Merck has entered an agreement to acquire Schering-Plough in a stock and cash transaction valued at $41.1 billion. The merger will combine the two companies under the name Merck. Schering-Plough shareholders will receive 0.5767 shares and $10.50 in cash for each share they hold. Each Merck share will automatically become a share of the combined company. Merck chairman, president and chief executive officer Richard T. Clark will lead the combined company. Upon closing, Merck shareholders are expected to own approximately 68% of the combined company and Schering-Plough will own approximately 32%.

“We are creating a strong, global healthcare leader built for sustainable growth and success,” said Mr. Clark. “The combined company will benefit from a formidable research and development pipeline, a significantly broader portfolio of medicines and an expanded presence in key international markets, particularly in high-growth emerging markets. The efficiencies we gain will allow us to invest in strategic opportunities, while creating meaningful value for shareholders.

Fred Hassan, chairman and chief executive officer of Schering-Plough, remarked, “Over the last six years, Schering-Plough colleagues have transformed our company into a strong competitor in the global pharmaceutical industry. We have built a strong, diverse business and a robust pipeline that offers hope to patients who are waiting for new medicines. I am proud of what we have accomplished. Our success is a testament to the hard work and dedication of our colleagues in every country. We are joining forces with Merck, our long-term partner in our cholesterol joint venture, to create a dynamic new leader in the pharmaceutical industry. By harnessing the strengths of both companies, the combined entity will be well-positioned to further deliver on our shared goal of discovering new therapies for patients to help them live healthier, happier lives.”

The transaction doubles the number of potential drugs Merck has in Phase III to 18. Other strategic benefits the combined company hopes to gain include: the combination of complementary product portfolios and pipelines focused on key therapeutic areas; expanded opportunities for life-cycle management with potential new combinations and formulations of existing products; and a more diverse portfolio across therapeutic areas, including cardiovascular, respiratory, oncology, neuroscience, infectious disease, immunology, and women’s health.
 
The transaction expands Merck’s global presence with a geographically diverse revenue base. Schering-Plough generates about 70% of its revenue outside of the U.S., including more than $2 billion from emerging markets. The combined company is expected to generate more than 50% of its revenue outside the U.S.
   
Merck expects to achieve cost savings of approximately $3.5 billion annually beyond 2011. These savings are expected to come from all areas across the combined company and from the full integration of the Merck/Schering-Plough cholesterol joint venture. These cost savings are in addition to previously announced cost reduction initiatives at both companies.
    
Merck anticipates that a majority of Schering-Plough employees will remain with the combined company. Both Merck and Schering-Plough will institute hiring freezes immediately. The combined company will have its corporate headquarters in Whitehouse Station, NJ.