Schering-Plough considering Bristol-Myers Squibb buyout

Schering-Plough is seriously considering approaching Bristol-Myers Squibb about a possible merger, the New Jersey newspaper, The Star–Ledger, reported on its Web site. The article cited “three people with direct knowledge of Schering-Plough’s deliberations,” as its source. “The concept would be the management of Schering-Plough would be the management of the joint-company,” one of the people involved with the discussions said. “One of the intangibles in this is (Schering-Plough CEO, Fred Hassan) himself.” The people with knowledge of Schering-Plough’s strategy said such a merger plan has been discussed for months. However, Schering-Plough has yet to approach Bristol-Myers with a proposal. Schering-Plough’s strategy would be to orchestrate a “reverse merger,” under which Bristol-Myers would acquire the smaller company for stock, the Star-Ledger story said. “It would be a merger of equals,” one of the people involved in the discussions said. Analysts noted that a stumbling block to such a deal could be in Schering-Plough’s joint venture with Merck to manufacture and market the cholesterol drugs Vytorin and Zetia. The drugs had combined sales of $2.4 billion last year. The agreement gives Merck the right to buy out Schering-Plough’s stake if it merges with a larger drug maker. However, Schering-Plough would keep its share of the Vytorin franchise in a “merger of equals” that gives Schering-Plough’s shareholders 40% of the shares in the combined company, according to Securities and Exchange Commission filings.  Some analysts remained skeptical about the idea of a merger between the two companies. “In our assessment, Schering-Plough could be launching a trial balloon, to test the response of their shareholders to such a merger,” said Barbara Ryan, large caps pharmaceuticals analyst at Deutsche Bank Securities, in a published report. Steve Scala, an analyst at SG Cowen, said the speculation is nothing more than hot air. “I do not think that Bristol-Myers is an acquisition target right now given the uncertainty over Plavix,” he told Reuters. “We ultimately think Bristol-Myers will win the Plavix litigation but that doesn't affect the value of a deal now.”