Merck Acquisition of Medco

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Merck Acquisition of Medco
Case Study
John X
Devry University – Keller Graduate School of Management

Finance 561
Professor
May 22, 2011
Table of Contents
Abstract………………………………………………………………………………………p.g. 3 Company backgrounds……………………………………………………….………………p.g. 3
Merck & Co., Inc. ………………………………………..…………………….…....p.g. 3
Medco Containment Services Inc. ............................……..…………………………p.g. 4 Reasons for Mergers…………………………………………………………………………p.g. 5 Economies of Scale…………………………………………………………………..p.g. 5

Market Share…………………………………………………………………………p.g. 6

Synergy………………………………………………………………………………p.g. 6

Eliminate competition…………………………………………….……….………....p.g. 6

Increase depth and diversity of product line………………………….…….……….p.g. 7

Keeping opportunities from competitors……………………………….……………p.g. 7 Merger Areas of Caution………………………………………………………….….………p.g. 7
Technology Integration……………………………………………………..………..p.g. 8
Culture Shock…………………………………………………………….…..………p.g. 8 Consolidated Financials………………………………………………………………..…….p.g. 9
Consolidated Combined Statement of Income……………………………………….p.g. 9
Consolidated Combined Balance Sheet and Owners Equity……………………p.g. 10, 11 Summary Discussion…………………………………………………………….…………p.g. 11
Recommendation……………………………………………………………..…….p.g. 12 References……………………………………………………………….……………..p.g. 14, 15

Abstract
Mergers are done for many reasons. Merck & Co., Inc.’s , Merck, consideration of a merger or acquisition of Medco Containment Services Inc., Medco, will need to be based on several factors and need to be in the best interest of Merck’s stockholders.

This assessment will go over the reasons mergers occur and how Medco will achieve this reason or not and if so if it is reasonable enough to offer an offer comparable to Medco’s Chief Financial Officers request of $6.6 billion dollars. Reasons to be evaluated are economies of scale, market share, synergy, elimination of competition, increasing depth and diversity of product line, and keeping opportunities from competitors.

Company Backgrounds
Let’s start by reviewing a company history of Merck and Medco to better understand corporate structure and purpose. This will aid in the following reasons for and concerns of a potential merger between Merck and Medco. Merck & Co., Inc.

Merck & Co., Inc., Merck, can be traced back to Germany when Friedrick Merck purchased an apothecary in Darmstadt in 1668 (Profile). The pharmacy was transformed in 1827 by Heinrick Merck into a drug manufactory where they initially produced morphine, codeine, and cocaine. Merck’s products where used globally by 1855 when Heinrick Merck died and the company was known as E. Merck AG. E. Merck started sales in the U.S. in 1887. In 1899 in Rahway, New Jersey a 150 acre site was purchased to start a plant for production which started in 1903. This plant housed Merck’s headquarters, research laboratories and chemical production facilities into the 1990s(Profile) .

Merck’s history of growth through mergers and research and development date back as far as 1925 where Merck went from $6 million to $13 million in four years through the merger with Philadelphia’s Powers-Weightman-Rosengarten. In 1953 Merck merged with Sharp & Dohme, Inc. similar in history and reputation, this merger provided a new distribution network and marketing facilities to secure major customers (Profile).

Through these mergers and research and development Merck has emerged one of the largest pharmaceutical companies globally and has a product line that includes a hepatitis vaccine, Timoptic for glaucoma, Ivomac an anti-parasitic, anti-malarial quinine, and B12 . Medco Containment Services Inc.

Medco Containment Services Inc., Medco, was formed in 1983 by Martin Wygod who formed Medco as a holding company for the purchase of National Pharmacies. National Pharmacies was a vitamin distributor and small mail-order prescription drug business with annual revenues...
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