With Divestitures, FTC Allows Merck-Schering Deal

By Erin Coe

Law360, New York (October 30, 2009) -- Merck & Co.’s proposed $41.1 billion acquisition of Schering-Plough Corp. has gained approval from U.S. antitrust regulators on the condition that both companies shed certain assets.

The Federal Trade Commission on Thursday gave the deal the green light as long as Merck sells its stake in Merial Ltd., an animal health joint venture with Paris-based Sanofi-Aventis, and Schering-Plough divests its assets associated with nausea drugs for humans. The companies have already taken steps to make the divestitures.

"The commission analyzed the likely impact of this proposed transaction and is confident that its order will ensure continued competition in the relevant human and animal health care markets," said Richard Feinstein, director of the FTC’s Bureau of Competition.

In addition to winning approval from the FTC, Merck and Schering-Plough's proposed merger has received clearance from Canadian and Swiss antitrust authorities, the companies said.

"Clearances from the FTC, the Swiss Competition Commission and the Canadian Competition Bureau mark significant steps in the completion of our merger with Schering-Plough,” said Richard T. Clark, Merck’s president and CEO.

The companies are still waiting on approval from other regulators in China and Mexico, but expect the transaction to be completed in the fourth quarter of this year, they said.

The deal is set to form one of the world’s largest prescription drug companies, second in size only to Pfizer Inc., which took over Wyeth in a $68 billion transaction earlier in October.

When Merck announced its plans to acquire Schering-Plough in March, the FTC raised concerns that the deal would decrease competition in animal health markets where the companies directly compete.

The agency also pointed out that while Merck’s Emend was the first nausea treatment approved for human use to remedy the side effects of chemotherapy and surgery, Schering-Plough was in the process of licensing a similar treatment, rolapitant, and the agency worried that the combined firm might have less incentive to launch rolapitant.

Last month, Merck completed the sale of its half in Merial to Sanofi for $4 billion and terminated the joint venture agreement. Under the consent order, Schering-Plough must sell its assets related to rolapitant to Opko Health Inc. within 10 days of combining with Merck. Opko announced plans to acquire those assets earlier in October.

The FTC’s clearance of the deal comes on the heels of the European Commission’s approval on Oct. 23 after determining that the tie-up would not “significantly impede effective competition” in Europe.

The EC said it reviewed national pharmaceutical markets and possible overlaps of products, such as with the companies’ products for treating asthma and allergic rhinitis, but found that competition concerns were not an issue in these markets because the companies’ products were not close rivals, and enough competitors would remain in the market following the transaction.

The deal is structured as a “reverse merger” in which Schering-Plough will be the surviving public corporation but will take on the name Merck and will be led by Merck’s management team, headed by Clark.

Merck is a research-focused firm that concentrates on pharmaceuticals and vaccines, and its takeover of Schering-Plough, a science-based health care company, will expand its presence in the prescription drug, animal health and over-the-counter consumer markets.

Schering-Plough’s products include Coppertone sunscreen, the Dr. Scholl’s foot care line and the allergy treatment Claritin.

Merck’s lineup of best-selling products includes osteoporosis drug Fosamax, allergy and asthma medication Singulair and human papillomavirus vaccine Gardasil.

Merck is represented in this transaction by Peter Guryan of Fried Frank Harris Shriver & Jacobson LLP and Thomas Barnett of Covington & Burling LLP. Schering-Plough is represented by William Henry of Howrey LLP.

--Additional reporting by Hilary Russ and Jacqueline Bell