Merck's (MRK) New Merger, Another Way To Save Money

Merck (MRK) is merging with Schering-Plough (SGP) in a deal that the companies say is worth $41.1  billion. In reality, Merck is making an acquisition. Its shares will be the currency to compete the deal and its CEO will run the new company.

No matter what they two companies have to say about “synergy”, the deal is based on saving money in a rough economy and in a world where Big Pharma companies are losing many of their profitable drugs as their patents expire.

The two firms said that the marriage would strengthen the companies by putting together they drug portfolios and R&D. That is almost certainly clear. But, buried in the announcement is the announcement that the merger will save $3.5 billion a year.

With Merck in a weakening position due to strong competition from generics and other Big Pharma companies fighting to keep their market shares, building a new company with lower costs is the key to the deal.

Douglas A. McIntrye