business, the combined company is expected to generate more than 50 percent of its revenue³ outside the United States.
Increased Manufacturing Capabilities: The combined manufacturing operations of Merck and Schering-Plough will considerably increase manufacturing capabilities, adding more capacity to support anticipated growth in biologics and sterile medicines. Merck will achieve even greater synergies by applying its lean manufacturing and sourcing strategies to the expanded operations.
Strong Financial Profile: The combined 2008 revenues³ of the two companies totaled $47 billion. Post-transaction, the combined company will have a strong balance sheet with a cash and investments balance of approximately $8 billion. Merck believes it will maintain its current credit ratings. In addition, the combined company's broad product portfolio is expected to generate robust cash flow.
Commitment to Maintain Merck Dividend: Merck's Board of Directors is committed to maintaining the dividend at the current level following the closing of the transaction. Merck currently pays an annual dividend of $1.52 per share, which, on an as-converted basis, represents a three fold increase for Schering-Plough shareholders. In addition, the combined company will continue Merck's share repurchase program after the closing of the transaction.
Substantial Cost Savings: Merck expects to achieve substantial cost savings of approximately $3.5 billion annually beyond 2011. These cost savings are expected to come from all areas across the combined company and from the full integration of the Merck/Schering-Plough Pharmaceuticals cholesterol joint venture. These cost savings are in addition to the previously announced ongoing cost reduction initiatives at both companies.
Accretive to Earnings: The transaction is anticipated to be modestly accretive to non-GAAP EPS¹ in the first full year following completion and significantly accretive thereafter.
Ability to Optimize Investments for Maximum Benefit: The substantial cost savings expected to be achieved through this combination will be allocated to the best investment opportunities, including pipeline candidates with the greatest probability of success, as well as licensing opportunities. By optimizing its investments, the combined company will maximize the benefits of strategic growth initiatives and R&D efforts to solidify its position at the forefront of innovation and enhance its scientific and technological leadership.
The aggregate consideration will be comprised of a combination of approximately 44 percent cash and 56 percent stock. The cash portion will be financed with a combination of $9.8 billion from existing cash balances and $8.5 billion from committed financing to be provided by J.P. Morgan. Transaction Structure
The transaction will be structured as a "reverse merger" in which Schering-Plough, renamed Merck, will continue as the surviving public corporation. The exchange ratio was calculated based on an agreed price of $26.25, with $10.50 in cash and $15.75 in Merck stock, based on a trailing thirty day volume weighted average price of $27.3109. Effective upon the merger, each Merck share will automatically become a share of the combined company. The receipt of shares by Schering-Plough shareholders and the conversion of Merck shares into combined company shares under the transaction is intended to be tax free for U.S. federal income tax purposes. Schering-Plough shareholders will be subject to tax on the cash received up to the amount of gain realized on the shares exchanged. Guidance
Merck reaffirmed its expectations for full-year 2009 revenue (as reported by Merck & Co., Inc.) to be in the range of $23.7 billion to $24.2 billion. As previously disclosed, based on current information, revenues are likely to be in the lower half of the range. The company also reiterated its expectations for 2009 non-GAAP EPS to range from $3.15 to $3.30, excluding certain items, and a 2009 GAAP EPS range of $2.95 to $3.17. The 2009 GAAP EPS guidance includes a pretax charge of approximately $400 million to $600 million associated with the company's global restructuring program. This guidance excludes any impact from this transaction, which is expected to close in the fourth quarter. Merck is targeting a high single digit non-GAAP EPS1 compound annual growth rate from 2009 (2009 base represents Merck's stand alone non-GAAP EPS guidance) to 2013. Additionally, in 2013, Merck is targeting pretax margins¹ to be nearly 40 percent and free cash flow to be approximately $15 billion. In light of the announced transaction, Merck today provided 2013 guidance that supersedes previously provided 2010 stand-alone guidance. Approvals and Time to Close
The transaction is subject to approval by Merck and Schering-Plough shareholders and the satisfaction of customary closing conditions and regulatory approvals, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as well as clearance by the European Commission under the EC Merger Regulation and certain other foreign jurisdictions. Merck and Schering-Plough expect to complete the transaction in the fourth quarter of 2009. About Merck
Merck & Co., Inc. is a global research-driven pharmaceutical company dedicated to putting patients first. Established in 1891, Merck currently discovers, develops, manufactures and markets vaccines and medicines to address unmet medical needs. The company devotes extensive efforts to increase access to medicines through far-reaching programs that not only donate Merck medicines but help deliver them to the people who need them. Merck also publishes unbiased health information as a not-for-profit service. For more information, visit www.merck.com. About Schering-Plough
Schering-Plough is an innovation-driven, science-centered global health care company. Through its own biopharmaceutical research and collaborations with partners, Schering-Plough creates therapies that help save and improve lives around the world. The company applies its research-and-development platform to human prescription, animal health and consumer health care products. Schering-Plough's vision is to "Earn Trust, Every Day" with the doctors, patients, customers and other stakeholders served by its colleagues around the world. The company is based in Kenilworth, N.J., and its Web site is www.schering-plough.com.